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%

Nokia finishes the year on a relative high

Finnish kit vendor Nokia banked a bit more profit than expected in Q4 2019, to finish a tough year on a slightly positive note.

Earnings per share were €0.15, up from €0.13 a year ago, which was apparently what was expected again this time. Nokia seemed pretty pleased with its cashflow too, having significantly topped up its flagging bank balance in the quarter. Shares experienced a minor bump, taking them near the top end of the range they have inhabited since they tanked after a gloomy outlook a quarter ago.

“Nokia’s fourth quarter 2019 results were a strong end to a challenging year. We saw strength in many parts of our business in the quarter, delivered a slightly better operating profit than the same period in 2018, generated solid free cash flow, and increased our net cash balance to EUR 1.7 billion,” said Nokia CEO Rajeev Suri.

“When I look at Nokia’s full-year 2019 performance, we saw good progress in our strategic focus areas of enterprise and software… We recognize, however, that we have faced challenges in Mobile Access and in cash generation. We will have a sharp focus on these two areas over the course of 2020, which we believe to be a year of progressive improvement as the actions we have underway start to deliver results.

“While I believe that 2020 will present its share of challenges, I am confident that we are taking the right steps to deliver progressive improvement over the course of this year and to position us for a stronger 2021.”

Suri’s words were pretty measured and indicated that it’s still mainly in recovery mode this year, so you can see why investors didn’t get too excited. 4G/5G radio market share outside of China is expected to stabilize at 27% over the course of the year and the current count of 5G deal wins is 66. Once more Nokia’s financial situation feels a bit like Ericsson’s a year or two ago, in so much as it’s all about providing a stable foundation for future growth.

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.

Amazon and Microsoft are proving to be a different class in the cloud game

Amazon and Microsoft have unveiled bumper financial results and now it is over to Google to prove it can keep pace with the two clear leaders in the cloud segment.

For years, it was Amazon’s cloud business unit, AWS, which was incomparable to the rest of the cloud segment. No-one could get anywhere near this trailblazer, though Microsoft has closed that gap recently. The question is whether anyone else has? The likes of Google, IBM and Oracle claim to be in the same league, but there is little evidence to support this, but Google has a chance to set the record straight next week.

Amazon and Microsoft have now revealed their numbers for the final three-month period of 2019. The story is not quite complete without Google’s numbers, realistically the only competitor who has a credible claim to be in the same league, but the numbers are eye-watering.

At group level, Amazon increased revenues by 21% during the last quarter, with the cloud business bringing in $9.9 billion, an increase of 23% year-on-year. While net income only increased 19% to $2.6 billion, this was actually 79% of the total net income across the group. The cloud business unit at AWS is a profit machine.

Over at Microsoft, group revenues increased by 14% to $36.9 billion, while net income was up 38% to $11.6 billion. Revenue in the ‘Intelligent Cloud’ unit increased 27% to $11.9 billion with Azure’s revenue up 62% for the quarter. Cloud products and services of course factor into the other Microsoft business units, but the ‘Intelligent Cloud’ group is showing the most aggressive growth.

Business unit Total revenue Growth
Intelligent Cloud $11.9 billion 27%
Productivity and Business Processes $11.8 billion 17%
More Personal Computing $13.2 billion 2%

Although revenues are only one part of the picture, market share estimates also tell another story.

Looking at the most recent estimates from Synergy Research Group, Amazon is leading the cloud segment with 39%, Microsoft sits in second with 19%, Google is on 9% and 5% for Alibaba. Salesforce now has 4% and IBM is on 3%, while no-one else has more than a 2% share. These figures are for the Infrastructure as a Service (IaaS) and Platform as a Service (PaaS) segments.

As mentioned before, the landscape is not complete until Google releases its numbers next week, though IBM and Salesforce have released theirs. At IBM, total cloud revenues stood at $6.8 billion, up 21% year-on-year, while Salesforce reported group revenues of $4.5 billion for the last quarter, an increase of 33%. These numbers are attractive, investors might well be pleased, but Microsoft and Amazon look like they are sitting alone in the top tier of the cloud industry.

Another factor to consider are the deal wins.

