POV: Facebook and Apple Results
Details and Background
Last week three digital giants gave good financial news. Twitter showed some signs of finally turning a profit and a 14% annual increase in daily average users; Google’s stock soared past $1,000 a share on a flurry of good news, particularly rising search volumes, and Amazon continued to gain momentum across its business, including advertising, where some increasingly view it as a viable disruptor of the industry’s current Google and Facebook duopoly, who by some estimates control 76% of online advertising if you exclude China. This week both Facebook and Apple released their quarterly results.
Facebook Q3 Results
Facebook’s earnings call was overshadowed by the continuing scandal over potential Russian manipulation of the 2016 US election. In fact, Facebook and other big platforms have been under increasing scrutiny by the press, public and politicians over the past months and the US Congress has been holding committee hearings in parallel to this week’s results release. Mark Zuckerberg wasted no time in tackling the issue head on, introducing a new wave of measures to curb similar future activity and even promising to sacrifice future profits to protect the Facebook community. He can afford to take a hit on those profits, as they were massive once again. Facebook saw significant revenue growth ($10.3bn, +47%) and continued user growth (2.07bn). Both the average cost (+35%) and volume in ad impressions also increased (+10%).
Apple Q4 Results
Apple’s market capitalization is floating around $900bn, making Apple close to becoming the world’s first $1 trillion company. As always the industry has been focused on one thing: iPhone sales and Apple’s Q4 results didn’t disappoint. Apple sold 46.7m iPhones in the quarter, up 3% on last year and ahead of Wall Street expectations. Revenues, including the launch of the iPhone 8, were up 12% compared to last year at $52.6bn and sales in China were particularly strong, up 12%. These results have given Apple confidence that future sales will be even higher, predicting revenues between $84bn and $87bn, a growth rate of as much as 11%. Within the results it was interesting to note that Apple services revenue hit an all time high of $8.5bn, up 34%, powered by an overhaul of its App Store and demand for Apple Music subscriptions. Apple also continues to dabble with content, with some estimating it will invest $1bn in 2018 on original programming. It’s a curiously small number for a company with $250bn in cash in the bank whose rivals Netflix and Amazon are spending over $5bn. Perhaps Apple’s usual secretive testing approach simply doesn’t work with content, which requires a much more explicit test and learn model.
For Facebook Q3 success is slightly diminished by its continued identity crisis: is it a publisher or platform or something in between? Without a clear answer everyone from government regulators to Facebook itself struggle to determine the rules, which need to be constantly adapted based on new unforeseen scenarios of how people and companies and possibly countries are using the platform. Eventually a solution will emerge. In the meantime, the Russian scandal may have unwittingly given advertisers even more confidence that Facebook is a great place to influence millions of people.
In a recent LinkedIn Post I speculated that the iPhoneX may mark the beginning of the end of the smartphone era. All the major players are looking at ways to extend their ecosystems. Increasingly interaction within this ecosystem will be by voice on alternative devices (connected cars, homes, speakers, coffee machines) and managed by an AI of your choice (Siri, Alexa). That AI will also increasingly do things for you without any interaction at all, e.g. automatically re-order your coffee capsules. Hence Apple investments and explorations in cars, HomeKit, ARKit, Apple Watches, Apple Glasses and so on. The challenge for Apple is to keep monetizing the iPhone cash cow while building a broader sustainable business that’s not dependent on it.