Another bunch of companies reported last week, with the common theme being increased investment and/or the acquisition of startups. Here are the top stories-
Earnings Highlights
Facebook (FB): Another Record Quarter: Fueling the results was strong growth in mobile advertising revenue (now 62% of total advertising revenue), strong growth in monthly active users (up 40 million during the quarter), growth in the average revenue per user (up 24 cents sequentially, 84 cents from last year) and increasing engagement (50% year-over-year increase in June according to comScore).
Effective advertising products, especially tailored for mobile, such as the recently-announced mobile advertising network and increased focus on premium video ads helped. Acquisitions are likely to continue.
Apple Had a Mixed Quarter: The high point for Apple was iPhone growth, especially in emerging markets such as China. Apple (AAPL) saw particularly strong demand in the BRIC countries where iPhone sales jumped 55%. iPhone sales in China grew 48%, taking market share and silencing naysayers. Apple is the premium brand in the country where Samsung is struggling to compete with local players at the lower-end.
iPad sales disappointed for the second straight quarter because of overall softer demand in traditional markets and stiff competition in emerging ones (management likes opportunities in China, Middle East). Additionally, the agreement with IBM could help growth in the enterprise segment. Macs remain hot, beating the market. Reduced visibility prompted cautious guidance.
Microsoft Missed Estimates: The assimilation of Nokia’s business and inventory charges had an impact on Microsoft’s (MSFT) fourth-quarter earnings, although revenue was in line with estimates. Management provided further clarity on the devices and services model, trimming the hardware workforce and focusing hardware efforts on design. A common Windows platform for all devices is in the offing and should facilitate software development on the platform. Office 365 did not disappoint and remains a key product that the company intends to leverage in order to get deeper into the mobile user base.
Netflix Beat Estimates: The basic story on Netflix (NFLX) has not changed. Continued investment in international and content will continue increase its revenue base while taking away some of its profits. But the investments are necessary and will enable the company to raise prices and ultimately lead to improved profitability.
Amazon Disappoints: Amazon’s (AMZN) never-ending investments continued in the last quarter with its quarterly loss more than doubling our estimate. Amazon remains the leading etailer but ambitious expansion plans, increased focus on hardware and growing competition are telling on its results. The uncertainty has continued for so long now that investors have become jittery. This is leading to volatility in prices.
Yahoo Leveraging Tumblr for Finance
Yahoo (YHOO) is making use of the social networking power of Tumblr to drive traffic to and engagement on its properties. The company has enlisted 30 industry experts who will have an allotted Tumblr page where they will post commentary on stocks, commodities, the economy and wealth management.
The content will be pulled to Yahoo Finance pages, but can also be read by Tumblr users on Tumblr itself. The blogging platform is called Yahoo Finance Contributors and Yahoo is in the process of growing the list of contributors. Increased engagement will increase value for advertisers, but that’s a follow-on the company hasn’t said anything about yet.
|
Company |
Last Week |
Last 6 Months |
|
AAPL |
+3.34% |
+24.19% |
|
FB |
+8.95% |
+40.41% |
|
YHOO |
+7.89% |
-1.45% |
|
GOOG |
-0.60% |
|
|
GOOGL |
-1.00% |
+8.51% |
|
MSFT |
+0.25% |
+23.51% |
|
INTC |
+1.84% |
+38.55% |
|
CSCO |
+0.15% |
+18.05% |
GOOG = Class C shares (new, non-voting)
GOOGL = Class A shares (old, 1 vote per share)
Other stories you may have missed–
Corporate
YouTube Loses Music Head: Chris LaRosa has decided to leave YouTube to join an unnamed startup. This is the second major departure from YouTube in less than a year, the most likely reason being continued delays in the launch of Google’s music streaming service. Google has signed on the big music houses for the purpose, but pricing inequalities with other providers have led to discontent and discord, ultimately freezing its efforts. The departures could further delay YouTube’s subscription-based music streaming efforts.
Regulatory
China Says Qualcomm a Monopoly: China is set to declare Qualcomm (QCOM) a monopoly, according to a government newspaper. The exact nature of the gripe is not clear yet, but the obvious result would be a sizeable fine. What is more concerning is it could limit or regulate licensing fees, which will significantly impact Qualcomm’s revenue and profits given that it derives a huge chunk of revenue from the country.
The National Development and Reform Commission (NDRC) is likely in the process of determining a fine, which could amount to over a billion dollars. In the meantime, Chinese manufacturers are under-reporting sales and making it hard for Qualcomm to collect royalties. Chinese regulators have openly favored Chinese companies and Chinese IP, so things may not look up any time soon.
