Topic: Earnings
★ Verizon Reports Poor Q1 2017 Results, Offset a Little by Unlimited Reintroduction (Apr 20, 2017)
Verizon today announced its Q1 2017 results, and they completely explained the company’s unexpected and rapid reintroduction of unlimited wireless plans in the quarter. Before it reintroduced those plans, it was on a trajectory for by far the worst postpaid phone losses it’s ever seen, and even with the little bit of growth it saw after the launch, it still had its worst quarter ever by some margin. Tablets also shrank for the first time ever, which in turn led to the company’s first-ever postpaid net losses in a quarter. Churn was up, average revenue per account was down… this was a terrible quarter for Verizon, only salvaged partly by the unlimited launch. Q2 and the rest of the year should be quite a bit better, but it’s clear that Verizon has been suffering recently, most likely at the hands of both T-Mobile and Sprint, which has explicitly targeted it in its advertising. Outside the wireless business, things weren’t that much better – wireline revenues were fairly flat, while margins improved a little. But there’s really no growth driver in the business at the moment, as essentially every part of the business is flat or declining, though the whole thing is still highly profitable.
via Verizon
Qualcomm Details Apple Dispute Financials in Earnings Release (Apr 19, 2017)
Qualcomm has just reported its earnings for the March quarter, and one of the most interesting aspects is its commentary on its dispute with Apple. It says that Apple’s suppliers reported but did not pay around $1 billion in royalties in the quarter, which exactly offset the $1 billion Qualcomm is refusing to pay Apple under the Cooperation Agreement the two companies have, and which Qualcomm says Apple breached. Importantly, that Agreement ended in December, so there are no more payments to be withheld, which means if Apple suppliers continue to withhold royalty payments, they’d affect Qualcomm financially going forward in a way they didn’t this past quarter. As such, it’s given a wider EPS guidance range (25 cents) than usual (it was 10 cents in the last two quarters, for example) because of the uncertainty over these royalty payments (the math here is tricky but I reckon that’s about a $400m range in net income terms). Beyond the Apple dispute, the results are a little tricky this quarter because on paper they look terrible, with revenues and profits way down over the same quarter last year. But that’s partly because Qualcomm had to reduce from its GAAP revenues the nearly one billion dollars it’s due to pay BlackBerry as a result of arbitration between the two companies. The actual results are much better, in keeping with recent trends at Qualcomm, lawsuits aside.
via Qualcomm (see also slide deck)
★ Netflix Reports Q1 2017, Gains 5m Subs, Makes First Profit Internationally (Apr 17, 2017)
Note: this is my first piece of commentary on Q1 2017 earnings. The Q1 2017 tag attached to this post will eventually house all my earnings comments for this quarter, just as the Q4 2016 tag does for last quarter and the earnings tag does for all past earnings comments. Netflix is also one of the dozen or so companies for which I do quarterly slide decks as part of the Jackdaw Research Quarterly Decks Service. See here for more.
Netflix today reported its earnings for Q1 2017, and the results were mostly good, with a few possible red flags. This year, the new season of House of Cards will debut in Q2 rather than Q1, and that makes some of the year on year comparisons tough. One of the results was much weaker Q1 subscriber adds this year than a year ago in the US, worsening what’s already been a trend of slowing growth for several years. Netflix is projecting something of a recovery next quarter, however. In some ways, the biggest news was the first quarterly profit for the international business, which has neared profitability in the past but been plunged deeper into the red by market expansions every time it did so. Now that Netflix is in essentially every country it can be, that won’t be the case anymore, so although it’s projecting a return to small losses next quarter, it’s now saying it wants to be judged partly on growing revenue and margins globally over time, which is a big shift (previously it wanted to be judged on sub growth and domestic margins only).
