Tech Giants ‘Amazon,Google, Apple, Facebook’ Beats Q3 Estimates
Key Points:
- Big Tech Quartet- Apple, Alphabet, Amazon, and Facebook reported their third-quarter earnings en masse last week.
- The tech giants exceeded Wall Street estimates maintaining the momentum from the previous quarter shows how the pandemic has driven online business.
- Their earnings soar despite antitrust issues and seemingly endless coronavirus pandemic.
- Google and Amazon enjoyed a strong third quarter whereas Facebook and Apple just managed to beat the estimates.
- The combined profit of the tech giants totaled $38.08 billion compared to $29 billion last quarter.
The Big Tech giants are just getting bigger amidst a global pandemic, economic malaise, and anti-trust scrutiny. Alphabet, Apple, Amazon, and Facebook collectively exceeded Wall Street expectations reporting a combined quarterly net profit of $38.08 billion. The tech companies are under unprecedented scrutiny from US lawmakers on their dominant positions in the marketplace. The four companies’ combined worth is about $5.3 trillion.
Apart from the growing profit and revenue, the stocks of three of the companies had mixed performance after trading hours as the forecast issues didn’t go well with the investors: Facebook’s edgy outlook, Apple’s no forecast, and Amazon’s huge Covid-19 spending projections. Google crushed market expectations but didn’t provide forecasts after tremendous gains.
Here’s A Quick Glance At The Tech Giants’ Earnings:
1. The Next Big Thing For Apple Is iPhone 12
Apple narrowly exceeded market expectations despite the later-than-usual launch of its iPhones. The net sales grew by 1% Y-o-Y in its fiscal fourth quarter. The increase mainly reflected strong growth in Mac- up by 29% and iPad – up by 46% as millions of people were remote working and schooling during the pandemic.
Apple is the bellwether for the smartphone business but iPhone sales slumped 21% as the tech giant delayed the launch of iPhone 12 from late September to October which means the result of the new iPhone will be seen in the company’s January report. Apple also witnessed a 28% decline in revenue in China because of the lack of a new iPhone launch. This resulted in a 7% drop in net income to below $13 billion. The company also did not offer revenue guidance for the current quarter that disappointed the investors. However, CEO Tim Cook tried to paint a positive picture in a statement,
“Despite the ongoing impacts of COVID-19, Apple is in the midst of our most prolific product introduction period ever, and the early response to all our new products, led by our first 5G-enabled iPhone lineup, has been tremendously positive.”
Key Numbers (Analyst estimates are based on Bloomberg Consensus data)
- Revenue: $64.7 billion compared to $63.48 billion expected.
- iPhone Revenue: $26.4 billion compared to $27.06 billion expected. The Q4 2019 iPhone revenue was $33.36 billion.
- Services revenue: $14.5 billion compared to $13.87 billion expected.
- Wearables revenue: $7.8 billion compared to $7.35 billion
2. Alphabet Sales Surges On Resurgence Of Ad Sales
Google’s parent company Alphabet topped Wall Street expectations revealing a mammoth 14% revenue jump. The growth is led by Google’s search business, an increase in advertising spend on Google and Youtube as well as continued strength in Google Cloud and Play. The company will be more transparent about its Google Cloud business and break out the operating income beginning next quarter. This will give an insight into its profitability of online advertising operations, which accounts for the lion’s share of Google’s revenue.
CEO Sundar Pichai described Q3 as “a strong quarter, consistent with the broader online environment.”
“It’s also a testament to the deep investments we’ve made in AI and other technologies, to deliver services that people turn to for help, in moments big and small.”
He also addressed the antitrust suit by the Justice Department and said,
“We believe that our products are creating significant consumer benefits, and we’ll confidently make our case.”
Key Numbers (Analyst estimates are based on Bloomberg Consensus data)
- Revenue: $38.01 billion (minus traffic acquisition cost) compared to $35.3 billion expected.
- Google Cloud revenue: $3.44 billion compared to $3.31 billion expected.
