POV: Quarterly Earnings Round Up
It’s the first quarterly earnings announcements of 2018 for FAAMG; here are the headlines.
Details and Implications
Facebook: Reported adjusted Q4 earnings that crushed expectations, with increased revenue per user ($6.18 actual vs. $5.90 expected) and overall revenue ($12.97bn vs. $12.55bn expected). Daily user numbers declined in the United States and Canada, its most lucrative market (185 million to 184 million). It also highlighted a crackdown on viral videos as a reason for a reducing amount of time that users spent on Facebook - a total of 50 million hours a day in the quarter (5% down). Great results, but with changes to improve user experience and continuing noise about the company’s role in society, there could be stormier times ahead for Facebook. Will it look to acquire to inject more life into its growth strategy?
Microsoft: Beat expectations on earnings and revenue for Q2 of its fiscal year. Revenue was up 12% YoY with its Windows, devices, gaming and search advertising business growing 2%, with $12.17bn in revenue. The Productivity and Business Processes segment, including Office, Dynamics and LinkedIn, increased by 25%, with revenue of $8.95bn v $8.86bn expected. Two of Microsoft’s key growth areas were in its leading numbers – entertainment content and Business Services, which of course includes LinkedIn (acquired for $26bn in 2016). That deal for LinkedIn now looks more prescient as the platform continues to show robust growth and generates well over $1bn in quarterly revenue. Even so, stock fell 2% on the announcement – so Wall St clearly isn’t completely sold when compared to its rivals’ growth strategies.
Apple: Q1 revenue of $88.3bn, up 13% YoY and a new record. International sales accounted for 65% of the quarter’s revenue. Driven by sales of the new ‘X’ (Apple’s top-selling iPhone every week since November), Apple now boasts an active installed base of 1.3bn devices, up 30% in the last two years. Will Apple become the first $1trn dollar company (market cap is $861bn and rising)? It continues to successfully walk a fine line between demonstrating strong growth in iPhone sales while at the same time diversifying and future-proofing its business into areas like cloud services, content subscriptions and new devices like the Apple Watch and Home Pod.
Alphabet: Stock tanked after disappointing Q4 earnings, missing Wall Street expectations on earnings but beating revenue estimates. Earnings per share: $9.70 vs $9.98 expected. Revenue was $32.32bn vs $31.86bn expected. Overall revenues increased 24% YoY, driven by Google’s ads business, which posted $27.27bn in revenue in Q4. Alphabet remains a close second to Apple in market cap ($816bn), but it is still hugely reliant on its ad business. Brand safety worries with YouTube have not dented its revenue generation, but despite much noise around its new Pixel phone and Google Home smart speaker, ‘other bets’ remain a side show, albeit it a sexy one, to the revenue mothership of Search and YouTube advertising revenue.
Amazon: Shares up 4% after strong earnings. Revenue at $60.5bn vs. $59.83bn expected (and up from $43.74bn when quarterly YoY). It looks like Amazon has won the holiday shopping war. Bezos is now worth $119bn thanks to his 16% ownership of the company. There was a warning that if Amazon heats up a streaming war with Netflix et al then that could hold share value down – but Bezos has made his fortune by convincing investors that it is better to reinvest than stockpile cash (or return it to those investors). With a market cap of $669bn it has some way to go to beat the rest to the $1trn brand title, but don’t bet against it.
Who will be the world’s first $1trn dollar brand? Facebook (market cap $561bn) could do it - it became a mobile-centric business in almost the space of one year, so has form for quick innovation that drives growth. Amazon dominates e-commerce and its willingness to invest to grow could see it achieve similar status in other areas. Alphabet needs its ‘other bets’ to have a similar success that it has seen in its ads business to continue its trajectory towards $1trn and Apple just needs to continue doing what it does – making the world’s most desirable hardware.