There were a couple of mild admissions of failure: customer satisfaction in Asia, the Middle East and Africa is not what it could be, and the company’s Crouching Tiger sequel didn’t achieve its goals for original content. Marketing spend will be up at least a little in 2017, and content obligations continue to grow. The company also made clear that the big free cash flow losses caused by its investment in original content will continue for “many years”, though it also said that it will eventually throw off significant cash when it hits a “much larger revenue base”, giving I think the clearest indication yet of what a long-term project positive free cash flow will be. In the meantime, it will continue to borrow to fund that growth. Domestically, profits are growing very rapidly, and the theory continues to be that eventually the International business will reach that level of maturity too and deliver decent margins. But in the meantime, a bet on Netflix continues to be a bet on continued high growth, something which certainly isn’t guaranteed in the US and may end up being tough long term internationally too.
via Netflix Shareholder Letter (PDF)
Samsung sees bounce in Q1 ahead of Galaxy S8 – CNET (Apr 6, 2017)
The first part of this article suggests that the strong Q1 results Samsung is forecasting would be a bounce back from the Note7 debacle, but the reality is that Samsung already saw that bounce back in Q4 2016, which was its best-ever quarter for operating margins and flat revenues year on year despite the hole left by the Note7. This quarter would improve margins still further while also potentially maintaining flat or slightly increased revenues year on year again. What Samsung doesn’t tell us in these preliminary results notices is where the money is coming from, but last quarter semiconductors made a big contribution, and it’s likely that this division is the big hero again this quarter. It’s by far the company’s most profitable division, and although it contributes less revenue than the mobile segment, its contribution has been growing there too. So although the Note7 rebound narrative is attractive, this is really about components not phones, as the phone business continues to be roughly stagnant rather than thriving.
via CNET
Tesla Reports Q4 2016 Financial Results (Feb 22, 2017)
The last in our trio of financial results today comes from Tesla. This Wall Street Journal piece from this morning does a great job highlighting some of the investor enthusiasm about Tesla in the face of its continued failure to hit expectations and deliver on its own production and other promises. In the end, today’s results were a mixed bag – both production and deliveries in Q4 were down slightly on Q3 but well up on Q4 last year, revenue was up almost double year on year, and the Solar City business looks to be breaking even on gross margin. But overall, the company had big net losses, ate massive amounts of cash in the quarter, and continues to be a long way from its production targets for the Model 3 which is supposed to start shipping in July. It’s also about to embark on a huge increase in battery production, with three additional Gigafactories being planned for construction starting later this year. Meanwhile, the company’s valuation is now ahead of Nissan’s, despite producing losses and massively fewer cars – the power of trajectory and belief in a disruptive business model.
via Tesla (PDF)
Square Announces Q4 2016 Financial Results (Feb 22, 2017)
Square’s results were much better than those for Jack Dorsey’s other company, Twitter, earlier this month. All the important numbers are heading in the right direction, with revenue growth strong year on year, margins steadily improving and heading towards breakeven, the Starbucks business in the rearview mirror, and new more profitable businesses ramping up nicely. I tweeted quite a few of my Square charts earlier in this thread following release of the results – overall, there’s a lot to like here, and the long-term challenge continues to be driving scale while leveraging the payment processing business to drive new, higher margin revenue.
via Square
Fitbit Reports Final Q4 2016 Earnings (Feb 22, 2017)
I covered Fitbit’s preliminary earnings release a little while back, and we already knew these results weren’t going to be pretty. This was the first quarter of year on year declines, and also featured the company’s first meaningful losses since 2013, when it recalled its Force device. Its costs, especially its sales and marketing costs, rose considerably as a percentage of revenue, and its cost of revenue in particular was well up on last year’s despite the much lower revenue. As I said a few weeks ago, though Fitbit is downplaying these results as a temporary setback and promising a recovery, I see little evidence to support that assertion. Interestingly, some of the metrics Fitbit only provides once a year around user numbers suggest that it’s sold relatively few second devices to the same users – its registered user number is over 80% of its total number of cumulative devices sold, suggesting under 20% were sold as second devices to the same users; in addition, its active user number is now under half its total registered user number, suggesting an over 50% abandonment rate. Those two combined, together with the relatively small addressable market for dedicated fitness devices, are why Fitbit is having such trouble.
