I dropped the Netflix update last week and over the last 4 days we’ve had three of the other big tech firms weigh in with their quarterly results. here we go!
Headlines – Revenue up 26% YoY, 98.5% driven by advertising, Costs up 51% YoY, Op Margin down 9%, Cash up 90% to $19bn and ARPU up 30%
Comments – As one of the more influential companies in the world Facebook attracts a large amount of interest, these numbers do look healthy but its worth identifying the number they barely mentioned and that is the drop in income of 16%, even as Capital expenditure increased by less than this. It’s not a cause for concern yet but users are beginning to slow and the US/Canada is where the majority of income is driven with ARPU some 400% large than the nearest region Europe
Hankins Hot Take – Reading into the leadership statements its hard not to feel a bit underwhelmed by such a large and economically viable company. There is talk about privacy but couched against a “plea” for great regulation for the industry which seems entirely disingenuous. There is evidently a major play afoot for small businesses (the long tale) and an attempt to become THE platform for small businesses which dovetails with the platitudes around payments and the development of Whatsapp payments and the noise and subsequent silence around Libra (Facebook Crypto). With 98% of revenue coming from advertising and huge ARPU headrooms vs the US it does feel as though FB are happy to coast along until they are forced to do something different. Commercialising WhatsApp is an interesting avenue due to the huge levels of global penetration with over 500m daily active users and this is likely to be the biggest opportunity to drive revenue growth going forward as products like Oculus are minimal in the extreme. This seems to be a problem affecting some of these platforms now, where to engineer step changes going forward. That said a 26% YoY growth in revenue isn’t to be sniffed at, advertising pays!
Headlines – Q4 YoY sales rose 21%, FCF was up circa 25% however when we look annually revenue is up 20% YoY and income up 17%. 61% of revenue driven via the US. AWS (Amazon Web Services) provides just 12% of income but a whopping 60% of income
Comments – Amazon continues to use its US and AWS operations to allow its International operation to run at a loss. 2018 looks like an anomaly when it comes to fulfilment growth (35% YoY) vs 2019 (17%) which suggests the current programme of large upgrades has been effected. This is likely to have been linked to Amazon Prime Now the rapid response delivery service.
Hankins Hot Take – There is a reason for the clamouring to break up Amazon due to the remarkable performance of the AWS cloud computing network. It essentially allows the retail businesses to go under the radar with “international” still losing cash. Globally there are 150m Prime users which is a huge amount of repeatable income supporting the cash generation at the levels we are seeing (c$38bn) this is likely to further support investment in programming as part of a virtuous circle to protect it against the streaming wars, Amazon are one of the potential final destinations of the Netflix business after all (although I see Apple to be the more likely to bolster its Apple TV platform). Advertising is another glossed over area, both as an investment by Amazon and as a revenue generator. As an investment Marketing makes up £18bn worth of cost with an estimated £11bn globally being spent, making it the biggest advertiser on the planet essentially supporting its loss making with top down revenue support. AS regards the commercial opportunity we are only at the beginning with circa £12bn annually apportioned (but not reported) to this growing channel that was £10bn in 2018 with many territories under-tapped. The fuss around Amazon is not misplaced. If they get any sort of real traction with their ad product then they’ll begin to streak ahead.
Headlines – $161bn revenues and $38bn Net income figures are good standalone figures (18% and 24% YoY growth respectively) with advertising making up 84% of revenues (YouTube delivering £15bn annually now). Google cloud jumps 52% although only contributes c5% of total revenues
Comments – Scouring the news sites, its clear that the new leadership broom has led to a bit more transparency on the financial workings of Googles parent. There are some interesting comments contained within which suggest a tightening of operations and a throttling back on the moon shots. Advertising still makes up the majority of the business but it’s the YouTube growth that really jumps out
Hankins Hot Take – Despite the negative view of the “city” with the share price dropping nearly 10% today what’s interesting about this update and the context of these results is how well Alphabet are doing. On the balance sheet is a sizable £100bn of Cash and Securities. The rate of growth for the Cloud product is rapid and the accelerating YouTube numbers point to a healthy growing revenue stream especially when you consider that “direct response” on this platform is limited currently (and is Googles specialism). The challenge is always going to be “where next” and whilst not as exposed to Advertising as Facebook there is little evidence that Google are anything other than an advertising business. However maybe we are seeing signs of what Alphabet are really with the tightening of controls and share buybacks, essentially a VC incubator, working with external partners to develop operations and then floating them/selling them from out of the stable. Therefore could we see a Waymo IPO or a NEST sale to maintain influxes of liquidity to fund the rest of what they do, time will only tell.