- YouTube Ad Revenue: $5.04 billion compared to $4.52 billion expected
3. The Most Profitable Year For Amazon
The pandemic boosted online shopping that pushed Amazon to a record for sales and profit this quarter. It blew past Wall Street expectation as the sales grew 37% and net profit roughly tripled to $6.33 billion. The lucrative Amazon Web Services sales up by 29% Y-o-Y as the company continue their shift to cloud computing.
Amid the pandemic surge, Amazon has already surpassed 2019 annual profit of $11.59 billion ahead of the fourth quarter with the holiday yet to come. CEO Jeff Bezos said,
“We’re seeing more customers than ever shopping early for than ever shopping early for their holiday gifts, which is just one of the signs that this is going to be an unprecedented holiday season.”
The eCommerce giant expanded its fulfillment infrastructure by 50 percent and pushed its workforce to more than 1 million mark this year. Amazon saw higher Prime membership renewals and Prime member growth rate and streaming Prime video content rose more than 80% annually in Q3. The online grocery sales growth also accelerated in Q3 with no delivery charges for Prime members. Other revenue which is mostly ad-related is up 49% from the same period last year to $5.4 billion.
However, growth has not come without cost. The company has spent billions during the pandemic in areas like social distancing, the addition of new facilities, new hires, cleaning, supplies, and testing. It expects the cost to rise to $4 billion next quarter and it will not recur once the pandemic ends.
Key Numbers (Analyst estimates are based on Bloomberg Consensus data)
- Revenue: $96.1 billion compared to $92.7 billion expected
- Amazon Web Services Revenue: $11.6 billion up from $9 billion a year ago.
4. Undaunted Ad-Revenues And E-commerce Boom For Facebook
Facebook earnings were better than expected despite a torrent of criticism that included a summer boycott by many large advertisers in July. The revenue jumped 22% to $21.47 billion from $17.65 billion a year ago. Facebook witnessed strong revenue and user growth, The revenues grew with new advertisers coming on board in search of new ways to reach customers.
Monthly Active Users is a key barometer to advertisers and the owner of Whatsapp and Instagram reported a whopping 2.74 billion MAU’s, up by 12% Y-o-Y. However, the company reported a rare decline in monthly and daily users in the U.S and Canada, down to 196 million from 198 million in the previous quarter. But the social media giant saw an increase in revenue- per-user for the region. More than 2.54 billion people daily use at least one of Facebook’s family of apps — Instagram, WhatsApp, Messenger, or Facebook — up 15 % Y-o-Y.
The social media platform plans to integrate all its family app messaging services and make it “one connected interoperable system” that will particularly be helpful in the U.S. The tech giant is hoping that the use of interoperability will lead its messaging platforms to interact with businesses. CEO Mark Zuckerberg noting the recently launched Facebook Shops said,
“I think the goal is to build out a commerce platform around messaging.”
“We’re building out a number of tools around business messaging, so that way people can follow up and complete transactions and get support through messaging, and then payments so that people can complete transactions, too.”
It also believes that the Virtual Reality (VR) business is “self-sustaining” as the user base will be huge and economical for developers. They can prepare content for Facebook’s Oculus platform over alternative gaming platforms.
Key Numbers (Analyst estimates are based on Bloomberg Consensus data)
- Revenue: $21.47 billion compared to $19.84 expected.
- Daily active users (DAUs): 1.82 billion compared to 1.78 billion expectation
- Monthly active users (MAUs): 2.74 billion compared to 2.7 billion expectations.
The numbers of tech giants show how resilient these companies are and their services and products are in demand during the pandemic. Even though the investors are wary of the forecast numbers but with record profits and sales in the past three months, these heavyweights are unstoppable.
Go Deeper: Everything the Q2 2020 Financial Results of Tech Giants Have to Say
Pinterest Report BlockBuster Q3 Earnings As Brand Advertising Rebounds
Key Points:
- The image-sharing service platform Pinterest witnessed a rebound in brand advertising after a difficult period owing to the pandemic.
