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Tech Earnings Roundup: AMZN, FB, TWTR, AAPL, EBAY & More

While a huge chunk of technology companies reported last week, Amazon AMZN, Facebook (FB), LinkedIn LNKD and Expedia EXPE were the star performers. Apple AAPL disappointed, confirming negative sentiments. Last week also saw some developments on the Yahoo YHOO sale front and Alphabet’s decision to launch its own startup incubator.

Here are the top stories-

Earnings Reports

Amazon: The leading online retailer beat the Zacks Consensus Estimate on both the top and bottom lines. The high-margin AWS business was the only one that grew in the seasonally softer selling period, which was positive for margins. The FX impact on revenue came down significantly in the last quarter. Profitability improved across segments although management added a word of caution about AWS margins, saying that the levels of investing, price reductions and cost efficiencies could make them lumpy going forward. The guidance was also better than expected.

eBay: eBay EBAY also beat on both revenue and earnings, attributed to initiatives like the better product information collection from sellers, better catalogs for discovery, application of artificial intelligence for a better user experience, increased use of social media to drive traffic and more robust analytics tools for sellers to name a few. Guidance was also better than expected.

Groupon: The daily deals company also bettered the Zacks Consensus Estimates for top and bottom lines. The results weren’t that exceptional however and the company continues to report a loss. The new CEO just took the job in November last year, so he’s entitled to some time to turn the company around. But falling revenue and rising costs justifiably alarmed investors, which sent shares down 6% in extended trading.

Apple: Apple missed the Zacks Consensus Estimate for both revenue and earnings as its most important product line iPhones failed it. The all-important Chinese market also declined 26%. iPhone units and revenue were both down from last year. iPads also declined, but that was more or less as expected.

Apple shares fell 8% in response and investors remain concerned about growth prospects in China (on which it is highly dependent). Particularly so because Carl Icahn just dumped his shares citing uncertainty in Apple’s relationship with China. The company remains mum on the issue, which doesn’t help.

Also, IDC’s smartphone market share numbers (detailed in the last section below) show that Chinese phone makers are growing market share. While their current focus is on the low end, things could change in the not-too-distant future with a little help from the Chinese government.

Facebook: The social networking giant beat the Zacks Consensus Estimates on both top and bottom lines despite the slightly negative effect of FX. A growing number of marketers, new products, mobile engagement and successful newsfeed ads led to solid double-digit ad revenues. More commendable was the double-digit increase in users given its already large base.

Also, similar to what Google did some time back, Facebook created Class C shares with no voting rights, thereby allowing Zuckerberg to retain control of the company. Accordingly, Class A and Class B shareholders will get a Class C share for each share of another class held as a stock dividend. Provided shareholders agree at the AGM to be held in June. 

LinkedIn: The professional networking company reported solid results, beating the Zacks Consensus Estimate on both top and bottom lines. Mobile and contribution from acquisitions were responsible for the strength in revenue. Both the domestic and international businesses grew strong double-digits. Premium subscriptions also grew double-digits. Cash flow was positive. Guidance was more or less in line with estimates.

Twitter: Twitter (TWTR) lost over 13% post announcement of first quarter revenue and second quarter guidance that were both below the Zacks Consensus Estimate. But advertising revenue grew double-digits (37%) and ad engagement was up 208%. There was even a slight increase in users. But Twitter seems to be going for what everyone else is leaving on the table, i.e. the lowest priced inventory.

So unlike other players in the digital advertising market, it saw prices slide 56%. The company said that brand advertisers didn’t increase spending as fast as hoped, which added to the negative sentiment. At the same time, note that operation was much more efficient leading to a loss of 7 cents that was much better than the estimated loss of 13 cents and  year-ago loss of 20 cents. 

Expedia: Perhaps the greatest surprise of the week, Expedia beat the Zacks Consensus Estimates for both revenue and earnings, defying historical trends. Two acquisitions, trivago and HomeAway grew strongly in the last quarter. Orbitz also made a good contribution, but it’s currently in the process of being integrated into Egencia, so maybe things will pick up further once that’s done. The company appears to be delivering on its acquisition strategy that seeks to consolidate its domestic business and leverage it for international growth. As a result, the operating margin expanded in the last quarter and adjusted EBITDA jumped 73.5%.

Yahoo Sale Developments

There were a couple of developments last week.

The first was an agreement with activist investor Starboard, allowing it to appoint four board members and extending the total number of Yahoo directors to 11. Directors Lee Scott and Sue James will step down from the board at the annual general meeting (usually held in June) to facilitate this. Starboard will thus get more of a say in Yahoo’s affairs whether there is a sale or not. But a sale seems very much in the cards as Starboard Chief Executive Jeffrey Smith will also join Yahoo's strategic review committee.

The second development was a filing disclosing that Yahoo CEO Marissa Mayer would receive a $55 million severance package in cash, stock awards and other benefits in case of termination of services within a year of sale.

Google Incubator for Startups

Google has decided to create its own startup incubator headed by longtime Googlers Don Harrison and Bradley Horowitz. The goal is to give some space to employee teams with a good idea and possibly turn it into a business. These employees will start off by pitching the plan to Google, which will then provide the funds. If all goes well, there will be more pitching and more funding.