Italy Gives Google 18 months to Change: Google’s (GOOGL) unified data policy is costing the company. Soon after it decided to combine its 60 separate privacy policies into one encompassing all its services including gmail, YouTube and search, regulators across Europe started expressing their problems with it. In fact, Google has already been fined in France and Spain and has been determined guilty of non-compliance with local laws in the U.K., the Netherlands and now Italy. Italian data regulators have determined that Google must take prior permission of users before creating customer profiles and also let them know that the profiling was being done for commercial purposes. Google has 18 months to comply and said that it would present its roadmap before regulators by September-end.
Google’s Troubles with the EU Could Resurface: The EU could re-open its anti-trust case against Google after the search giant settled with the commission. Some members of the EU have started saying that Joaquin Almunia, the EU antitrust chief had negotiated the settlement with Google without consulting them in what could be an improper practice.
Google’s competitors, which include Microsoft, are up in arms against the settlement (the third proposed by Google), objecting to the fact that they weren’t allowed a chance to oppose it. Google’s problems have increased since the Snowden scandal has made many European countries including Germany and France wary about the amount of information saved on foreign servers.
New Technology/Products
Apple Getting Ready to Ship Larger iPhones: WSJ quoted unnamed sources saying that Apple has asked suppliers to manufacture 70-80 million iPhones with larger screen sizes. The phones are likely to have metal casing similar to 5S and multiple colors. The sources said that Foxconn and Pegatron will start producing the 4.7-inch model next month with Foxconn-owned Honhai starting exclusive production of the 5.5-inch version in September.
EA Pushes Out Battlefield to 2015: EA said that Battlefield Hardline will miss the 2014 holiday season, sending the shares crashing. The market is getting increasingly competitive and new titles are a great way to increase sales at a time when seasonality is favorable.
The company said the game needed additional work to ensure that it was the best in the category. An analyst at MKM Partners estimates that the push-out could reduce sales by 2 million units. EA said the impact would not be material and the company could raise its current guidance for its year ending in March if circumstances permitted.
IBM Watson For Military Consumers: IBM has announced an agreement with financial services firm USAA, which will be using its data analytics tool Watson on its website to answer natural language queries from military customers looking to get back to civilian life. While it may not be a big deal to begin with, it will enable USAA to deal with queries 24 hours a day.
IBM has been working with USAA for nine months to get Watson to this stage and if successful, its use may be broadened. IBM has increased focus on cloud services and data analytics and intends to spend a billion dollars to build a new division around Watson.
M&A
Google Buying Twitch for $1 Billion: Officially unconfirmed by both Google and Twitch but reported by “people familiar with the matter,” the deal is expected to bring a huge group of avid gamers to YouTube. Twitch has grown from a humble 3.2 million monthly unique users to 45 million in the three years since it launched. It focuses on sharing live gameplay and monetizes with ads and subscriptions.
Yahoo Buying Flurry: Yahoo is reportedly shelling out $300 million to acquire Flurry, which analyzes data generated by smartphone users to help developers understand their audiences. Flurry customers include Snapchat and Pinterest. Yahoo remains focused on growing its mobile business and has made a number of acquisitions to boost its services and grow its user base. It has also developed a few good apps.
Google to Buy Mobile Testing Company: Google has confirmed that it is buying a startup called DrawElements that helps the making of graphics chips that developers can easily build programs on. DrawElements said that its technology will be integrated into a Google program maintaining consistency across Android devices. Google had nothing further to add.
Pressure on EMC to Sell VMware
Collaborations
Sprint to Resell Google Apps: Google and Sprint are getting closer together with a deal that will see Sprint pushing Google Apps for Business to its own customers and serving as a single point of contact for customers needing the resolution of problems related to their network, devices or apps. Sprint will sell the Google suite for $5 per user per month (no markup) with those also wanting unlimited storage having to pay $10. Sprint will provide several additional services to these customers, some of which will be free.
Some Numbers
Chromebooks Gathering Momentum in Schools: The simplicity, ease of use and cost-effectiveness of Chromebooks are clearly having an impact on educational institutions. Among other items in its Office Enterprise Blog, Google mentioned that this important market had lapped up a million of the devices in the last quarter. School budgets are generally tight and Google’s initiatives to minimize device ownership costs and develop suitable apps and tools to help the learning process have helped it make inroads into a market dominated by Microsoft and Apple.
Some Earnings Reports: EA, Qualcomm, Xilinx and Altera beat estimates, VMware reported in-line, while EMC and Juniper missed.
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