- The company’s blowout Q3 results indicate a revival in advertising demand which is a positive sign for the industry.
- The company said that the spending accelerated from advertisers that boycotted social media like Facebook and Twitter.
- Pinterest posted strong revenue and user growth. The company’s Q3 revenue grew 58% year over year to $443 million.
- On Thursday, shares of Pinterest further soared more than 28 percent setting new records.
With the pandemic, consumer behavior saw a shift towards online. Pinterest reported better-than-expected Q3 earnings that trounced revenue and income estimates and the stock price surged more than 28% on Thursday.
Why It Matters:
As eCommerce rises in this pandemic, Pinterest surpasses Wall Street expectations and continues to add users and boost revenues. Helping boost the earnings is a surge in user base and resurgence in brand advertising.
In the investor letter, the company attributed the surge in growth to Covid-19.
“MAU growth was strong in both the US and international markets driven primarily by COVID lockdowns in many regions.”
By The Numbers:
Revenue: $443 million to $383.5 million expected.
Monthly Active Users (MAUs): 442 million to 436.38 million expected
ARPU: $1.03 to. $0.90 expected
Pinterest Takeaways:
- Pinterest saw an unexpected explosion in users- up 26 million from the previous quarter. This has been especially strong in users under 25 years who are looking for DIY ideas for new home -improvement projects during the lockdown. Pinterest explained,
People who began using Pinterest during COVID-19 continued to have high levels of engagement in Q3. In fact, users in the COVID-19 cohort had higher retention and higher engagement (defined as impressions, closeups and saves) than a cohort of new users during the same period last year.”
- International growth drove the majority of global MAU expansion and the social media platform has been an increasingly relevant shopping site.
- The company said that the release of iOs 14 also fueled user growth as approximately 4 million users used Pinterest for background filters and customization ideas.
- Pinterest saw a resurgence in ad demand from large brand advertisers of consumer goods along with mid and small-sized advertisers seeking conversions.
“We’ve seen a major impact just around brands, CPG advertisers and brand advertisers returning to the platform after a pause in Q2 and the return of retail, especially the larger omni-channel retailers that had paused in Q2.”
- The advertiser who joined during the Facebook boycott continues to use the platform as well as accelerate their spending. Pinterest executives also credited the boycott for their gains. Snap earlier echoed similar views in its Q3 earnings result. However, Pinterest also warned that it is unclear on the sustainability of the trend.
- Deployment of automated ads is working for Pinterest supporting small and mid-size businesses. SMB’s are more active as they look for new advertising avenues for international expansion and online shopping. The Pinterest product offering for automated bidding and measurement has significantly improved.
- Pinterest has also upgraded the features- Stories, Video ad units, shoppable pins that drive engagement, and high conversions.
- The company said it has benefitted from shopping on the platform. In the last six months, the number of users engaging with shopping surfaces has grown 85%. However, shopping on Pinterest is still in the early days and growth in its shopping tools is expected.
Pinterest Q4 Outlook:
The company forecasts its Q4 revenue will grow by 60% Y-o-Y but pointed out two areas of uncertainty. First, the pandemic continues to create a level of uncertainty in user behavior especially as the celebration of the holiday season is approaching. It is difficult to predict how will the shopping behavior change or how people will celebrate in the lockdown.
Second, the challenge is to understand brand spending and to what extent the appeal of Pinterest as brand-safe persists with advertisers even past election. Even though the social media platform benefitted from the July phenomenon but cannot bank on Facebook travail over the long term. CEO Scott Morgenfeld said,
“We continued to benefit from marketers who are prioritizing positivity and brand safety.”
“Advertisers tell us that Pinterest is brand-safe relative to other consumer internet platforms and we benefited from this in Q3, though it’s still not clear how sustainable this trend will be, particularly after the U.S. election is over.”
He further added that the top priority of the company is to focus on making the most inspiring and actionable content, engage users, built shopping inventory, and transform advertising.