via Fitbit (PDF)
Lenovo Reports December 2016 Quarter Results (Feb 16, 2017)
Lenovo continues to be a business in three quite different parts: in PCs, it’s the world’s largest vendor, grew slightly year on year, and is profitable; while in data centers and mobile it’s shrinking fast and unprofitable. Lenovo’s mobile business in China has collapsed by about 90% in the past two years, to the point that Lenovo didn’t even report China shipments at all this quarter, while it’s likely held up a little better outside of China, though it’s very focused on low-end shipments. Lenovo basically focused its whole earnings presentation on the PC business, with much less detail than usual on mobile, and the usual short shrift for data centers. This was a business that looked really good a couple of years ago, but looks much less so now. Another cautionary tale about the challenge of today’s smartphone market, especially for Android vendors, but also about the dangers of expanding too quickly through acquisitions.
via Lenovo
HTC has another tough quarter, with revenue down 13% YOY, but smaller losses – TechCrunch (Feb 15, 2017)
I don’t typically track HTC’s financials that closely, because they’re so small (just $700 million in revenue last quarter) and such a minor player at this point, but it’s worth checking in from time to time, especially as HTC expands beyond its traditional smartphone business into VR and ODM manufacturing for Google. Interestingly, there’s very little sign of any meaningful bump in revenues or profits from either of these initiatives, which either means that their contribution is tiny or that the traditional smartphone business is declining even faster than in the past. Revenue was down 13% year on year, and the company has had negative operating margins for seven straight quarters and most of the last three years. On the Q3 earnings call, HTC said that it was near breakeven on its smartphone business, and blamed the VR business for the overall losses. It also refuses to talk about the Pixel business at all on earnings calls, citing the lack of public disclosure by Google (which is odd because Google has confirmed it). Regardless, it’s worth noting that the company’s gross margin is just barely in the double digits, which obviously doesn’t leave much room for marketing and other corporate costs. HTC is one of a number of what were major Android vendors a few years back which have faded considerably, and unlike Sony it doesn’t yet seem to have figured out how to make the business work at its new smaller scale.
via TechCrunch
T-Mobile US Reports Q4 2016 Results (Feb 14, 2017)
T-Mobile reported its Q4 results this morning – the last of the major US wireless carriers to do so – and as usual it’s beating all the others handily on postpaid phone subscriber growth and making decent progress on growing its margins. It added several times as many postpaid phone subscribers as any other carrier, but in other categories like tablets and “connected devices” (think cars, machine to machine, connected utility meters) others were ahead, with AT&T leading the market in both those categories. T-Mobile says it has seen much higher porting ratios (the ratio of subscribers won versus lost from a particular carrier) against Verizon this quarter, which would help explain the latter’s rapid shift in stance on unlimited plans. T-Mobile continues to be quite a bit smaller than the big two, and that’s a big driver of its lower margins, but the fact that it’s willing to take those lower margins enables it to win subscribers with aggressive pricing, especially since its network performance and coverage is constantly improving. I continue to be skeptical that T-Mobile’s strategy is sustainable over the long haul – it’s very focused on phones, which aren’t growing much anymore, and hasn’t invested as its two largest competitors have in newer growth categories, but for now it continues to capture lots of attention and make the other carriers look bad.
