POV: Quarterly Earnings Roundup
Mindshare Point of View
This week saw the heavy hitters in the digital technology and media space, including Apple, Yahoo, Google, Facebook and Microsoft reporting their earnings. Here’s what you need to know.
Apple: Splendid iSolation: Without a doubt the brightest star of the week. Absolutely crushed market expectations in Q4 2014 with new iPhones flying off the shelves (74.5m), particularly in China (a 70% year-on-year increase) where any direct threat from homegrown Apple look-a-like Xiaomi now seems like a stretch. To put things in perspective, a company once again written off in the press as being past its prime has now achieved the highest quarterly net margin in history ($18bn) and has enough cash ($142bn) stocked up that it could outright buy any of the 480 businesses that make up the Fortune 500…and the Apple Watch hasn’t even launched and Apple Pay is only getting started. Two things to ponder: what are they going to do with $142bn in cash (the Beats acquisition only cost $3bn), and will iPad sales (-22% year-on-year) continue to diminish due to cheaper competition and/or people now using larger smartphones and, gulp, laptops. Yes, laptops are back. But Apple sells those as well.
Yahoo: A Tale of Two Companies: Yahoo has been riding on the success of its twin investments in Chinese e-commerce giant Alibaba and Yahoo Japan. In fact, as reported by Forbes last year, Yahoo’s stake in those two entities was estimated to be worth $45bn, more than its total $39bn market value at the time. In other words, Yahoo on its own was worth less than zero, a reflection of a sustained and steady decline in its advertising revenue (-4% year-on-year), which has moved to rivals like Facebook and Google. With a declining stock price, CEO Marissa Mayer has been under pressure to show investors some return, and she has used this quarter’s earnings report to do just that. Yahoo will spin-off its remaining equity stake (15%) in Alibaba into a separately listed investment company called SpinCo (yes, really), with Yahoo shareholders benefiting from the continued success of Alibaba without the perceived dead weight of Yahoo’s historical business. In theory, this will enable Mayer to focus on the Yahoo turnaround, which is actually showing some signs of light, particularly with Tumblr, the fastest-growing social network with scale (+400m users) and BrightRoll, a premium video network, providing needed inventory to advertisers seeking to move TV spend online.
SUMMARY: Google, Facebook and Microsoft also announced their quarterly earnings this week. Google was slightly behind growth expectations due to declining ad prices and foreign exchange issues, cited by almost everyone (+15% in year-on-year growth). Google continues to struggle to monetize mobile, which has resulted in fewer advertising units in smaller screens not to mention cheaper inventory (-3% on CPC rates). Faced with increased regulatory scrutiny, particularly in the European Union, Google faces some serious challenges to keep its core business on track, which is an increasing necessity to fund all its ‘moonshots’. In contrast, Facebook continues to be the industry leader when it comes to mobile (nearly 70% of its advertising revenue), which resulted in a staggering 49% year-on-year growth rate. What is notable about the figures was the growth in mobile video viewing (3bn videos a day on Facebook), which bodes well for the company’s investment in online video advertising. As for Microsoft, it met expectations, which essentially were for a fall in quarterly profits. Sluggish comes to mind. New CEO Satya Nadella has a lot of work to do.