Apple (AAPL - Free Report) , Alphabet (GOOGL - Free Report) and Facebook (FB - Free Report) and reported September quarter results last week. Let’s take a look at the highlights-
The highlights of Apple’s quarter include continually-declining revenue from iPhones, offset by services, wearables and iPads, resulting in its highest-ever fourth-quarter sales. This was $1.14 billion, or 1.8% above what it did last year. Both top and bottom lines easily exceeded the Zacks Consensus Estimates.
When a company is changing strategy or focus, one of the things we’re looking for are signs that it is delivering on the new paradigm.
Apple said that it wanted to offset declining iPhone sales with services revenue and there are signs that it is getting there. In the Americas (46% of revenue) and Asia ex-China and Japan (6% of revenue), other revenue streams offset iPhone sales. So more than half the business is stable despite iPhone sales declines and FX impact (which negatively impacted sales across international locations).
Results in the seasonally-strong fiscal first quarter will be skewed by the way Apple is accounting for its new TV+ offering. The 12-month complimentary service will appear as a discount on hardware revenue rather than a deduction from services revenue.
So services revenue will appear more than it is and hardware pricing will appear weaker than it is. CFO Maestri explained that this grey area will be maintained because otherwise sensitive take rate information would become public.
Alphabet’s third-quarter revenues moved past the Zacks Consensus Estimate while its earnings missed by a mile.
Revenues were driven by mobile search, YouTube and Cloud. It’s hard to find issue with a company that grew revenue 20% from last year’s $33.74 billion to $40.50 billion. That’s a $6.76 billion increase in just twelve months. About $5 billion of that is from the core advertising business with most of the balance is from GCP.
But still, earnings did decline sharply from both previous and year-ago quarters while also missing expectations. So that does warrant some discussion.
Earnings were impacted by losses on investments, likely related to Uber (UBER - Free Report) and Lyft (LYFT - Free Report) holdings, as well as increased investments in cloud, the addition of 6,450 new employees and a higher tax rate. In the second quarter conference call, management had said that cloud revenue was at an $8 billion annualized run rate and considering the huge prospects, the company would triple GCP headcount. Alphabet certainly has the cash to do it, despite the fines that it keeps paying regulators in the U.S. and abroad.
That brings us to the topic of regulatory investigations that it’s facing all over the world. So far, the fines haven’t succeeded in making a significant dent in either its cash pile or confidence. There has also been little-to-no impact on its operating model.
Facebook is another company with results that completely belie the regulatory, privacy, security and other tensions that surround the stock. That’s because there isn’t any competition even remotely like Facebook that can be used to connect and share information. So, like it or not, people still use it, even when the experience isn’t ideal. This extremely sticky user base makes it a great platform for advertisers as well.
And it’s a really good place for Facebook to be in, especially as the company embarks on a rebranding exercise to tell the world it’s really much more than the Frankenstein it has created. So the company says that around 2.2 billion people now use Facebook, Instagram, WhatsApp or Messenger daily while more than 2.8 billion people use them each month.
The quarterly results reflect this strength. So revenues grew $3.93 billion or 29%, slightly impacted by currency. Earnings grew 20%. Both numbers were ahead of the Zacks Consensus Estimates. September 2019 DAUs averaged 1.62 billion, up 9% year-over-year. MAUs at September-end were 2.45 billion, up 8%. Headcount increased by more than 9,400 as the company continues to hire aggressively for content moderation.
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