via T-Mobile (PDF release)
Twitter Reports Q4 2016 Earnings Which Miss Badly on Revenue (Feb 9, 2017)
Twitter’s results this morning were a great illustration of the quandary Twitter presents: on the one hand, it’s never been more important or relevant in the world, and on the other it just doesn’t seem to be able to turn that into meaningful user growth, revenue growth, or profitability. Revenues were actually down year on year, especially in the US, while losses also increased due partly to restructuring costs. Monthly user growth was anemic again, while daily user growth accelerated, though Twitter bafflingly continues to refuse to provide actual DAU numbers (it’s likely that they’re well under half of its MAU number of 319 million, so around 150 million). Meanwhile, Twitter is still talking about exactly the same shortcomings in its ad product around measurement, targeting, delivering ROI, and creative capabilities that it’s been talking about for ages now. And it sounds like it’s rethinking a number of its direct response ad formats and may kill off some that are actually delivering revenue because they’re too resource-intensive. At this point in Twitter’s history (almost 11 years in) and Jack Dorsey’s second tenure (a year and a half in), the company really shouldn’t be about to undergo yet another major reset in its strategy. In the meantime, Twitter management is asking investors to take it on trust that they can convince advertisers that the underlying growth in DAUs and impressions means they should spend more money on Twitter. We’re certainly due for at least one more really shaky quarter, but there’s a good chance we won’t see meaningful financial progress in 2017 at all. I’ve done a slightly more in-depth take at Beyond Devices here.
via Twitter (PDF)
Snap Publicly Files for an IPO and Reveals Financial and User Data (Feb 2, 2017)
The long-awaited Snap S-1 was released this afternoon just as Amazon and GoPro were reporting earnings, so it’s been busy. I tweeted some of the most interesting tidbits I saw at first glance earlier, but will do a deep dive for a blog post at some point in the next 24 hours too. Some highlights: the company is growing very rapidly in revenue terms, as it ramps ARPU fast, but still makes 88% of its revenue from North America, even though a majority of users are overseas. User growth has been decent, ending 2016 with 160 million daily active user (its only user base measure), but has slowed in recent months, which Snap blames on both a poor Android update and competitive moves (such as Instagram Stories, though it’s not mentioned by name). It loses money in massive amounts – there’s no clear path to profitability here any time soon, even with rapid growth, as cost of revenues alone outweigh revenues. Engagement is mentioned 103 times in the filing, as was widely anticipated, but the only measure mentioned beyond DAUs is time spent, and it’s not provided on a consistent basis. That’s a worrying sign at a time when Snap needs to be demonstrating that its users are not just using the app daily but spending more time in it. Other tidbits: Apple is mentioned in a list of competitors, and Google is Snap’s cloud provider, with a massive commitment to future spending with the company. This blog post goes into a lot more depth on the filing.
via Snap’s S-1 filing (more coverage on Techmeme)
Amazon Reports Fourth Quarter 2016 Financial Results (Feb 2, 2017)
Amazon had a somewhat disappointing quarter relative to analyst estimates, as growth slowed in its core e-commerce business. Unit shipment growth, which had been above 25% for the last five quarters, dropped suddenly to 24%, which impacted overall growth rates, as those dropped for the second quarter in a row. The International business had significant losses for the second straight quarter as Amazon invests more heavily overseas in fulfillment, market entry, and extending services like Prime video globally. AWS grew at a healthy clip, though margins are flattening at around 26% lately. As usual, executives on the earnings call were not helpful in understanding or predicting the big swings in both growth rates and investment levels, though guidance for Q1 looks fairly light. The official explanations are the anniversary of a leap year in 2015, which added 150 basis points to growth, and currency headwinds, which are being mentioned more frequently again on earnings calls lately. But it looks as though Amazon may be expecting slightly slower growth in Q1 too. Dropping back down to the high teens and low twenties growth rates Amazon saw in 2014 and 2015 wouldn’t be the end of the world, but it would be a rather different trajectory from the one it’s been on for the past year and a half, and investors would react accordingly.
