Norm Johnston, Chief Strategy and
Digital Officer
Background
The first major earnings reports of the year are out, covering the major players and their Q4 results.
The first major earnings reports of the year are out, covering the major players and their Q4 results.
Apple: Desperately seeking diversification
Apple needed a big quarter after several
previous earnings reports left analysts disappointed. It delivered in Q4.
Quarterly revenues were $78.4bn, up from $77.4bn a year ago, helped by strong
sales of the iPhone 7. Remember the term “phablet”? The new iPhone7 Plus, with
its much larger screen, appears to have given people the nudge they needed to
finally upgrade. Interestingly iPad sales were down by 19%. Apple had strong
growth across the board with sales increasing with everything from desktops to
the Apple Watch. Apple Pay users tripled and transaction volumes rose by 500%. Investors
are also keeping a close eye on Apple’s Services (Music, Apps, etc.) given
Cook’s very public prioritization of that side of the business, particularly
with a growing challenge from Amazon. All eyes are now on Apple’s highly
anticipated next wave of product and services, particularly the next iPhone,
which will fall on the products 10th anniversary.
Alphabet: It’s all about the CPC
Alphabet’s quarterly fortunes seem to
increasingly rest on one key variable: how much it makes per click
(cost-per-click, or CPC). So despite an increase in revenue from both YouTube
and its core search product, Alphabet’s stock price took a tumble primarily
based on that one single variable. CPC decreased by 16% year-over-year,
surpassing analyst expectations of an 11% drop. It has been the great migration
to mobile that has been the underlying cause of the decline. Frustratingly for
Google the last quarter results indicated that the volume in mobile searches
and the corresponding revenue was making up for the CPC drop. Now it appears,
at least in the short term, Google is still exposed to fluctuations in that
volume/value equation as well as nuances between brand and generic search CPC
and trends. That explains the flurry of new ad monetization products,
particularly for YouTube, where there is still plenty of room for growth
through better ID-based targeting using historical behavioral data, such as
your search activities. Alphabet’s “Other Bets” showed growth ($262m in Q4 vs
$150m a year ago), but from a small base in contrast to the overall business
($26bn).
Facebook: Teflon
Facebook delivered another strong quarter
despite industry-wide criticism on some embarrassing miscalculations on key
metrics such as video view durations. The lingering impact of that flawed data
may yet come back to bite Facebook even as it races to correct historical data
and introduce greater third-party verification. In the meantime it’s mainly
positive news. Revenue was up by 53% to $8.8bn, spurred on by more monthly
users (+17% yoy) and more monetization and advertising opportunities,
particularly on Instagram. So far there has been little sign of last quarters’ expectation
setting over future growth in light of potential ad loading issues. On the
negative side Facebook took a financial hit on the Oculus lawsuit to the tune
of $500m. On the one-to-watch side is Zuckerberg’s comment that Facebook may be
exploring original and licensed short-form content (with ads), perhaps to
challenge the about-to-be-very-enrichened-via-IPO SNAP.
SNAP: Here we go again
SNAP officially and finally filed for its
long-mooted IPO. SNAP is now reporting 158m daily users (as opposed to the
usual monthly metric), healthy but slow growth compared to rivals like Facebook
that experienced a much stronger “hockey stick” addition of users in the early
days. This comparatively anemic growth has raised concerns that perhaps
Snapchat has peaked, or is losing momentum to Facebook which has layered
comparable and competitive features into apps like Instagram. A platform built
on youth is always at risk when they grow up and move on, and the next
generation decides there is something cooler out there. Nevertheless, SNAP has
done much to build a strong advertising and content platform with plenty of
opportunities for brands to play. Revenue reached $400m in 2016, a healthy
start to monetization, even if the company still lost $500m due to investments
and costs. It’s doubtful any of this will make a difference to the IPO, which
seems certain to whip the markets into another Facebook-like frenzy of buying.
Whether SNAP faces a similar marketing beating and correction to its share
price in the early days is probably somewhat dependent on whether analysts view
it as the next Facebook or Twitter.
