Did Amazon, Alphabet, Apple, Facebook Q4 Earnings Stack Up?
February 1, 2018 brought investors one of the busiest news days in history. Following the close of the market on Thursday, the tech sector dominated the news, with giants like Amazon, Alphabet (formerly Google), Apple and Facebook all having reported their quarterly earnings.
Apple, which is the largest publicly traded company in the world, was the biggest focus following recent reports that its flagship phone – the iPhone X – was suffering from weak demand. Amazon also faced questions regarding its new headquarters and analysts questioned how Alphabet was handling its emerging role as a major platform. Changes to Facebook’s timeline also factored in to the analysis made by market watchers. So how did the tech giants perform in their earnings reports?
On Thursday afternoon, Apple Inc. reported its earnings that lived up to most of the expectations that predicted record revenues resulting from robust sales of the iPhone X over the holiday season. However, its overall forecast came up a bit short. The company’s stock gained over 3% in the final hours of trading, following a bumpy start to the day. The decline in iPhone sales in general was offset by the higher selling price of the of the iPhone X, starting at $1,000.
iPhone unit sales fell drastically from its numbers one year ago, despite analysts’ expectations of modest growth. At this time last year, Apple managed to sell more than 78 million iPhones. The company’s selling prices were also impressive over the holiday season, managing to hit $796 in comparison to expectations of $755.78. During the year-ago period, the firm reported earnings of $3.36 per share and revenues of $78.35 billion.
Apple also made a few risky decisions during the holiday season. The tech giant released three iPhones in fall 2017 – one more than usual. In addition, the iPhone X, despite being a late addition to the company’s lineup, had a $999 price tag. According to Apple, this was one of the factors considered in the preparation of its guidance.
In addition, Apple’s smart speaker, the HomePod, was released too late for the holiday season. There was also the issue of ‘battery-gate’ which was a software upgrade that happened to slow down older Apple phones in a bid to improve battery life. The outcry that resulted has spurred a battery replacement program which is under regulatory scrutiny.
On Thursday, Alphabet stock dropped by 5 percent following disappointing fourth quarter earnings. However, it managed to bounce back following the announcement of the company’s earnings, to stand at only 2 percent down. Alphabet’s results showed robust growth in revenues, but investors remain cautious of reduced margins and increasing operational costs.
As expected, Google’s growing ad business drove the growth of Alphabet, posting revenues of $27.2 billion in Q4. Notably, Google’s mysterious ‘other revenues’ category, that includes sales of hardware, its enterprise offerings and the app store, posted revenue of $4.69 billion, to bring the company’s total revenue to $31.91 billion.
Google CEO Sundar Pichai talked about his company’s cloud operations for the first time, noting that it was now a “billion dollar per quarter business.” Although it is difficult to make a direct comparison between Microsoft, Amazon and Google’s cloud businesses, Google’s Cloud Platform stands out as the fastest growing cloud provider going into 2018.
All in all, Alphabet’s revenue in 2017 rose by 23 percent to hit $110.9 billion. In the meantime, clicks on Google ads surpassed industry analysts’ expectations, with the cost per click declining slightly. This is hardly surprising, since CPC has been on a steady decline in recent years, a trend attributed to the increasing focus on YouTube ads and a shift to mobile.
Although Google’s advertising business continues to churn out the cash, Alphabet also factors in revenues and losses from what it terms as ‘other bets.’ These include, for example, the healthcare company Verily and self-driving car company Waymo. The ‘other bets’ segment realized $409 million in revenue against operating losses of $916 million.
Alphabet has also announced that John Hennessy has been appointed as the company’s new chairman. He has sat on Alphabet’s board since 2004, taking the hot seat from Eric Schmidt following his announcement that he was stepping down in December 2017.
Following a drop in its share price, Facebook rebounded in late trading on Thursday to record highs following the release of its earnings report on Wednesday. The company reported a double-digit growth in advertising revenue in the midst of massive changes to its platform.