Google has always allowed employees 20% of their time on their own ideas, which has been highly fruitful, resulting in products like Gmail, AdSense and Google News. Now they could go to work full time on these ideas in its new San Francisco buildings dubbed Area 120.

Some have said that this is intended to stem brain drain. And true enough, Evan Williams, who joined the company via an acquisition, left soon thereafter to create Twitter and Medium. Kevin Systrom joined Google as a fresher but left to eventually found Instagram. College dropout Justin Rosenstein joined Google only to leave and found the software company Asana. There have been many others. So as competition continues to increase and we constantly discover new ways of doing things, this initiative could help to keep talent (and technology) in-house while also creating a breeding ground for fresh blood.

Company

Last Week

Last  6 Months

AAPL

-11.30%

-21.55%

FB

+6.34%

+21.21%

YHOO

-2.35%

+11.48%

GOOGL

-4.04%

+4.09%

MSFT

-3.69%

+4.40%

INTC

-4.29%

-9.44%

CSCO

-2.33%

-3.54%

AMZN

+6.29%

+17.60%

Other stories you might have missed-

Corporate

Facebook Lays Off 40 People: Business Insider reports that 40 people, mostly from Facebook’s LiveRail acquisition were given 45 days to find alternative employment within the company or elsewhere. It appears that the integration of LiveRail didn’t quite go as planned with all remaining employees in the division being relocated to a newly-formed publisher ad-tech group in London early this year. There were also issues with ad fraud (serving ads with no possibility of getting views) and view-ability (measurement of whether and for how long an ad was viewed).

This is not uncommon in the video ad tech business, but Facebook is trying to bring greater efficiency into the business, which is a good thing. LiveRail's technology is now being used on private marketplaces (PMPs), a system that allows publishers to auction their premium ad space to a select group of advertisers on an invite-only basis. They are also helping with non-LiveRail stuff. So can the acquisition be deemed a failure? We’ll have to wait and see it seems. 

Alphabet Hires Hardware Project Head: Former President of Motorola Rick Osterloh has been appointed as head of a new hardware unit at Google. The unit includes Google efforts like Nexus phone, Chromecast video streaming stick and Google Glass. Osterloh’s title is SVP and he will be reporting directly to CEO Sundar Pichai.

Amazon Facilities In N.J.: Delivery, last mile access, call it what you will, but Amazon is determined to get those shipping dollars down. That’s at the heart of all the logistics investments and new fulfillment centers it’s opening within the U.S. And of course it’s good for employment (the recent openings of an 800,000 sq ft facility in Florence will create 1,500 full time jobs while the 600,00 sq ft facility in Carteret will create 500 more). Amazon already employs 5,500 in New Jersey.

S&P Cuts IBM Rating: Standard & Poors has cut its outlook on IBM to Negative while maintaining its AA- rating on the shares. A negative outlook often precedes a rating downgrade. The problems cited were IBM’s protracted revenue and earnings declines, which have been sharper in recent times. The company is also under pressure to deal with changing client needs according to the S&P. IBM has said in response that it still has a strong balance sheet and continues to generate strong cash flows that will enable it to execute its refocusing strategy and capital allocation plans.

Legal/Regulatory

EU Curbs on Data Dominance: The European Commission has prepared a draft document seen by Bloomberg according to which companies like Google and Facebook will be subject to the same restrictions as telecom companies with respect to access to, and ownership of data (the goal is to take a problem-driven approach rather than create blanket rules for everyone).

The EU is targeting online platforms like Google, Facebook and Uber but not retailers like Netflix. It instead seeks to increase online retail within and amongst EU member states by removing geo-blocking. This is a term given to the phenomenon that retailers and digital content providers in some EU member states prevent online shoppers from purchasing consumer goods or accessing digital content services because of their location or country of residence.

In March this year, the European Commission published a report, in which geo-blocking was named as a major obstacle in cross-border trade between EU member states. Of the information sought of 1,400 retailers and digital content providers, 38% of retailers and 68% of digital content providers said they engage in geo-blocking.

Google Has Special Relations with White House: It’s something we guessed in the past but last week, a not-for-profit outfit provided some astonishing numbers as part of what it called The Google Transparency Project. Campaign for Accountability (CfA) as it’s called has the goal of exposing “decisions made behind the doors of corporate boardrooms, government offices, and shadowy nonprofit groups.” The report shows exceptionally strong ties between Google and the feds.

Accordingly, employees from Google and its associated entities made 427 visits to the White House between Jan 2009 and Nov 2015, and company executives met at least 20 times with Obama’s key political and economic advisers. Also, 251 people either moved from Google into government or the other way around. CfA declined to announce its donors publicly.

Amazon Responsible for Children’s Purchases: This is an old case going back to 2014, when the Federal Trade Commission (FTC) took a few companies to task about in-app purchases made by children when the apps were free to download. Free apps created the impression that the content was free, which led parents to allow those apps to children.

