POV: Q1 Earnings

Background:

Snap Inc., Alphabet, Facebook, Twitter and Amazon have all released their Q1 2020 results. Here are the headlines.

Details and Implications:

Snap Inc. - Last week Snap announced strong results for the first quarter, immediately sending its share price up as much as 20% in after-hours trading. The company's revenue came in at $462 million, up more than 44% from the $320 million the company reported in the first quarter of 2019. Daily Active Users grew 20% year-over-year to 229 million. The company attributes its revenue growth to the growth of its popular Stories feature and its user growth to its ability to privately connect consumers.

Alphabet - The Google parent also posted solid growth, with $41.2 billion in revenue in Q1 2020. Revenue was up 13% from $36.34 billion versus the same quarter a year ago, with operating income up 3% year on year at $7.98 billion. YouTube was a significant driver of revenue growth, up 33% over prior year. However, given Google’s dependence on smaller and medium sized businesses, the company is forecasting a tough Q2 ahead.

Facebook - In the first three months of the year, Facebook have revenues of $17.74 billion, up 18% year-over-year. User growth also improved significantly, its daily and monthly active user numbers for the core Facebook app grew by double-digits year-over-year, to 1.73 billion and 2.6 billion respectively. The stock jumped 6% on news of the results. The company saw a big decrease in pricing in the last few weeks of the quarter but has since reported a stabilisation. Facebook’s results were supported by investment from gaming and app download companies, with its larger advertisers also contributing to the solid results.

Twitter - Twitter pulled its guidance in early March, so analysts were bracing themselves for the worst but Twitter exceeded expectations reporting earnings of $0.11 per share on $808 million revenue, compared to $0.10 per share on $776 million expected by the market. User growth also exceed expectations with 166M ‘monetizable daily active users’ versus an expected 164m. However, Twitter stock fell as traders sensed a difficult path forward. Whilst competitors have been churning out new ad product solutions, Twitter has laid low. Twitter said Thursday that improving its ad products is now the company’s “top priority” and that direct response ads are at the top of the list.

Amazon - Amazon is well positioned to weather and thrive during the pandemic. Revenue was up +26% to $75.5 billion, mainly on the strength of its North American operation, online stores, offline stores and third-party sellers. Amazon does not break out advertising but its “Other” category which includes advertising was up +44%. Not all was rosy, however, as COVID-19 related costs (PPE for employees, training, etc) were up substantially. In fact, Amazon has warned that the entirety of its expected Q2 profit of $4 billion will be used to cover COVID-19 expenses.

Summary:

Despite the negative effects of COVID-19 toward the end of the quarter, most of these companies met or exceeded expectations in Q1. However, the bigger test will come in Q2.

Further Reading:
Snap Inc. | Alphabet |Facebook | Twitter | Amazon | WSJ | Business Standard