via Amazon
GoPro Announces Fourth Quarter and Full Year 2016 Results (Feb 2, 2017)
GoPro actually released some slightly better results for Q4, following a really tough first three quarters of the year, with the first year on year growth since Q3 2015. But revenue was still down on Q4 2014, which remains its best ever quarter, it lost money for the fifth straight quarter, and ASPs are still below previous levels. This is a slight recovery, and it obviously wasn’t helped by the problems with the Karma, but there’s not much evidence yet that GoPro can get back on the trajectory it was on before things started to go wrong after the aborted Session launch. Having cut its headcount by almost 300, it’s lowered its costs a little, but will need to get serious revenue growth going again if it’s to get back to serious profitability.
via GoPro
Sony Reports Results for December 2016 Quarter (Feb 2, 2017)
Sony’s been such an interesting company to watch over recent years, because almost every aspect of its hardware business has been challenged, and it’s even exited some, like PCs. However, it’s had something of a renaissance in the gaming space, with the Playstation outperforming the Xbox in the current cycle, and actually growing year on year in the December quarter. The other interesting hardware business to watch at Sony its smartphones, because it’s taken a unique approach for an Android vendor, which appears to be paying off. That approach has involved focusing the smartphone business on the premium segment, resulting in a smaller but more profitable business. Sony’s smartphone shipments have dropped by about half from 2015 to 2016, but its margin rose to over 8% in Q4, well above the low single digit or negative margins most consumer electronics businesses generate. There’s an interesting signal here for other Android vendors about what it could take to find success, though there probably isn’t room for more than one or two vendors pursuing this premium strategy.
via Sony (PDF)
Facebook Reports Fourth Quarter and Full Year 2016 Results (Feb 1, 2017)
Facebook is surely one of the most predictable tech companies in reporting massive growth and profitability at the moment, and today’s results were no exception. The same drivers that have powered growth were there again in Q4: massive growth in US & Canada ARPU (up 46% year on year), massive growth in users (MAUs up 17% or 269m), increasing ad load and ad prices globally, and ads in new places like Instagram Stories and Messenger. Facebook has even been driving desktop ad revenue again, despite a decline in underlying usage – it was up 22% thanks to better mitigation of ad blockers. The only tiny dark cloud is that this is all ad growth – Facebook’s revenue is absolutely dominated by ads, which were 98% of its revenue in Q4. Non-ad revenue continues to decline, despite its investments in Oculus and other new areas, and will do so throughout 2017 too. If you believe in long-term challenges around ad-based business models, whether for privacy reasons, hitting a ceiling, the perverse incentives they create for businesses that use them, or something else, that could be a problem, especially as Facebook has already said its ad growth will slow in 2017 due to saturating ad load. However, I’m still very bullish on Facebook overall, especially as I think there are lots of untapped markets, not least showing people more content that doesn’t come from their friends, especially video (which was mentioned by Zuckerberg on the call today).
via Facebook
Sprint Continues Year-over-Year Growth in Net Operating Revenues and Postpaid Phone Net Additions with Third Quarter of Fiscal Year 2016 Results – Sprint (Jan 31, 2017)
Sprint reported its results this morning, the third of the four major US wireless carriers to do so (see AT&T and Verizon comments – T-Mobile reports on Valentine’s Day). Sprint is going through something of a renaissance lately, though only in relative terms. It’s still the smallest and least profitable of the big four, but has made lots of progress improving churn and therefore improving its customer growth numbers. The focus for both T-Mobile and Sprint is postpaid phone growth, and they’ve led the market there lately, while AT&T grows strongly in prepaid and things like connected cars, and Verizon tries to hold onto the customers it has without sacrificing margins too much through price wars. This is a fiercely competitive market, and one with relatively little growth in traditional phones. Sprint has done well to recover here lately, but has also begun to grow more strongly in connected devices (cars, machine-to-machine, and so on), while its prepaid business is falling apart (it removed over a million subscribers from its rolls in Q4 due to a change in churn standards, on top of the hundreds of thousands it reported as official prepaid subscriber losses). There’s a long way to go still for Sprint to turn itself around, not least on its network performance, where it continues to argue that it can produce the best network while spending far less on network capex than any of its competitors.
