POV: Quarterly Earnings Q2 2016

The Q2 quarterly earnings reports are in. So who’s up, who’s down, and who’s on the acquisition block? Here’s a quick overview of the usual suspects. 

Apple: hardware business, services, iTunes, cash

Apple reported $42.4b in revenue, $7.8b in profit, 40.4m iPhones sold, 9.9m iPads sold, and 4.2m Macs sold. iPhone, iPad, and Mac sales were all down and revenues continue to decline year on year, yet the results boosted Apple’s stock price as the decline was less than expected. Looking ahead, a number of investors are quite bullish still on Apple. Though there is still concern about Apple losing its innovative touch, there are a few bright spots in its pipeline. A lot of that growth will come from the services sector, think iTunes, and less from the hardware business. Tim Cook even forecasted, “the company projects that its services sector will earn as much money as a Fortune 100 company by the end of 2017 (Washington Post, August 1, 2016).” That’s quite an achievement if it gets there next year. And don’t forget, Apple is still sitting on huge pile of cash – $231.5b to be exact.

Alphabet (Google): ad revenues, mobile, AI, “the cloud”

Topping expectations again, Alphabet reported $21.5b in revenue (+19% Y/Y), 89% of which comes from Google advertising revenues. Quite a staggering figure if you consider the number of businesses now incorporated under the Alphabet umbrella. As always, the key metric for investors when reviewing Google’s business is to look at paid clicks and CPC. Paid clicks were up by 23% and CPCs declined by 11%. A lot of that credit goes to mobile. That’s good news for advertisers, especially during the first full quarter where Google removed ads from the right-hand side of the search engine results page. Beyond the advertising revenue though, Google has been busy this quarter with a push forward in AI and already reducing energy consumption from servers by 40%, and it expects that cloud-based services will be the next big boost for the bottom-line.

Facebook: mobile, video, VR

Breaking its own record and reporting the highest-ever quarterly revenue and profit. Facebook reported $6.4b in revenue, $2.1b in profit, and $0.71 earnings per share (+184% over last year). But those figures only begin to tell the story, as the real story comes from the growth in mobile and Facebook’s ability to completely dominate in this space. It reported 84% of revenue coming from mobile, and a growth rate of 22% year on year for mobile MAUs (monthly active users). Facebook’s revenue stream is much like that of Alphabet’s – heavily weighted towards advertising at 97% of total. Yet they expect that VR will begin to make a big uptick in the business and help diversify its revenue a bit. Zuckerberg also pushed hard on a ‘video first’ approach. And in case you missed it this week, Instagram made a huge step forward in that way – launching stories, a quick steal from Snapchat.

Yahoo: Verizon, AOL, original content

Yahoo had another weak quarter, but no one really cared. Just days after reporting results, it was announced that Yahoo had been acquired by Verizon for $4.83b (expected to close in Q1 2017); a steal considering Yahoo was once valued at over $125b. This is big news for Verizon who snapped up AOL last year for a very similar price. Verizon is looking at ways of creating original video content – watch out Netflix and Amazon – and then focus on partnerships through go90.

Twitter: video, viewability, Twixit

“We’re seeing a continuation of the trends discussed last quarter with less overall advertiser demand than expected,” Twitter reported during their earnings call. They are also seeing a continuation of executive departures, now known as ‘Twixit’. Adding to its woes, Twitter continues to struggle with its ad business as pressure on its video pricing accelerates. Twitter recently changed the default setting to 50% in-view for 2-seconds for video ads on the platform, down from 100% for 3-seconds. Yet the biggest piece of bad news for Twitter exists in its slowing user growth – topping out at 3%. While that’s still a sizable audience, increasing pressure from platforms, such as Snapchat and Instagram will prove increasingly challenging to Twitter’s growth and more importantly, its attractiveness to Generation Z. Recently deemed the “Yahoo of social media” by some analysts, Jack Dorsey should expect a phone call from Lowell McAdam’s very soon.