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POV: Quarterly Earnings Roundup

Mindshare Point of View

Background
Once again it’s that time of the year when the usual suspects report their quarterly earnings and face the judgement of Wall Street on whether they are keeping up with shareholder expectations. Let’s take a quick look at the results.

Alphabet: Otherwise known as Google, the new parent company turned in positive results (+13% year-on-year revenue) surpassing analyst expectations with a healthy growth in revenue ($18.7bn). Mobile monetization remains a key variable for the business. The price for mobile ads is less than desktop, and until the volume in mobile searches significantly surpasses desktop, Google faces a challenge in making the numbers work. Despite a continued a drop in the average search ad bid price (-11%), there are signs that the long-awaited “tipping point” in mobile monetization is on the horizon. Beyond mobile there are continued concerns over how the newly formed Alphabet will function, whether its disparate and heavily-subsidized business units will have more transparency and accountability, and the long-standing concerns over possible government regulation/action, particularly from the European Union. In the meantime, beating analyst expectations and a $5.1bn share buyback was enough to send shares soaring.

Apple: Analysts had some major concerns regarding Apple’s ability to sustain such phenomenal growth, particularly given signs that iPhone demand was weakening (a major supplier reported disappointing results) and questions about whether the Apple Watch would catch on. As usual Apple has put any doubts to rest with yet another stellar quarter. iPhone sales were over 48 million, up from 39.3 million a year ago, accounting for nearly 2/3 of the company’s revenue. Apple also saw strong growth in Mac sales as well as “other categories”, which includes the Apple Watch. The only product that continues to suffer is the iPad, but with a record $11.1bn in profit that hardly matters. Next quarter will surely bring another round of dire warnings on Apple’s imminent demise, and it’s hard to imagine the company can sustain such numbers forever. However, with strong numbers in Greater China (revenue nearly doubled there) and new products in the pipeline – a revamped Apple TV and even a rumored Apple Car – it’s just possible we haven’t seen anything yet.

Facebook: Does anyone remember the post-IPO days when Facebook’s stock plummeted to roughly $17 a share and reporters around the world rounded on the social network? How times have changed. Since bottoming out, Facebook has rebounded by building and acquiring arguably the world’s strongest mobile app footprint coupled with a robust mobile-centric advertising network. For the first time ever Facebook stock has traded at $100, and most analysts think there is room to go higher; not an unreasonable forecast given the continued user growth on Facebook, Instagram, Messenger, and WhatsApp. The official earnings will be announced on November 4th, and expectations are high.

Yahoo: Marissa Mayer continues to have her work cut out for her. Yahoo has made some solid acquisitions to build out its mobile and video product (Brightroll, Flurry), and there are some signs of life as both display (+14%) and search revenue (+13%) were up year-on-year. However, taking into account declines in other revenues, Yahoo managed only 6% revenue growth overall, below analyst expectations. Yahoo’s stock price has declined by over 16% in the past year, and there remain significant concerns over the company’s Alibaba spin-off and potential tax implications. After three years at the helm, CEO Mayer surely must be feeling the heat.

Twitter: All eyes are on Jack Dorsey and the newly revamped Twitter user experience. Twitter’s main challenge, unlike rival Facebook, has been to grow it user base. According to today’s results there are about 307 million monthly active users, an increase of only 3 million from last quarter. Twitter has performed better when it comes to advertising revenue ($518m, +60% year-on-year). Twitter’s recent enhancements and acquisitions have only just formally launched, and the company will surely be hoping the new features (e.g., “Moments”) will attract more regular users. However, Twitter’s lower than expected revenue forecast for its fourth-quarter guidance indicates that the company is trying to manage expectations, even if it means a short-term drop in share price.