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Tech News: Key Takeaways from US Tech Companies Q3 Earnings Season

Professor of Financial Economics and Part-time Value Investor, Transfin.
Oct 29, 2018 7:38 AM 3 min read
Editorial

Its earnings season in the US with most of Big Tech having reported in last 2 weeks, namely Alphabet, Amazon, Microsoft, Netflix, Twitter, and Snap.

 

With Facebook due to release its numbers tomorrow, we summarize key takeaways to-date in from perhaps the most glamourous, significant, and well-tracked sectors of the US Economy.

 

Alphabet: $33.7bn of revenues (consensus miss); $9.2bn profits (vs. $6.7bn last yr); traffic acquisition costs eating through margins; skeletons in the closet; Google+ shutdown; EU's $5bn fine.

Google's "Traffic Acquisition Costs" (or TAC) is becoming a significant concern - hitting 23% of ad revenue (unchanged from last quarter). TAC is what Google pays to other manufacturers (e.g. phone makers like Apple) to use its services (e.g. Search, when Google's ads are shown on Safari etc.) and it is exerting margin pressure.

 

Also, this quarter's results got overshadowed by news around how the company paid $90m severance to Andy Rubin, the creator of Android, hushing up a 'credible' sexual misconduct while easing him out. 

 

Amazon: $56.6bn of revenues (consensus miss); $2.9bn profits (vs. $256m last yr); AWS is the bomb. 

Amazon blamed lower than expected holiday sales with a special mention of India where a late Diwali, as per management, has pushed down revenues for this quarter.

 

AWS revenues spiked by 46% in Q3, offsetting costs of global expansion and pre-holiday logistics. The attractiveness of Cloud Computing is obvious for Amazon, which is now reducing prices to ward off competition from Azure (Microsoft's cloud business, which grew by 76% this quarter).

 

Microsoft: $29.1bn of revenues (consensus beat); $8.8bn profits (vs. $6.6bn last yr); Azure and Office 365 commercial fastest growing segments.

Azure’s revenue is up 76%, down by 89% growth one quarter ago. Still the fastest growing segment of Microsoft. Distant second would be the Office 365 commercial business demonstrating 36% growth.

 

The company is challenging cloud leader AWS with its Azure business, Google's G Suite with its Office 365 cloud productivity app portfolio, and Salesforce with its Dynamics 365 software. 

 

Netflix: $4bn of revenues (consensus beat); 6.7m subscribers this quarter; projecting 9.4m subscribers in next quarter; continued focus on original programming rather than licensed content.

Company to only give guidance around its paid subscriptions (excl. free trials) going forward. Share price up 80% this year as consumers continue to 'cut the cord' in the US. 60% of US population will be using OTT, as per Emarketer.  

 

Competitor Disney has started its content off Netflix on its own platform. AT&T's Warner Media expected to launch an online streaming service next year. Apple is also entering the market.

 

Twitter: $758m of revenues (consensus beat); 326m MAU this quarter (consensus miss and 9m less than last yr). 

Steepest decline in MAUs this quarter. Company says primarily due to removal of spammy, bot accounts, and impact of GDPR. DAUs are up 9%. Earnings per share went up to 21 cents (adjusted) vs. 14 cents as expected. Share price post results went up by 15%.

 

Snap: $298m of revenues (consensus beat); 186m DAU this quarter (1% drop vs last yr); programmatic ad sales seems to be working.

Company shifting to programmatic ad sales and away from relationship-based ad sales. Snap is earning a higher revenue per user, though still loss making at 12 cents per share vs. 14 cents per share as expected.   

 

The platform took a hit in engagement earlier in the year with its redesigned app and separate Discover tab.

 

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