via Sprint
Apple Reports December 2016 Quarter Results – Apple (Jan 31, 2017)
This was an important quarter for Apple – it had predicted a return to growth, and it delivered on that promise, though the growth was helped by the extra week in the quarter due to Apple’s quirky reporting calendar. The highlights were iPhone, Mac, and Services growth, with the latter being by far Apple’s most consistent and fastest growing segment. The lowlights were the iPad, Other Products, and Greater China, all of which were down. Both total revenues and iPhone shipments (which are closely tied) have been within a remarkably narrow range the last three years in the December quarter, suggesting at least something about supply constraints and natural limits. The Mac had its best revenue quarter ever, helped hugely by the new MacBook Pros, which are more expensive than the average Mac Apple sells and boosted ASP a lot. Services was mostly driven by the App Store as usual, but music (Apple Music and iTunes combined) grew for the third straight quarter, and iCloud and AppleCare also helped. Apple Watch had a record unit and revenue quarter too, apparently, though we have to guess at the actual numbers. I’d guess it was marginal growth year on year, for around $2.1 billion in revenue and 6 million units. iPad dropped significantly both in unit shipments and revenue (and ASP), though some of that was down to channel depletion, and the large iPad Pro had launched a year ago, boosting that quarter. Overall, a pretty decent quarter for Apple, but no strong growth here yet (especially when you strip out the extra week). Foreign currency isn’t helping either unit sales or reported revenues or profits, and arguably roughly offset that extra week in several regions.
Lots of real-time tweets from me in this thread, and I’ll be updating the Jackdaw Research Quarterly Decks Service deck for Apple in the coming days once the 10-Q is out.
via Apple
Nintendo’s ‘Super Mario Run’ Scores Revenue, but CEO Wants More – WSJ (Jan 31, 2017)
This is the first real indication we’ve had directly from the source of how Super Mario Run has performed for Nintendo since it was released in mid-December, and it came in the context of Nintendo reporting its results for the December quarter. Overall revenue for the quarter was 174 billion Yen, or around $1.5 billion, while total revenue from Super Mario Run so far (including January) is around 6 billion Yen, or $53 million. So even though Super Mario Run has done well in its own right, it’s a drop in the bucket in terms of Nintendo’s overall business. The other key number is that around 5% of those who have downloaded the game have paid $10 to unlock the full functionality. As a frame of reference, King (maker of Candy Crush) reports that around 2% of its monthly users make some kind of payment, with the average paying user spending a lot more than $10 per month. Zynga sees a conversion rate of just under 2% and again sees spending per paying user per month well above $10. So although a 5% conversion rate may seem high, that’s a one-off payment, whereas competing game maker’s smaller number of paying users pay repeatedly over a period of time for a much larger total amount. So far, Nintendo’s business model, which attempted to buck the usual IAP model for games, has both annoyed some users while delivering a lower payout than competing games. I’m not convinced it’s done figuring out the right business model for its mobile offerings.
via WSJ
Fitbit Announces Preliminary Fourth Quarter 2016 Results (Jan 30, 2017)
These are preliminary results from Fitbit, designed to flag to investors that revenues in Q4 were well down on previous forecasts, and to announce layoffs and other cuts to the business designed to realign costs with lower revenues. The company will lay off 6% of its workforce as part of an attempt to cut $200m (or almost a fifth) out of its operating cost run rate for the year. Bizarrely, it’s still characterizing its current troubles as temporary, even though it’s given very little evidence to back up this claim. Importantly, revenue in the first half of 2017 is likely to be down compared to H1 2016, because it had big new product launches a year ago. So even if we’re to believe the claims of a rebound, Fitbit concedes there won’t be any evidence of it until later this year. Fitbit continues to be by far the most successful standalone wearables company out there, but if even it is struggling in this way at this point, that’s indicative of broader challenges for the wearables industry.
via Fitbit