DT CEO ups US ambitions to double down on momentum

Deutsche Telekom CEO Tim Hoettges is looking to close the valuation gap between T-Mobile US and its rivals, as the telco revels following a very positive earnings call.

Share price in the German telco has jumped 3.9% in early morning trading following the financial results which saw revenues increase by 6.4% to €80.4 billion for 2019. Net profit was up by almost 80% to €3.9 billion, while free cash grew by 15.9% to €7 billion.

“The market environment in the European telecommunications sector is far from straightforward. Yet, despite the heavy regulation and inconsistent competitive situation, we emerged from the year just ended even stronger,” Hoettges said his letter to the shareholders.

“Not only that, but we are once again the leading European telco, based on both revenue and market value. That was and remains our overarching goal.”

Deutsche Telekom is one of the largest telcos across the world, but in recent years it is questionable as to whether it is one of the more progressive or future proofed. When looking at the penetration of full-fibre broadband or deployment of 5G infrastructure, the numbers are not as favourable, though the tide does seem to be turning.

The team now suggests 5G connectivity is being delivered in eight cities in its domestic German market, with ambitions to increase this to 20 by the end of 2020. Elsewhere, T-Mobile US launched its 5G offering in December and Austria has 31 5G base stations up-and-running.

Deutsche Telekom is heading in the right direction, but it is moving at a much slower pace than other telcos. It might want to proclaim itself as a leader in the telco arena, but realistically it is a fastish-follower at best, BT for example, has already launched 5G in 50 towns and cities across the UK.

One area where the company is proving to be incredibly aggressive is in the US, and this should continue over the coming months.

“We have the chance to become No.1 in the United States, to overtake AT&T and Verizon. That, at least, is our ambition,” Hoettges said during the earnings call.

With T-Mobile US and Sprint now looking at a clear path to the finish line, after a District Judge ruled in favour of the merger in the face of opposition from 13 Attorney Generals, the team can look further into the future. Following the merger, T-Mobile will be roughly the same size from a subscriber base as AT&T and Verizon, allowing more opportunity for the team to compete on a level playing field.

The US business is one which is once again proving to be very profitable for Deutsche Telekom.

T-Mobile US is the single largest business unit in the overarching business, accounting for just over 50% of the total revenues at €40.4 billion, a year-on-year increase of 10.7%. Momentum is clearly with the business also, the team boasted of 1.3 million branded postpaid net additions during its last financial results.

While the US is looking very positive for the telco, it will have to be careful sluggish activity in Europe does not open the door for rivals to steal market share in the various markets.

Twitter surges back after positive financial results

Three months ago the Twitter share price fell off a cliff thanks to a worrisome earnings call, but bad performance does not necessarily mean a bad company.

The latest financial report demonstrated this. Revenues for the fourth quarter of 2019 were $1.01 billion, an 11% year-on-year increase, while Average monetizable Daily Active Users (mDAU) were 152 million for Q4, compared to 126 million in the same period of 2018.

The third quarter financials could now be viewed as a blot on the landscape as share price shot up 16% during the early hours of trading on Thursday February 6. This is still considerably down on the high of $45.85 in September, but momentum might well shift back in favour of one of Silicon Valley’s earliest successes.

“We reached a new milestone in Q4 with quarterly revenue in excess of $1 billion, reflecting steady progress on revenue product and solid performance across most major geographies, with particular strength in US advertising,” said Ned Segal, Twitter CFO.

“We continue to see tremendous opportunity to get the whole world to use Twitter and provide a more personalized experience across both organic and promoted content, delivering increasing value for both consumers and advertisers.”

Despite being one of the most successful social media companies in terms of adoption, Twitter is one of the Silicon Valley residents who has struggled to make a meaningful impact on the promised fortunes of the digital economy. Over the last 12-18 months, this painful equation has seemingly been balanced, but the Q3 results threw a spanner in the works.

Over the last 12-18 months, Twitter has been sorting out its house. It started offering more comprehensive products for advertisers to target and engage customers, as well as more insightful features on the reporting features. There were some minor glitches to these features during Q3, which impacted results, as did retiring legacy products.

Another factor to consider is what actually happened during 2018. In a sentence, not a lot. This meant AmDAU’s were down during the period, and therefore advertising revenues were also. All of these factors combined resulted in the poor performance during the third quarter, but they were all issues which could be fixed. This is the basis of the turnaround during the fourth quarter.

This is the first quarter the business has exceeded $1 billion in revenue and there could be more to come. With the Olympics in Tokyo, the UEFA European Championships and the US Presidential Election all taking place over the next twelve months, there certainly could be more active users on the platform, therefore more opportunity to advertise and, finally, more revenue for Twitter.

2020 could be a very good year for the company, especially with new video products and a much more comprehensive approach to advertisers.