While Amazon has been hoovering up deals with SMEs and the emerging digital businesses, Microsoft has extensive existing relationships with almost every major corporation in the Western world. The firm claims to currently be working with 95 of the Fortune 100 companies on cloud infrastructure. These companies like the look of Microsoft, thanks to a stronger focus on hybrid-cloud, whereas Amazon has a better reputation for the speed and scale of cloud-only strategies.

During the last period, Microsoft secured the US Department of Defense $10 billion JEDI cloud contract, which will cover 1,700 data centres and the transition of millions of devices from on-premise servers to the cloud. AWS lost out on this deal, but it has got plenty of significant customer wins to boast of; Western Union, media firm Fox, the NFL, pharmaceutical giant Novartis and Best Western Hotels & Resorts.

Interestingly enough, the rapid expansion of these internet giants might well start to encroach potential revenues which have been earmarked for the telcos.

The last few months have not only seen CAPEX investment from the likes of AWS and Microsoft, but also picking up industry executives. An excellent example of this is Alex Clauberg, a former Deutsche Telekom executive.

As the connected world starts to spread to more corners of society and the ‘edge’ develops, there are plenty of opportunities for telcos to make more money from what is quickly becoming a commoditised service. However, there is no guarantee the newly created ‘service’ revenues will be reserved for the telcos themselves. Clauberg’s move is evidence the internet players are attempting to muscle in on telco revenues.

Clauberg is a well-known name in the SDN and NFV sector and is the current Chairman of the Telecom Infra Project (TIP). He was previously VP and CTO at T-Systems International, the global services and consulting arm of DT, but now works as Solutions Architects Leader, at AWS. There is not a huge amount of information as to what this new job actually is, but it is demonstrative of the ambitions of the likes of AWS in the telco world.

These are companies which are growing rapidly in their traditional playing grounds and pushing aggressively to steal profits in places they should be considered secondary. Google still has an opportunity to place itself at the top table of the profitable cloud segment, but it does look like AWS and Microsoft are in a league of their own.

A bad day for BT

After missing expectations for third quarter results and suggesting meeting the Huawei cap could cost £500 million, BT investors are being tested today.

With reported revenues of £17.2 billion through the first nine months of the financial year, BT is looking at a 2% deficit to make up. It has been an expensive year to date, though CEO Philip Jansen has tried to put a positive spin on events.

“BT delivered results slightly below our expectations for the third quarter of the year, but we remain on track to meet our outlook for the full year,” said Jansen.

“Underpinning the ongoing development of market-leading propositions, we continue to invest in the best converged network. We welcomed the direction of Ofcom’s recent consultation, which is an important step forward towards a widely shared ambition to invest in fibre across the whole of the UK. We’re also investing in 5G, making it available in over 50 locations, with the first customers enjoying a great experience.”

While the financials do not paint the prettiest of pictures, the last few months have seen a few sparks of good news for the telco.

The 5G rollout is progressing well, having launched in 50 towns and cities. The Ofcom Wholesale Fixed Telecoms Market Review was favourable. The on shoring of BT brand sales and service calls was completed ahead of time. The full fibre rollout has now passed 2.2 million homes. And, the Supply Chain Review has ended.

But while Jansen will want to direct investors towards the beacon of hope on the horizon, the here and now is less attractive. Thanks to regulation, competition and legacy product declines, the financials have taken a hammer blow.

“BT shares, which have been a constant underperformer over the past five years, are down by over 4% in early morning trading on the back of a third quarter trading update,” said Graham Spooner, Investment Research Analyst at The Share Centre.

“Not only have we seen a decline in revenues and adjusted earnings, as a result of the Government’s decision to give Huawei a role in the UK’s 5G network, the group has to increase its range of suppliers in the future. Despite CEO Philip Jansen being ‘really excited about the long-term prospects’, there remain challenges for him to work on in order to make BT ‘bolder, smarter and faster’.”

Looking at the Supply Chain Review, although BT is not neck-deep like Three, it does have some work to do.

While current suppliers are Nokia and Huawei for 4G, BT will have to reassess its options for the continued 5G deployment. If its 4G efforts were to be replicated, BT would certainly exceed the 35% restriction placed on Huawei RAN equipment in the network, though as the decision has been made during the early days of the 5G rollout, it is not disastrous by any means.

BT is already rolling out 5G, with Huawei equipment, and while it does have Huawei in the network core, it has already said it was searching for a new supplier prior to the Supply Chain Review. BT estimates it will cost around £500 million to replace some 4G components to ensure interoperability and get below the 35% restriction on Huawei equipment.

