So much happened over the past week that it’s a difficult job to put in one place. But here’s an attempt to touch on the main points.
Earnings Highlights
Apple: Apple AAPL beat on both the top and bottom lines on account of strong iPhone and Mac sales. However, iPads continued to disappoint, more or less as expected. Demand was particularly strong in China and other Asian countries, where revenues jumped 71% and 48%, respectively.
Expedia: Expedia EXPE shares gained post earnings, as the company was able to offset the negative currency impact hitting most tech companies this earnings season. The company saw exceptional strength in its Asian business, which offset the currency issue. However, its growth requires significant investment in inventory and marketing, so the earnings pressure may be expected to continue.
Twitter: Twitter TWTR shares plunged post earnings, although the company managed to beat earnings estimates while missing on the top line. The company blamed its new direct-response ads for its revenue miss versus expectations. Revenue growth was however quite strong at 74% overall and 109% for the international business with monthly active users growing 18% to 302 million.
LinkedIn: LinkedIn on the other hand, missed on both top and bottom lines with share prices taking a tumble. The guidance was also disappointing with both second quarter and full-year revenues missing the Zacks Consensus Estimate.
Salesforce Takeover Rumors
Ever since Bloomberg came out with a report saying that Salesforce.com had engaged bankers with respect to an offer to buy out the company, the market has been agog with speculations as to who the suitor might be. But the list isn’t that long, simply because they would have to fork out more than $50 billion. So only the deepest-pocketed tech companies, like Oracle, Microsoft, SAP, IBM, Google, etc qualify.
And of these, SAP has vehemently denied any such move, while Oracle has made unenlightening statements. But Oracle has an incentive: it needs to grow its cloud business just about as fast as possible and it raised $10 billion through a note issue last week. IBM is focused similarly, but the company is going through a more difficult transition and its cash position makes an acquisition of this size unlikely.
That leaves Google and Microsoft, both of which have the incentive and the cash to make it happen. But will Google want to part with so much cash to boost its leading position in the advertising business? Isn’t it still a fast-growing business with many initiatives to further grow revenue?
On other hand, Microsoft has promised to generate $20 billion from the cloud business by 2015 and CEO Nadella has been hobnobbing with Benioff (Salesforce CEO). Its CRM business is also in competition with Salesforce’s and it may not hurt to take out a competitor. As with all speculation, it’s really hard to tell, but Salesforce shares jumped anyway.
Microsoft Build Conference
At the Build Conference held last week, Microsoft MSFT announced new features in Windows 10, and four new software development kits for developers to bring their Web, .NET, Win32, Android and iOS code to Windows. Developers are also being encouraged to create one app that will run across all Microosft devices. It also announced new Azure data services, a new browser and HoloLens, a virtual reality device that still appears to be in the making.
|
Company |
Last Week |
Last 6 Months |
|
AAPL |
-1.02% |
+19.39% |
|
FB |
-3.12% |
+0.38% |
|
YHOO |
-4.50% |
+5.79% |
|
GOOGL |
-3.92% |
+2.43% |
|
MSFT |
+1.63% |
+8.41% |
|
INTC |
+4.17% |
+2.48% |
|
CSCO |
+1.08% |
+23.89% |
Other stories you might have missed–
Corporate
Intel Reorganization: Intel INTC is renaming its New Devices Group as New Technology Group and adding other operating units like its Intel Labs, Perceptual Computing Group and the New Business Initiatives Organization. The new group, to be headed by Josh Walden, will focus on R&D. Intel says the reorganization will help it drive synergies in new and emerging technology areas.
Yahoo’s New Data Center: Yahoo YHOO has expanded its data center and customer care facility in Lockport, NY that will create 115 more jobs and include a $150 million capital investment. The company has invested more than half a billion dollars in the region over the past 6 years.
Yahoo CEO Compensation Package Jumps: A large chunk of Mayer’s pay consisted of stock options, the value of which escalated in 2014 leading to a 69% increase in her total pay package for the year. Yahoo’s turnaround story is still a work in progress. However, the sale and spin-off of its Alibaba holdings was greatly approved by shareholders, leading to the increase in share prices and thus the positive effect on her compensation.
Amazon, Google Join Music Rights Group: The music business is in for a shakeup as performing artists, song writers and publishers push for higher rates that streaming companies claim would be unsustainable to their business model. Last week, Amazon and Google joined the battle on the side of the streaming companies, most notably Pandora. A lot of changes are in the offing with the DoJ reviewing the rates to be charged by publishers, the Copyright Review Board looking to make revisions in the statutory royalty rate paid to labels and artists, and the Congress considering recommendations of the U.S. Copyright Office calling for U.S. terrestrial radio to pay not just song writers and publishers but also artists for the first time.
