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Tech Stock Roundup: AAPL, AMZN, FB Jump Thanksgiving Week

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Apple (AAPL - Free Report) and Amazon (AMZN - Free Report) shares were most rewarding in Thanksgiving week as shoppers opened their wallets, but Facebook (FB - Free Report) also jumped on news of its first share buyback plan.

Thanksgiving Again

The biggest shopping weekend of the year just happened and a ton of data has started pouring in, setting aside fears of weaker consumer spending and confirming that this year will be much bigger than the last.

Adobe Digital Insights, the National Retail Federation (NRF) and some retailers have started sharing encouraging sales numbers.

According to Adobe, more than $5 billion was spent online, with Black Friday sales topping $3 billion for the first time, up 21.6% from 2015. Thanksgiving sales were 11.5% higher. Mobile accounted for 57% of visits and 40% of sales on Thanksgiving Day and for the first time, accounted for more than a billion dollars in sales on Black Friday, up 33%. Shopper helper sites, email, displays, etc helped drive traffic this year with search ads and direct traffic contributing less than last year but remaining by far the largest drivers.

The five top selling toys were Lego Creator Sets, electric scooters from Razor, Nerf Guns, DJI Phantom Drones and Barbie Dreamhouse. The five top selling electronic products on Black Friday were Apple iPads, Samsung 4k TVs, Apple MacBook Air, LG TVs and Microsoft Xbox. Adobe collected anonymous data from 22.6 billion visits to retail websites and measured 80% of all online transactions from the top 100 U.S. retailers.

According to the annual Thanksgiving weekend results survey released by the National Retail Federation and Prosper Insights & Analytics, average spending per person totaled $289.19, down slightly from $299.60 in 2015. Around 74% of spending was on gifts. Online shopping was slightly more popular than in-store with 44% of respondents going online and 40% shopping in-store. 36% shopped online on Thanksgiving Day (36% shopped in-store), 74% on Black Friday (75% in-store), 49% on Saturday (40% in-store) and 34% on Sunday (17% in-store). So it’s apparent that many shopped both online and in-store and probably also made use of omni-channel facilities.

Significantly, only 9% of shoppers have completed holiday shopping. 80% of millenials shopped during the weekend, underscoring the importance of the demographic to retailers. According to the survey, 56% of smartphone owners and 53% of tablet owners used their devices. The most popular gifts  were clothing or clothing accessories, toys, electronics, books, CDs, DVDs, videos or video games and gift cards.

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Facebook Announces Share Buyback: Facebook has announced that it will buy back shares worth $6 billion beginning in the first quarter of 2017. Technology companies usually pay out a lot of share based compensation in order to retain engineering talent. This increases the share count overtime.

Facebook is one of the few top technology companies that hasn’t done any share repurchasing despite the fact that it has a large number of engineers and sits on a huge cash pile of around $26 billion. This announcement changes things. It’s also good news for investors concerned about its heavy investment plans going forward.

Facebook CAO Out: According to a recent SEC filing, Facebook’s Chief Accounting Officer Jas Athwal will resign on Feb 17, 2017. Facebook is looking for a replacement and Athwal will help through the transition. The reason for the decision can probably be traced to the repeated errors in presenting advertising metrics to brands. Facebook announced last week that the "organic reach" of posts had been inflated and that actual reach might have been as much as 55% lower. While this didn’t affect the billed amount, it’s not a great thing for brands, which might demand more transparency going forward.  

Office 365 Expands Geographies: Microsoft (MSFT - Free Report) has announced the expansion of Office 365 to 10 new geographies, which are Bhutan, Cambodia, Greenland, Guadeloupe, Laos, Maldives, Martinique, Mozambique, Myanmar and Vatican City. The company remains on track to transfer most of its current Office users to the cloud-based Office 365, as this will ensure Microsoft revenues even when users move to devices from competitors. Office 365 subscribers are now up to 24 million with the company adding a million in the last quarter itself. Microsoft expects that the next year will see the addition of 97 more countries.

Google May Remove “In The News” Section: Alphabet’s (GOOGL - Free Report) Google will be removing its “in the news” section for desktop search and replacing with the “top news” carousel that it currently displays in mobile search. The company has reportedly been considering the change for some time, but sources are saying the change may be made quicker after people complained about incorrect information displayed in this section. Google’s search results are algorithm-based and the “in the news” section focuses on pulling out hot stories rather than news that have been vetted by approved parties, so the “in the news” section is currently being considered misleading.

IBM Building UK Data Centers: Brexit has had no negative impact on technology investments in the UK. Following Facebook and Google, which decided to stick with their investment plans in the region, IBM (IBM - Free Report) announced that it would build four new data centers in the region and make the most of local talent, universities and Britain’s appreciation of the cloud as revolutionary technology. It currently has two data centers in the region.

IBM Invests in Cyber Security: IBM is investing $200 million to build out its cyber security capabilities. The plan includes a new global security headquarters in Cambridge, expansion of capabilities and capacity for the global network of its X-Force Command Centers, and the creation of an IBM X-Force Incident Response and Intelligence Systems (IRIS) consulting team. Cyber security has become a burning issue given the number of hacking attacks even as companies of all sizes continue to migrate their operations to the cloud to take advantage of the increased efficiency and lower cost of operation. IBM’s investments come at an opportune time.

