Written by: Jay Yi, MBA; Edited by: Chris Thompson, CFA, MBA, P.Eng
eResearch | This week, Alphabet Inc. (NASDAQ: GOOGL; LSE; 0RIH; DB: ABEA), Apple Inc. (NASDAQ: AAPL; LSE: 0R2V; DB: APC), and Facebook, Inc. (NASDAQ: FB; LSE: 0QZI; DB: FB2A), released quarterly earnings. Any weakness in these bellwether tech companies raises a red flag for the broader economy as an indicator of slowing growth.
On the positive side, Apple and Facebook reported strong earnings, while Google-parent Alphabet‘s earnings came in well below analysts’ estimates. The stock price of Apple and Facebook rose while Alphabet’s stock price declined.
Alphabet saw its stock price drop 2% after missing analyst expectations for profits, even though revenue expectations were surpassed. Strong revenue growth was attributed to its primary advertisement business and its non-primary cloud computing business. Expenses and capital spending both increased faster than revenue year-over-year, which raises concerns for Alphabet’s growth strategy and sustainability.
On November 1, Alphabet announced that it was spending some of its $120 billion of cash by acquiring smartwatch maker Fitbit (NYSE:FIT) for $2.1 billion. The move aims to strengthen its lineup of hardware, help edge further into the health market, and compete with the Apple Watch.
Alphabet FQ3/2019 Earnings Highlights
Revenue increased to US$40.5 billion, a 20% growth year-over-year, attributed to a 17% growth in advertising revenue and a 39% growth in “other revenues” which includes app sales, hardware sales, and its quickly growing cloud business.- Operating Expenses including cost of goods increased to US$31.3 billion, a 25% growth year-over-year, attributed to cost of goods growth of 23% and a 25% increase in R&D expenses.
- Capital expenditures increased to US$6.7 billion, a 27% increase year-over-year, mainly due to investments in cloud infrastructure and human capital.
- Net income decreased to US$7.1 billion, a 23% drop year-over-year, attributed to a US$1.5 billion loss on investments and a US$941 million loss on “other bets” (i.e. autonomous driving).
Apple saw its stock price jump 1.6% after beating analyst expectations for both revenue and profits, attributed to growth in services such as its credit card partnership with Goldman Sachs, and products such as its Apple Watch, AirPods, and iPad, which grew revenues more than 50% year-over-year. Apple’s main revenue source from its iPhones dropped 9% year-over-year, but it expects continued growth through its services arm as its streaming service, Apple TV+ launches next week.
Apple Q4/2019 Earnings Highlights
Revenue increased to US$64 billion, a 2% growth year-over-year, with almost 50% of revenue generated from iPhone sales and 60% of total revenue generated from international sales.- Operating expenses increased to US$8.6 billion, a growth of 9% year-over-year, attributed to R&D expenses growing 10% and SG&A growing 9%.
- Net income decreased to US$13.7 billion, a 3% decline year-over-year, due to increased investments in original content for its Apple TV+ and new consumer products.
Facebook saw its stock price jump 2.5% after beating analyst expectations for both revenue and profits, attributed to growing advertisement and cloud revenues. Facebook continues to undergo legal battles and U.S. Senate hearings as it defends anti-trust issues, concerns for its proposed cryptocurrency, Libra, and its acquisition of social media application, Instagram.
Facebook Q4/2019 Earnings Highlights
Revenue increased to US$17.6 billion, a 29% growth year-over-year, attributed to a 43% growth in payment revenue and 28% increase in advertising revenue, with 94% of total revenues generated from mobile advertisements.- Daily active users increased to 1.62 billion, a 9% growth year-over-year, and monthly active users increased to 2.4 billion, an 8% growth year-over-year, with 2.2 billion users using either WhatsApp, Instagram, or Facebook platforms everyday.
- Expenses increased to US$10.5 billion, a 32% increase year-over-year, due to a 14% increase in R&D and a 9% increase in SG&A expenses.
- Net income of US$6.1 billion, a 19% growth year-over-year, mainly due to growth in its services and advertisements revenues.
With total cash balance of Alphabet, Apple, and Facebook approaching US$300 billion, how big will these tech companies grow before dispensing cash to shareholders?
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Alphabet Inc. (NASDAQ: GOOGL; LSE; 0RIH; DB: ABEA)
- abc.xyz
- Headquartered in California, United States, Alphabet is a multinational conglomerate of technology companies that was created through a corporate restructuring of Google in 2015.
- It is now the world’s fifth largest technology company with continued leadership in its search engine.
- GOOGL currently trades at US$1,257.12 per share with a market capitalization of US$867 billion.
Apple Inc. (NASDAQ: AAPL; LSE: 0R2V; DB: APC)
- investor.apple.com
- Headquartered in California, United States, Apple is a designer, developer, and seller of consumer electronic products, best known for their iPhone, Macbook, iPad, AirPod, and Apple watch products.
- AAPL currently trades at US$248.43 per share with a market capitalization of US$1.2 trillion.
Facebook, Inc. (NASDAQ: FB; LSE: 0QZI; DB: FB2A)
- investor.fb.com
- Headquartered in California, United States, Facebook is a social media and social networking company that utilizes its online platform for advertisements and data aggregation.
- It is currently involved in a controversial case as Facebook announced its own development of a global cryptocurrency called Libra, which the U.S. government thinks will risk the stability of the U.S. monetary policy.
- FB currently trades at US$191.34 per share with a market capitalization of US$545.9 billion.
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