Alibaba Freezes Hiring: Perhaps with the intention of setting expectations for its earnings results to be announced this week, Alibaba CEO Jack Ma said through its official social media account that it wouldn’t be adding to its workforce this year. The company is seeing escalating costs and shrinking profits as total headcount increased significantly over the past year to support its expansion plans.
IBM Raises Dividend: The IBM board has declared a quarterly cash dividend of $1.30 a share to shareholders of record on May 8, 2015, up $0.20 or 18.2% from the prior dividend of $1.10 a share.
Legal/Regulatory
Apple Says EU Tax Probe Could Hurt: Apple has said in a regulatory filing that if the EU’s investigations into Irish tax practices show irregularities by the Irish government with respect to state aid, Apple may be required to pay back taxes for up to 10 years that would have a significant impact on its cash. The EU allows certain concessions to be given to companies in return for investments and employment in member countries, which are classified as state aid, but preliminary investigations have found that Irish authorities acted fraudulently. In 2013, the U.S. Permanent Subcommittee on Investigations found that Apple transferred $74 billion in profits to an Irish subsidiary that didn’t have tax residence anywhere in the world.
Facebook On EU Privacy Investigations: As several countries within the EU (France, Spain, Italy, Belgium) started investigating Facebook’s FB privacy practices (how it collects data, how it tracks users, etc), Facebook has come up with a detailed response. The largest social network in the world says that EU regulations dictate that tech companies in Europe are governed by the law of the country in which they have their European headquarters and when they are in compliance with those laws, other EU countries have to accept their practices.
Facebook says that these investigations have the potential to increase costs, impact innovation, and hurt users, small business owners and budding social networks. The problem arises first, because all the countries have their own laws (including those related to privacy) and second because most tech companies have their headquarters in Ireland, where the local government gives them great leeway to boost employment levels, which could at times, be against the interests of other member countries.
eBay Comments on EU Seen as Supporting Google: eBay CEO John Donahoe’s comments to the effect that Brussels misunderstands online buying habits, that barriers between different segments of online commerce are breaking down and that eBay was in direct competition with Google were seen by many as supporting Google in the anti-trust case by the EU.
But Donahoe has since clarified that his comments should not be read in the context of the case against Google, the details of which haven’t been made public. As reported in the media, the case refers particularly to Google Shopping, which has changed over the years, and now resembles an ad format, where companies bid for the available spots and pay on the basis of the number of clicks.
Microsoft Phones Infringe Patents: ITC judge Theodore Essex found that Microsoft infringed on a couple of InterDigital patents and also ruled that it would not be against the public interest to ban the devices from being imported into the U.S. However, the full commission has to review and agree to the decision before the ban goes into effect.
Google Pacifying EU Publishers: Google has announced a Digital News Initiative, which is basically a partnership with eight leading publishers in the EU (including the Financial Times and the Guardian) funding the initiative with $164 million (150 million euros). The money is intended to help publishers create digital content, distribute it effectively and also find ways of making users pay for the content. It will also help train journalists. Other news groups can apply to be included. While the practical implications and usefulness aren’t clear yet, it’s certainly an olive branch for a group that has considerable political clout in the EU.
Google Wants to Buy Some Patents: Google intends to launch an experimental portal inviting patent holders to sell their patents. The search giant says that the idea is to buy up patents of value that may be picked up by trolls that aren’t involved in the manufacturing process, but typically engage tech companies in costly lawsuits that drag on for years and inhibit innovation.
New Technology/Products
Apple-IBM for the Elderly: Apple and IBM are in a new agreement with Japan Post, which offers postal, banking and insurance services, as well as elderly care. It intends to expand its current elderly customers from 100 currently to 5 million by 2020. Japan Post will offer free iPads with IBM software installed to its elderly patients for free, charging them a subscription for the service.
IBM software will include healthcare information and reminders as well as information on other jobs around the house that could prove troublesome for the elderly. Not only is this a good way for Apple to sell a few million iPads (a quarter of Japan’s population is aged over 65), but it also sets the stage for further sales (Japan Post, to go public later this year, is the largest employer in the country according to its CEO Taizo Nishimuro).
Facebook Graph API Version 2.0: Signing in to apps using Facebook credentials just got more secure. Starting April 30, all apps are required to seek permission for accepting each user detail. Users will also be able to change the data disallowing some permissions that they previously agreed to. Facebook says that Version 2.0 also has benefits for developers, helping them to build, grow and monetize their apps.
