With earnings reports from Apple (AAPL - Free Report) , Facebook (FB - Free Report) , Microsoft (MSFT - Free Report) , Alphabet (GOOGL - Free Report) and Amazon (AMZN - Free Report) , last week was without a doubt the biggest one for technology earnings. As may be expected, all these companies were impacted by the new tax law, but some gained more than others.
Most tech companies provided for the tax on cash held overseas while baking in a lower future tax rate into the guidance. Excluding the tax impact, results were generally better than expected. Here are the details-
Apple: Apple reported a customary strong quarter despite fears of weaker-than-expected demand for the iPhone X. So its revenue and earnings were both well ahead of the respective Zacks Consensus Estimates. A $100+ year-over-year increase in the iPhone ASP indicates that the iPhone X did in fact do quite well, but may have been impacted by the slightly delayed launch.
At the same time, guidance came in below expectations, which could mean that management is being conservative, or there really is weaker demand for the much more expensive device. What falls to the bottom line is however more significant for a company, so a more profitable business model where higher prices offset volume declines may not be so bad.
Another thing to keep in mind is the incremental stability in Apple’s revenues stemming from a steadily growing services business where the installed base continues to grow. China was also strong in the last quarter, and Apple saw some traction in iPads. So, nothing at all to complain about. Read More: Apple Q1 Earnings Beat, iPhone Unit Sales Down Y/Y
Facebook: Facebook also reported a very strong quarter with both revenue and earnings topping the respective Zacks Consensus Estimates and growing double-digits from the year-ago quarter. While newsfeed modifications to facilitate community building over content consumption lowered the time spent on Facebook by 50 million hours a day, ad impressions (up 4%), the price per ad (up 35%), and daily and monthly active users (both up 14%) were robust, which means that there’s no reason to panic.
On the other hand, today, Facebook has built revenue opportunities outside the social network including WhatsApp (where business messaging has started), Messenger (which is being built up as a multi-service platform like We Chat), Stories, Watch (a video offering that’s still in its very early stages) and Marketplace (where there are already 700 million users). Facebook generally starts monetizing a platform once it already has around a billion users, so its goal is to offer global scale and scope for advertisers/sellers. And this is exactly why its platforms are so valuable.
The company should continue to see increasing average revenue per user and profitability despite near term pressures (whether regulatory or company policy-based). Read More: Facebook Q4 Earnings Up Y/Y on Strong Revenues & MAUs
Microsoft: Microsoft’s second-quarter revenues beat the Zacks Consensus Estimate by a sliver although its earnings beat comfortably. The company met its target of $20 billion in annualized commercial cloud revenue by 2018. Driving the business was the productivity segment where LinkedIn, Office 365 and Dynamics 365 all contributed. Strengthening ARPUs suggest that the company is successfully transitioning to the SaaS model.
Also encouraging was the Intelligent Cloud business with particular strength in Azure. Despite the seasonal strength in gaming, the Xbox One X launch and momentum around Xbox Live where a gaming-as-a-service platform seems to be in the making, the more personal computing segment didn’t do as well because of weakness in Windows. Read More: Microsoft Surpasses Q2 Earnings & Revenues, Up Y/Y
Alphabet: Alphabet reported a mixed quarter with revenue squeezing past the Zacks Consensus Estimate but earnings coming up short. Strength in mobile and increasing traffic acquisition costs (TAC) related to this strength were notable points this quarter. Mobile TAC is higher because the company needs to pay to remain as the default search engine (on Apple devices, for example).
Management didn’t say on the call whether Google has inked more longer-term deals to limit TAC expansion, but they did say that the net effect of market dynamics and the company’s own measures would lower the rate of increase in TAC post Q1. Alphabet continues to trade CPCs for volumes, which is also affecting the gross margin.
Holiday seasonality also drove up marketing costs in the last quarter, which impacted operating profits. Read More: Alphabet Q4 Earnings Miss Estimates, Revenues Beat
Amazon: Amazon’s revenue and earnings grew strongly in the fourth quarter, blowing past our expectations. The company leads all others in both the retail and cloud sides of the business, so it’s encouraging to see it growing so strongly from such a large base. Amazon has started talking about its advertising revenue, which means this is on the verge of becoming another major growth driver.
Then, of course, there’s Alexa -- which enabled it to become the leading provider of voice controlled devices by building an ecosystem around it. Google may try to catch up, but Amazon is no Apple (Google’s Android came from behind to become the leading mobile OS), it isn’t as interested in profits as growth, so this market won’t be so easy to wrest from Amazon.
The competition in the cloud and also voice controlled devices will mostly gain from market growth and not so much from wresting share from Amazon. All that being said, it may be a good idea to keep in sight Amazon’s long term debt and obligations as well as FCF net of long term obligation repayments as they represent increasing risk. Read More: Amazon Q4 Earnings Beat, Sales Up on AWS Strength
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Other Companies That Reported Last Week: Alibaba, eBay, PayPal, Advanced Micro Devices, Electronic Arts, CA Inc, Check Point, Symantec, Seagate, Juniper, Automatic Data Processing, Cadence Design Systems, Qorvo, Ametek, Roper Technologies.
Some Companies Reporting This Week: Yelp, GrubHub, Fiserv, Expedia, MTD, Nielsen, Fortinet, Paycom, Paylocity, FireEye, NVIDIA, Skyworks, ON Semiconductor, ACXM, Silicon Motion, Akamai, Microchip, TakeTwo, ActiVision, Snap, Twitter