News

POV: Q3 2018 Earnings Roundup

Background:

Alphabet, Amazon, Snap Inc and Twitter all announced Q3 earnings this week. Here are the headlines.

Details and Implications:

Alphabet: Shares of Google-parent company Alphabet were down roughly 5% at close of trading as it missed analysts’ quarterly revenue estimates for the first time in the last two years and reported erosion of its operating margin at 25% down from 28% a year ago. Alphabet revenue was up 21% year-on-year to $33.7bn but short of the $34.04bn expected. Google's advertising business accounted for most of its revenue (86%) reaching $28.95bn in Q3, a 20% increase year-on-year but

the results were slightly below expectations, having slowed from a 24% increase in Q2. Google CFO Ruth Porat said the company’s ad revenue growth in Q3 was: “led by mobile search with a strong contribution from YouTube, followed by desktop search." Non-advertising revenue also came in slightly below expectations.

Amazon: Amazon beat third-quarter earnings estimates, but its revenue and fourth-quarter outlook fell short of expectations. Overall revenue was $56.6bn, down on the $57.10bn estimated, however it was a 29 % increase on last year. AWS continued to show strong growth, jumping 46% in sales from last year to $6.7bn and Amazon's "other" revenues, mostly from its growing advertising business, jumped 122% to $2.5bn and is on course to hit $10bn in ad sales for the year. The company gave fourth-quarter revenue guidance in the range of $66.5bn to $72.5bn well-below consensus of $73.79, so it could have a disappointing holiday season in the fourth quarter of 2018.

Snap Inc.: Snapchat users are declining so Snap’s stock is crashing. Snapchat’s parent company reported that revenues and losses were less than expected but it confirmed Snapchat's user base is continuing to shrink. The company reported revenues of $297.7m (vs $283.36m expected) and that it lost two million daily active users (DAUs) over the last quarter, a 1% drop from 188 million in the previous quarter and down from its Q1 high of 191 million. Looking forward, Snap says it expects its DAUs to decline further in Q4. But the company said that it is able to monetise its existing users to a greater extent (as its revenues despite the shrinking DAUs suggest), even as it struggles to attract new ones.

Twitter: After reporting higher than expected earnings and revenue for Q3, Twitter shares soared more than 17%. Its revenue gains came mainly from selling more ads, but its total users declined after its purge on bots and fake accounts. Overall revenue was $758m vs $702.6m expected, a 29% increase year-on-year (vs $590m in Q3 2017). Ad revenue reached $650m also a 29% yearly increase. But there were steep declines in monthly active users (MAUs) which fell by 4 million year-on-year to 326 million vs.330.1 million projected and it forecast further falls as it continues to clean up its service. However, daily active users (DAUs) grew 9% over the quarter, which the company said was more important as it has been able to generate more revenue from its existing base because people who use the site every day are more engaged.

Summary:

Both Snapchat and Twitter are making more revenue from a declining user base, but they still need to bolster user growth to better compete for ad spending with their rivals. Industry leaders Amazon and Alphabet beat on earnings, but fell short of revenue estimates, sending their shares tumbling in after-hours trading. With increasing operation costs for Alphabet and Amazon’s rivals such as Walmart growing marketing share, all eyes will be on the next set of quarterly results.

Further Reading:

Alphabet | Amazon | Snap Inc. | Twitter