Yahoo Launches 18 New Series: At its 2015 Digital Content Newfront conference, Yahoo announced 18 new video series across its Live, Digital Magazines and Originals categories. Going by Mayer’s comments, it appears that Yahoo wants to stick with these themes rather than focus on Screen and go into head-on competition with YouTube and others. Mayer said that the theme-based approach is bringing new and younger users to Yahoo properties, helping consumption on mobile devices and setting up the kind of engagement levels that advertisers are looking for.
Google Now Has 70 New Partner Apps: Google has taken a refreshing new approach with Google Now that makes it particularly useful for wearable devices with small screens, for example a watch. Google’s approach is to do with the integration of apps into Google Now, so it can pull information from these apps to display in a simple contextual message when you need it. Google has just added 70 more partner apps to Google Now.
YouTube To Make Original Shows
Google Security for Chrome: Google has announced a security extension that will protect Google or Chrome users from giving up their passwords to a phishing link and thereby risk stealing of their passwords or other personal information. Google said that 2% of Gmail messages are phishing attempts. Google will save a version of the password, which will be compared with passwords entered on non-Google sites. In case of error, Password Alert will prompt the user to reset the password. Google for Work users will however require the network administrator to install Password Alert.
Amazon Business Gets A Makeover
Alibaba/China Telecom Announce Phones For Rural Users: New phones called Tianyi Taobao Shopping Handsets with dedicated software facilitating ecommerce started selling last week to tier 3 and 4 cities and rural areas in China. Fourteen models will sell from China Telecom’s Tmall store and physical stores. The six more expensive models will reportedly have the mobile Taobao shopping app installed with the other models coming with Alibaba’s Yun OS installed. Mobile Taobao with its 200 million users is China’s most popular shopping app and China Telecom with more than 186 million users is one of the three leading carriers in the country.
M&A and Collaborations
Adobe, Microsoft Come Together: At the Adobe Summit in London, Adobe announced that it would be integrating its Marketing Cloud with Microsoft’s Dynamics CRM business to enable their clients to improve interaction with customers through more efficient management of their marketing, sales and service operations.
Intel Security Partnerships: Intel has tied with Onyx Healthcare and Kiosk Information Systems to create secure devices and meet regulatory privacy requirements. Intel will be offering its McAfee Application Control and McAfee Complete Data Protection to Onyx, which makes computers, tablets and monitoring devices. Kiosk, which makes self-service POS systems will use McAfee Integrity Control.
Google-Twitter In New Deal: The two companies that earlier agreed to have Google display tweets as soon as they are made have now agreed that advertisers using DoubleClick will be able to buy Twitter’s promoted tweets. Twitter normally charges a fee to allow advertisers to highlight these tweets inside user streams. Advertisers will benefit from the increased integration as they will be in a better position to track their campaigns.
Twitter Buys Advertising Startup: Last week, Twitter bought direct-response advertising startup TellApart for $533 million. Twitter has earlier said that the lack of success with its new direct-response format (ads that appear to be tweets and encourage the user to install or buy an app) had affected its quarterly performance. TellApart reportedly specializes in cross-device targeting, which should be good for Twitter.
Alibaba Invested in Jet.com: It was discovered last week that Alibaba Group Holdings was part of the funding round that raised $140 million for startup Jet.com in February this year. The ecommerce site is yet to be launched but has raised more than $225 million on the promise that its prices will be lower than Amazon and based on a membership fee of $50 a year. It expects to have a user base of a million by year-end and increase this 15X over the next 5 years.
Alibaba Looking for Micromax Stake: People familiar with the matter are saying that Alibaba affiliate company Ant Financial is in advanced talks to acquire a 25% stake in Micromax, one of the leading Indian smartphone makers, valuing the company at $5 billion. Micromax shelved its plans of going public in favor of strategic investors that could help its expansion into services to compete effectively with Xiaomi and Samsung. Xiaomi is gaining share and setting up both R&D and manufacturing units in the country. Samsung is losing share.
Some Numbers
Apple Gains on Samsung: Apple is a clear leader in the smartphone market, growing shipments 40% from the March quarter of last year for an 18% share. While this is lower than Samsung’s 24%, it’s notable that Samsung saw a 7% decline in shipments. The smartphone market grew 16.7% during this period. Apple is seeing particular strength in the U.S. and China. IDC, Stratasys and Juniper estimates were similar in this respect.
Some Other Earnings Reports: Harman, Automatic Data Processing, Fidelity National Information Services, Corning, Lexmark, Western Digital, Plexus, Akamai and Roper were some other tech companies that reported last week.
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