Twitter’s Anthony Noto Assumes Bigger Role: Twitter (TWTR - Free Report) has decided that Anthony Noto, the current CFO will do a good job as CEO and its directors have decided that $940K in RSUs and another $325K in restricted RSUs to make a total compensation package of $12 million a year will get him to take the job. Noto replaces Adam Bain and Twitter will look for somebody to fill the vacated CFO position. Noto’s pushing of the video strategy and the resultant streaming of content from sports and news companies have become an important revenue earner for Twitter. In fact it appears to be its only hope of return to growth. This is likely the reason Noto is being brought into a role where he can directly oversee the operation.


Indonesia to Make Facebook Pay: After reaching a settlement with Google the details of which will be announced soon, Indonesia has turned attention to Facebook. Muhammad Haniv, head of the special taxpayers office at the Finance Ministry’s Tax Directorate-General believes that Facebook owes about 2 trillion rupiah ($148 million) to 3 trillion rupiah in unpaid taxes and penalties. The tax authorities have called for a meeting with Facebook and will likely be open to negotiations, just as it was with Google.

Arista Scores Win Over Cisco: U.S. customs have cleared certain Arista products that the ITC had previously banned for their infringement of Cisco patents. Arista says that the products have since been modified while Cisco says that the Arista’s workaround barely covers up for the infringement. The customs clearing is a positive signal for Arista but the fight is likely not over. Cisco, which appears to be losing share to its smaller rival can go to court again. So Arista may continue with its domestic production plans.

EU Could Approve Microsoft Deal: Microsoft doesn’t have a great record with the EU, having had a fork out over $2 billion for bundling its products in a way that blocked out rivals. This time round, the company wants to make no mistakes. After applying for EU approval last month, the company had a meeting with the body last week, in which it promised concessions.

Unidentified sources told Reuters that the company has agreed to allow rivals access to Outlook (which will be integrating LinkedIn data) so other social networks/users have access to it. Moreover, hardware makers like HP and Dell will be able to disable the LinkedIn shortcut on some device desktops. A lot of the ruckus is because of Salesforce CEO Mark Benioff, who has made a big protest on anticompetitive considerations after losing out to Microsoft in bidding for LinedIn. The EU is expected to decide on Dec 6.    

Google’s Settlement with Indonesia: Muhammad Haniv, head of the tax office’s special-cases unit, said in an interview last week that Google’s tax evasion case would be settled at not more than $73 million, much lower than the amount initially estimated. The tax authorities have said that Google and Facebook together collected 70% of the $830 million of digital advertising revenue generated in 2015 (Google estimates the market was worth $300 million according to the WSJ). The country is trying to collect tax from Internet companies while also deregulating some sectors and lowering the corporate tax rate in order to attract foreign investment.

New Technology/Products

Amazon Dash Expands: Amazon has announced that a number of companies including GeniCan, Honeywell, Nestle and WePlenish have joined its Dash replenishment program. This allows the companies’ devices to automatically reorder items from Amazon when supplies run low.

M&A and Collaborations

Amazon-Fiat to Sell Cars: Amazon has tied with Fiat Chrysler to sell Italians their cars with a simply click. The online retailer is selling three models as of now, i.e. the 500, 500L and Panda, but it might sell others if it all goes smoothly. Online car shopping hasn’t happened to date although customers routinely research them online and even order parts. But selling has been impossible because of the agreements auto makers have with car dealers which do everything they can to prevent direct sales.  But it’s happening in Italy, so it can happen back home too, albeit after some time.

Some Numbers

Apple Black Friday Deals: Target and Best Buy are doing all they can to sell more Apple devices this holiday season. For the Black Friday weekend, Target is giving customers a $250 gift card for activating an iPhone 7 or 7 Plus phone. Apple Watch Series 1 is getting a $71 discount to retail for $198. There’s also a $150 discount on the Apple iPad Pro 9.7-inch 32GB Wi-Fi tablet, which is retailing at $449. At Best Buy, the iPhone gift card varies between $100 and $250 depending on the model of iPhone 7 purchased. Both companies are selling iPad Air 2 tablets starting at $274 (a $125 discount). They are also discounting Apple TV set-top boxes.

Smartphone Profits: Strategy Analytics estimates that Apple’siPhone accounted for 91% of global smartphone profits, leaving Huawei a distant second with a 2.4% share. The third and fourth postions went to Chinese companies Vivo and OPPO, which took a 2.2% share each.

AWS Price Cuts Can Hurt Amazon Profits: Evercore analyst Ken Sena, who has a buy rating on Amazon shares, said that the company’s latest pricing cuts indicated that it was getting too aggressive. He therefore lowered his revenue and profit outlook for the fourth quarter while recognizing that the price cut is likely included in the guidance.

Further, despite the fact that Amazon is expected to see some price elasticity benefit in 2017, he doesn’t expect this to completely offset the hit to revenue and profits. He therefore reduced his estimates for 2017 as well. Accordingly, the Q4AWS revenue estimate moved to $3.71 billion with the CSOI declining 2% to $2.02 billion. His 2017 AWS revenue estimate also moved 2% lower to $17.76 billion.

HP Reports: HP Inc beat top line expectations while matching on the bottom line and Hewlett Packard Enterprise matched bottom line expectations while missing on the top line.


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