Fourth quarter Year-on-year Full year Year-on-year
Total revenue $1.01 billion 11% $3.46 billion 14%
Net income $118 million (54%) $1.46 billion 22%
R&D spend $198 million 40% $682 million 23%

Cloud becomes the golden child as Google reports yet more profit

When looking at the financial results of companies like Google, the question is not whether it has made money, but how much are the bank vaults overflowing.

Financial for the full year demonstrated slightly slowing growth, but few should worry about having to search the sofa for the pennies right now. Over the course of 2019, Google brought in $161.8 million, up 18.3% year-on-year, though it was YouTube and the Google Cloud business units as opposed to the core business which collected the plaudits from the management team.

“Revenues were 2.6 billion for the fourth quarter, up 53% year-over-year, driven by significant growth at GCP and ongoing strong growth and G Suite,” said Alphabet CFO Ruth Porat. “The growth rate of GCP was meaningfully higher than that of cloud overall. GCP growth was led by our infrastructure offerings and our data and analytics platform.”

Company Quarter Revenue (most recent) Year-on-year Growth
Google Cloud $2.6 billion 53%
Microsoft Intelligent Cloud $11.9 billion 27%
Amazon Web Services $9.9 billion 23%

Despite being a business unit which brings in an impressive $10 billion annually, it is impossible not to compare the performance of Google Cloud to AWS and Microsoft Azure. Google is realistically the only rival which can keep pace with the leading pair, though it does appear it is losing pace.

That said, the fortunes of the cloud are only beginning to be realised; this is a marathon not a sprint. Moving forward, the Google team believes strength in AI and software gives it an advantage to provide seamless experiences to users across multiple devices. There is also the blunt force approach to acquiring market share moving forward; Porat highlighted the objective is to triple the size of the cloud sales team.

Over at YouTube, the team is capitalising on the increasingly consumer appetite for video, though also what appears to be a more experimental attitude to subscription. YouTube TV is growing healthily at 2 million, while the core YouTube platform has more than 20 million music and premium paid subscribers.

This is positive momentum, though it will be interesting to see what impact partnerships have on these figures. Google is partnered with Verizon, forming a content option in its bundled products, though rivals are placing a much greater emphasis on these relationships, leaning on an already established link with the consumer, albeit sacrificing some profit in the process.

Perhaps these two business units demonstrate why Google is such an attractive company to investors and potential employees. The core business can do what it does, but Google is always searching for the next big idea. Google Cloud is arguably the most successful graduate of its ‘Moonshot Labs’ initiative, while YouTube is one of the biggest acquisition bargains at $1.65 billion in 2006. It now brings in more than $15 billion annually in ads sales.

During the earnings call, CEO Sundar Pichai pointed to some of the other investments which are absorbing the $26 billion annual R&D budget. Verily and Calico are linking together AI and cloud technologies to improve clinical trials, research, and drug development. Waymo is attempting to scale driverless vehicles in the US. Loon is another Moonshot graduate, endeavouring to stand on its own currently.

Google is one of the most interesting companies around, not only because it is a money-making machine, but the R&D business could produce some gems over the next few years.

Sky saves the day at Comcast

Comcast managed to misplace 224,000 customers over the last three months, but this oversight was compensated for by the 304,000 net gain in subscribers which Sky brought to the party.

The cable cutting revolution might be causing some pain in the US, but in Europe, Sky is looking as strong as ever. The European premium TV leader might have seen revenues decrease by 3.3% year-on-year, but with the customer gains and EBITDA increasing 13% for the quarter, Comcast executives will be pleased with the returns this acquisition is delivering.

Total revenues for Comcast over the second quarter totalled $26.8 billion, a 23% year-on-year increase due to the inclusion of Sky, while EBITDA stood at $8.7 billion.

“Our company’s consistent, profitable growth is fuelled by our leading scale in direct customer relationships and premier content,” said Brian Roberts, CEO of Comcast.

“We now have nearly 55 million high-value direct customer relationships, including the 456,000 net additions in the second quarter, and a vast library of intellectual property and new productions that are extremely popular across generations and geographies. Our teams throughout the company continue to collaborate to make themselves and each other even stronger, and I’m excited about our growth opportunities ahead.”

Looking at the Comcast business, aside from cord cutting generation causing a bit of a headache, operations are holding strong. Broadband demonstrated growth, albeit at a slower rate, adding another 209,000 subscriptions to take the total up to 24.4 million consumer and 2 million business customers.

Although this would not be the worst earnings call to deliver to shareholders and the team did beat market expectations, it isn’t the most of comfortable positions. TV losses are going to start to weigh heavily on the business before too long, while internet subscription growth is starting to slow. The latter concern might well be heightened with more CSPs adding FWA offerings to their portfolio.

Ciena bags 20.5% growth perhaps thanks to Huawei dilemma

Optical networking company Ciena posted positive results for the first quarter of 2019, with total revenues of $778.5 million beating analyst expectations.

