POV: Q4 2019 Earnings

Background:

Facebook, Alphabet, Snap, Amazon and Twitter released their Q4 earnings this week. Alphabet and Amazon dramatically outperformed expectations, whilst Facebook, Snap and Twitter results were less well received.

Details and Implications:

Facebook: Facebook had a solid Q4, beating analyst’s revenue expectations ($21bn), Daily Active Users 1.66 billion (+9% YoY), and earnings ($2.56/share). However, the market reacted quite negatively to a +51% increase in expenses, which was as a result of salaries and headcount (a large portion of which was devoted to solving Facebook’s privacy issues) and the associated drop in margin. On the plus side, despite several public announcements about increasing users’ control over privacy (and hence, limiting of their data), the targeting capabilities on the platform remain popular among advertisers. Whilst not officially reported by Facebook, this week a report from Bloomberg suggested that Instagram generated around $20bn in advertising revenue in 2019, showing the growing importance of the platform.

Alphabet: Despite a miss on revenue ($46bn vs. $47bn), Alphabet still had a successful Q4, exceeding earnings expectations by almost $3 a share ($15.35/share vs. $12.50/share). While advertising is the undisputed driver of Alphabet revenue, it showed once again the importance of a diversified business model. Google Cloud alone pulled in $10bn of revenue in 2019, roughly two thirds that of YouTube ($15bn/year). This is the first time Alphabet has singled out YouTube revenue which may put pressure on rivals (e.g. Facebook) to do the same. Moving forward, it’ll be interesting to see how Google navigates a world with fewer screens (as things like voice become more popular), but at the moment the company is still riding high.

Twitter: Twitter didn’t have a bad quarter but not an amazing one either. Although it missed expectations on earnings per share, it beat revenue and user growth expectations. It seems Twitter’s ad targeting problems, relatively tepid product innovation and increased competition for performance marketing dollars (a historic strength for the platform) didn’t hold advertisers back.

Amazon: Amazon also hit it out of the park this quarter: net sales rose 21% and earnings per share beat expectations by over $2/share ($6.47 vs. $4.03). Whilst advertising is still a relatively small portion of the company’s revenue, it is becoming increasingly important as it helps to subsidise things like free shipping. As such, Amazon has started putting much more emphasis on its offering. Last year’s acquisition of Sizmek suggests the company has big plans for its tech stack whilst new ad-supported video options are also being created.

Snap Inc.: Unlike its rivals, financial markets pummeled Snap for its stumbles this past quarter which followed several quarters of positive results for the platform. Despite additional users (+17%), increased revenue (+44% vs YAGO), and greater profitability ($0.03/share versus $0.01), the company failed to meet financial markets’ expectations. The company remains under some pressure as rivals like Instagram and TikTok innovate and try to eat into Snap’s core user base of young consumers.

Summary:

No disasters in the earnings reports, but some more notably successful than others. Google continued its dominance in advertising but Amazon seems poised to come on strong. Facebook had a solid quarter but got penalised for increased expenses from salary and headcount. Meanwhile, Twitter and Snap keep slugging it out for advertiser investment, refusing to concede anything.

Further Reading:

Business Insider | Fool | Reuters | Facebook | Alphabet | Twitter | Amazon | Snap Inc.|