Following closely on a 5% drop in Q4 earnings, as a result of reduced time on the platform by users and tax changes, Facebook shares soared to as much as $194.50 following the earnings call, with executives discussing growth in ad pricing. In Thursday trading, Facebook stock hit a record of $195.32 in intraday trading.
Recent stock losses reversed into gains following the release of post earnings remarks from Facebook’s Chief Financial Officer David Wehner that showed an increase of 43% in total page impressions, a gain of 4% over the last quarter. In general, the pricing increase can be attributed to the Facebook core app, in addition to Instagram, which Facebook does not offer financial results for.
Going into the earnings call, the open question was just how much the massive changes that Facebook made to its news feed would affect its top and bottom line. The company’s chief executive, Mark Zuckerberg talked at length about the apparent effects of changes that are targeted at viral videos, saying that the platform’s users spent 50 million fewer hours per day on Facebook, which works out to more than two minutes daily per used worldwide.
The changes to Facebook have led to a reduction in about 700,000 daily users in North America, with users in the U.S. and Canada worth $26.76 each in Q4, in comparison to the worldwide average that stands at $6.18. After the U.S., Europe has proven to be the next most valuable region, with European users worth $8.86 a piece, per quarter.
When compared with the same quarter a year ago, impression rate growth and the price of ads have flipped; in the fourth quarter of 2016, ad impressions soared by 40%, with prices rising by 3%. However, from the beginning of 2017, the social media giant’s ad impressions have declined incrementally by 32% from the first quarter, resulting in a rise in prices.
An element that is hardly talked about and almost never noticed is Facebook’s payments segment. This is remarkable because, for the first time in three years, this division’s revenue grew from 2016, moving up 7% to stand at $193 million. The reason for this growth is not entirely clear but is almost entirely based in the Asia-Pacific region.
It is speculated that Marketplace is one of the reasons for the growth in this division, a result of more Facebook users transacting on its version of eBay. Company executives have revealed that over 700 million users now use Facebook every month to buy and sell goods and services through the product that was launched in 2017, in 41 countries.
Amazon exceeded analysts’ predictions in Q4 2017, while continuing to exhibit growth in its Amazon Web Services business. The company says that it sold ‘tens of millions’ of its AI-backed Echo devices in 2017, with the cheapest of its products making up most of its sales in the last year.
Of course, it is not clear just how many Echos have been sold – Amazon is famous for being less than transparent with regard to the numbers of its sales in particular product categories – but the vague ‘tens of millions’ figure shows that there is a growing market for smart speakers.
As the fourth quarter earnings were announced on Thursday after the close of the markets, Wall Street was poised for high sales numbers from Amazon, thanks to exceptional sales figures from Cyber Monday and Black Friday sales as well as a huge expansion in Echo products in 2017. Amazon’s fourth quarter revenue hit $60.45 billion, which was a jump of 38.2 percent from the $43.7 billion revenue reported in the previous quarter. Overall, Amazon’s total net income was $1.86 billion, which resulted in $3.75 per share in earnings. Adding that much more to the stock’s premium price and speculation around a share split.
The company’s physical stores, which include Whole Foods and Amazon book stores, brought in revenues of as much as $4.5 billion. In addition, Amazon Web Services, the company’s industry-leading cloud services business, has hit $5.1 billion, well above industry estimates of $5 billion.
Looking beyond the company’s healthy financial reports, there are still signs of hefty spending as a result of an aggressive expansion program. The result has been a decline in free cash flow from more than $10 billion in 2016 to $8 billion in 2017.
These financials are just a small part of what the secretive tech giant releases to the public. In the past, Amazon has divulged a number of best-selling products’ numbers – including the Echo Dot and Fire TV Stick – including worldwide sales through its online e-commerce platform. Still, it says that there has been a jump in Prime signups.
With the earnings reports behind us, all eyes are now on the tech giants, Apple, Facebook, Alphabet and Amazon, and what is expected from these leading technology companies in 2018! It seems their technology and earnings have no limits…