There have been whispers in corners of various conferences that a Huawei ban could benefit some, and it may well be having a positive impact for Ciena. While there are numerous other companies which would compete with Huawei in the optical equipment segment, with Ciena one of the few ‘pure-play’ companies it might have a more notable impact on the financials.

That said, irrelevant of where the favourable fortune has come from investors will be happy. $778.5 million represents a 20.5% year-on-year increase for the first quarter, while nearly all geographical markets have shown healthy growth.

“We began fiscal 2019 with a very strong first quarter performance, including outstanding top and bottom line growth as well as continued market share gains,” said Gary Smith, CEO of Ciena. “We believe that the combination of our leading innovation and positive industry dynamics will enable us to further extend our leadership position.”

Net income for the quarter stood at $33.6 million, though this is incomparable to the same period of 2018 which registered a loss of $473.4 million thanks to President Donald Trump’s US tax reform.

Looking at the regions, in the US, a market which now accounts for 62% of the company’s total revenues, the earnings grew just over 20% to $485.5 million, while 20% growth was also registered in the APAC region. The big success story however was in Europe, where the team grew the business by 32% to $129.2 million. This is still only 16.6% of the total haul for Ciena, but more geographical diversification will certainly be welcomed.

For Ciena, Europe could be a very interesting market over the next couple of months. With Huawei coming under increasing scrutiny globally, telcos will look to further diversify supply chains to add more resilience and protect themselves from potential government bans. While the anti-China rhetoric being spouted out by the White House is losing momentum, the European Union is reportedly looking some sort of ban, even if this puts the Brussels bureaucrats at odds with some member states.

For such vast investments, telcos will be looking for certainty and consistency from government policies. When looking at Huawei as a potential vendor, telcos will naturally be nervous, even if they don’t want to admit it.

With Huawei’s ban set to have little impact on the US market, it is not a major supplier to the market historically, the Europe could be a hidden goldmine for Ciena.

Interestingly enough, this scenario also seems to be paying off dividend in the APAC markets as well. Smith notes the success in the APAC region has come from Australia, Japan and Korea, three markets where Huawei has either been explicitly banned or is receiving a rather frosty welcome.

Microsoft’s resurgence continues, driven by strength in cloud and gaming

Microsoft’s results demonstrated a continued upward trajectory, with the cloud and gaming units standing out with particularly strong performances.

Since wrapping up the last financial year by breaking the $100 billion annual revenue mark three months ago, Microsoft should not have been immune to the recent financial market gloom hanging over the technology sector. But the Q1 results of its financial year 2019 published on Wednesday are telling a different story.

On corporate level, the total revenue was $29.1 billion, up by 19% over the same period last year, and net income reached $8.8 billion, up by 34%, indicating an excellent management of both the top line and bottom line.

“We are off to a great start in fiscal 2019, a result of our innovation and the trust customers are placing in us to power their digital transformation,” said CEO Satya Nadella. “We’re excited to help our customers build the digital capability they need to thrive and grow, with a business model that is fundamentally aligned to their success.”

All the business units have registered growth, but the most impressive part is how balanced the company has become.

Microsoft Financials Q3 2018

More Personal Computing continued to be the largest revenue contributor with $10.7 billion, an increase of 15%; this is a story of two extremes. Standing out in this group is the gaming division, which reported a revenue growth of 44%, with Xbox software and services revenue up by 36%, indicating its strategy to tie exclusive titles from gaming companies is reaping rewards. At the other end of the spectrum, Windows OEM grew by 3%, further proof that the PC market is slowing, but the pronouncement of its demise is still premature. Between the two extremes sat search advertising (Bing) which grew by 17%, Surface up by 14% indicating the new models are winning some traction, and Windows commercial products and cloud services, up by 12%.

Productivity and Business Processes contributed $9.8 billion in revenue, an increase of 19%. The Office commercial and consumer products and cloud service as the business application suite Dynamics all registered healthy growth, but what caught our eyes was the 33% revenue growth by LinkedIn, and a 34% increase in average session length. The revenue numbers may still be small (it is not disclosed separately) but it is a sign that two years after the $26 billion acquisition of the professional social network Microsoft is turning it around. This is particularly impressive when compared to the lacklustre performance reported by Facebook recently.

Intelligent Cloud, the smallest of the three business units by revenue reported the highest growth rate of 24%. Azure continued to deliver stellar numbers, its revenue increased by 76%. This may be lower than the 90% growth it reported last quarter but would surely be the envy of any other company.

If Microsoft’s mobile first strategy flopped badly a few years ago, its cloud first strategy is definitely paying off. As Amy Hood, the CFO said, “We see continued demand for our cloud offerings, reflected in our commercial cloud revenue of $8.5 billion, up 47% year over year.”

The management is confident in the next quarter, giving bullish guidance during the earnings call