At any rate, Google and Apple chose to settle with the FTC, paying $19 million and $32.5 million, respectively. Amazon took the matter to court, which is what led to the final decision against Amazon. The online retailer has since made changes that have introduced parental controls, so it now has only to pay the damages, which are yet to be determined.

New Technology/Products

Apple Software for Medical Apps: In an attempt to create a healthcare ecosystem on Apple products, the company has introduced a suite of tools called Carekit that developers can use to build apps enabling patients to record symptoms, get useful information, track their progress and send reports to a doctor. Apps based on these tools that launched last week were One Drop for diabetics, Start for people taking anti-depression drugs and two apps from health startup Glow, aimed at pregnant and lactating women.

Microsoft Skype for Business on Apple Computers: Microsoft is offering enterprise users of Apple computers the option of testing out its Skype for Business (a paid version of Skype that integrates with Microsoft Office apps, handles conference calls with up to 250 members, and offers better security and account management). This is obviously for the bigger companies and no one knows whether they will bite. But it’s a good option to have.

IBM Blockchain Services: IBM has announced a technology to operate blockchain networks in the cloud with a focus on security and regulatory requirements. Blockchain is a public ledger system with decentralized control. The technology is still in the development phase partly because of security concerns because any loopholes can lead to loss of huge amounts of data or cash.

M&A

Alphabet's Rumored Partnership with Fiat: It’s been rumored for months that Google and Ford may be pursuing an autonomous car coalition and now there’s a fresh rumor involving Fiat Chrysler, better known for its stupendously expensive and fuel inefficient machines. Fueling the rumor is the fact that unlike its peers, the car maker hasn’t put much cash into autonomous car R&D. So Google, which is widely believed to have a head start in this research, would be a good partner to have. 

Auto Coalition: Alphabet, Ford, Uber, Lyft and Chinese-owned Volvo Cars have formed a coalition to "work with lawmakers, regulators and the public to realize the safety and societal benefits of self-driving vehicles." What’s more, they have David Strickland, former official of the U.S. National Highway Traffic Safety Administration (NHTSA) to serve as counsel and spokesman. The coalition’s purpose seems to be to create positive public opinion on the technology while also pushing things along on the regulatory path.

Fitbit Partners with Alibaba’s Tmall: The deal, which will facilitate the distribution of Fitbit products in China encompasses devices, apps, social and motivational features, advice and personalized coaching. The personal coaching will be designed to bring behavioral changes in exercise, food, sleep and weight management thereby making the company a top fitness brand in the region with 10 million plus fans as soon as possible. And that’s the promise Tmall seems to be making.

Oracle Buys Textura: With its purchase of cloud-based contract and payment management solutions Textura for $663 million and combination with its own Primavera business (SaaS platform), Oracle is forming a new unit specifically targeted at increasing digitization of the engineering and construction market. The Textura platform is already well known among contractors (it has signed on 85K of them). Moreover, it processes $3.4 billion payments transactions a month, managing more than 6K projects.

Some Numbers

IDC Releases Tablet Market Share: Apple continued to lead the market with 25.9% share in the first quarter, followed by Samsung with 15.2%, Amazon with 5.7%, Lenovo with 5.5%, Huawei with 5.2% and others with 42.6%. Amazon and Huawei grew strongly: up 5421.7% and 82.2%, respectively from Q1 of 2015) with Samsung, Apple, Lenovo and others declining.

The research firm said that while Apple has had some early success in the high-end detachable segment that many consider Microsoft to have created, there remains plenty of opportunity for Microsoft and its hardware partners to come back. That’s because the price tags make them more appropriate for enterprise consumption, where Microsoft and company are well entrenched while Apple is yet to gather momentum.

Smartphone Details from IDC, Strategy Analytics, Nielsen: IDC estimates that smartphone shipment growth in the first quarter were the slowest ever at 334.9 million units with Chinese brands OPPO and vivo stealing the show by pushing out previous number four and five Lenovo and Xiaomi. Accordingly, Samsung remained the leader (24.5% share), followed by Apple (15.3%), Huawei (8.2%), OPPO (5.5%),vivo (4.3%) and others (42.3%). OPPO and vivo grew 153.2% and 123.8%, respectively. Huawei also grew (58.4%). Apple declined 16.3% and Samsung 0.6%.

Strategy Analytics estimates that total shipments in fact shrank 3%. It maintains that first and second positions were Samsung’s and Apple’s, with respective market shares at 23.6% and 15.3%. Nielsen said that Apple’s share of the high-end smartphone market grew 0.94%.

Some Other Companies That Reported Last Week: Pandora, Corning, Texas Instruments, NXP Semiconductors NV, FTNT, NCR Corp, Xilinx, SanDisk, Equifax, Western Digital, Seagate, Juniper

Some Companies Reporting This Week: PAYC, EQIX, PCTY, PCLN, FIT, TRIP, GDDY, BABA, NSP, FIS, GRUB, ZNGA, YELP, QLGC, DATA, ATVI, TDC, MWW, CTSH.

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EXPEDIA INC (EXPE): Free Stock Analysis Report
 
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YAHOO! INC (YHOO): Free Stock Analysis Report
 
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