POV: Q2 2020 Earnings

Background:

Facebook, Alphabet, Amazon, Snap Inc. and Twitter have all now released their Q2 earnings. Here are the headlines.

Details and Implications:

Amazon: Amazon’s results blew away analyst expectations with Q2 revenues of $88.9bn, up 40% year on year. North American sales were up 43% to $55.4bn and international sales reached $22.7bn. Growth was largely due to COVID-19 related demands with Amazon stating online grocery sales tripled YoY in the second quarter. The company spent over $4bn on COVID-19 related costs to keep employees safe. Amazon’s ‘other’ category, which mostly covers the company’s advertising, was up 41% YoY to $4.22bn in revenue and subscription services were up 29% to $6.02bn. AWS (Amazon Web Services) accounted for 12.1% of Amazon’s total revenue for Q2, breaking the $10bn milestone of quarterly revenue for the second quarter running and up 29% from last year’s Q2.

Facebook: Facebook also did better than expected with revenue of $18.69bn, up 11% YoY vs. the market’s $17.4bn estimate – although the weakest quarter of growth since IPO. Daily Active Users (DAUs) stood at 1.79 billion, up 12% YoY also exceeding expectations of 1.74 billion. MAUs (monthly active users) stood at 2.7 billion also a 12% increase YoY. Facebook said that its user growth reflects an increase in user engagement as consumers have been spending more time at home during the pandemic. Additionally, the company now has more than 9 million active advertisers across its services. The results show Facebook has engaged users in abundance, which is good news for when advertisers return to the platform with their ad dollars.

Alphabet: Alphabet reported its first ever revenue decline, down 2% at $38.3bn from $38.94bn in Q2 2019. Google’s core search and ad revenue was down 9.8% YoY but YouTube’s ad revenue was slightly up. On the other hand, Google Cloud showed a 43.19% YoY increased in revenue at $3.01bn – quite possibly driven by increased home working, rapid development of online shops by small business struggling to cope and also from home schoolers. Google’s ‘other’ revenues which include Google Play were up 25.6% YoY at $5.12bn.

Snap Inc.: Snap reported revenues of $454.2mn vs. $441.6mn expected, a 17% YoY increase. Snap's daily active users (DAUs) almost matched expectations, with 17% growth to 238 million. The company also saw increased engagement, stating that ‘on average, Snapchatters opened Snapchat over 30 times every day in Q2 2020’. However net loss increased by 28% from this time last year to $326mn due to its long-term investments “to build on the momentum we have established with our community and our advertising partners”.

Twitter: Twitter reported better than expected user growth, but revenues were down. Q2 revenues were down 19% YoY to $683mn vs. $707mn expected. Monetisable daily active users (mDAUs) grew to 186 million a 34% YoY increase, the highest rate since it began reporting the metric. This growth was driven in part by the lockdowns around the world and increased discussions about the pandemic and other major events. In terms of its ad business, Twitter said it saw “moderate recovery” compared with March, but its $562mn ad revenue was still down 23% YoY. 

Summary:

Facebook, Alphabet, Amazon, Apple and Microsoft now account for about 20% of the total value of the S&P500 index. Amazon’s results were incredible – its Q2 revenues alone would make it the 65^th biggest country in the world by nominal GDP. ‘Services’, everything that isn’t a product and including AWS, saw a 40% YoY increase. Whilst other platforms were looking to see how advertising held up in their ecosystems during national lockdowns, Amazon has massively increased its lead in commerce and closed the gap on Microsoft in the Cloud battle, with Google in a distant third after Q2 cloud revenues that were three times smaller than AWS reported.

Further Reading:

Facebook | Amazon | Alphabet | TechCrunch | Snap | Business Insider | Twitter | CNBC