BT investors have had better days, but Rome wasn’t built in a day.

Wearables and services are paying off for Apple

The iPhone is still the biggest contributor to the monstrous profits Apple claws in each quarter, but efforts in wearables and services are balancing out the company.

While Apple is not a company which is going to go bust at any point in the foreseeable future, the dependence on the performance of the iPhone was leaning onto the unhealthy side. With more consumers leaning towards second-hand, refurbished devices, or extending the life of products due to the eye-watering price of new iPhones, there was a threat to profitability.

For the most recent quarter, there are no worries about the profitability of Apple, however. Total revenues for the three-month period, including Christmas sales, stood at $91.8 billion, a 9% increase from the same period in 2019. Net income set a new record of $22.2 billion, while international sales accounted for 61%.

That said, efforts over the last few years to supercharge alternative revenue streams and diversify the profit channels have certainly been paying off. The iPhone is still king at Apple, but it is evolving into a different company.

Quarter Product Revenue Software and Services Revenue Ratio
Q1 2020 79,104 12,715 86.2/13.8
Q1 2019 73,435 10,875 88.2/12.8
Q1 2018 79,768 8,471 90.4/9.6

For the purpose of continuity, we have only selected Q1 for the above comparison. This is a quarter which contains the Christmas period and therefore revenues are almost incomparable to the rest of the year.

As you can see, there is a clear trend of Apple become less reliant on hardware for revenues and profits, with the Software and Services becoming more than a bolt-on bonus for investors. $12.715 billion is an amount most companies would be happy to call group revenues for the year.

Interestingly enough, even in the ‘product’ segment, the team is becoming less reliant on the iPhone to drive revenues and profits.

Quarter iPhone Mac iPad Wearables and Home
Q1 2020 55,957 (60.9%) 7,160 (7.8%) 5,977 (6.5%) 10,010 (10.9%)
Q1 2019 51,982 (61.6%) 7,416 (8.8%) 6,729 (8%) 7,308 (8.7%)
Q1 2018 61,576 (70%) 6,895 (7.9%) 5,862 (6.6%) 5,489 (6.2%)

In short, diversification of revenues is an excellent way forward for the Apple business and demonstrative of the power of the Apple brand.

Apple is a brand which certain consumer identify with, and such is the innovation and creativity of the Apple marketing department, loyalty has been almost cult-like. Cross-selling alternative products when the consumer is so heavily invested in the brand and ecosystem is a much simpler task, this will be one of the reasons Apple’s services division is becoming so successful, but it also explains the growing wearables segment.

Wearables is a family of technologies which has struggled through the years. The first smart watch, in its current form, was released in 2011, though the segment has never really gained the traction to make it an attractive business. Apple has been persisting with its own portfolio of smart watches for years, but it does now appear to have turned a corner.

“Apple Watch had a great start to fiscal 2020, setting an all-time revenue record during the quarter,” CEO Cook said during the earnings call. “It continues to have a profound impact on our customers’ lives and it continues to further its reach as over 75% of the customers purchasing Apple Watch during the quarter were new to Apple Watch.”

Apple is no-longer simply satisfying product refreshment cycles but attracting new customers into the smart watch bonanza. The more smart watch customers there are, the more normalised the product becomes, which then compounds the success, especially with more digital natives entering their 20s and collecting bigger salaries.

Apple is a company which is defined by iPhone. This will not change, such is the success of the product and the importance of the smartphone in today’s society, but diversifying the business was always viewed as critical to expanding the profitability of the firm. Apple is doing a remarkable job of capturing new revenues.

Intel sets new record with $72bn 2019 revenues

Chip giant Intel has set a new record for full-year revenues, collecting $72 billion across the course of 2019.

For the final three months of the year, Intel brought in revenues of $20.2 billion, an increase of 8% year-on-year, while sales for the 12 months can in at $72 billion, a 2% increase compared to 2018. Net income remained flat for the year at $21 billion.

“In 2019, we gained share in an expanded addressable market that demands more performance to process, move and store data,” said CEO Bob Swan.

“One year into our long-term financial plan, we have outperformed our revenue and EPS expectations. Looking ahead, we are investing to win the technology inflections of the future, play a bigger role in the success of our customers and increase shareholder returns.”

Although Intel has faced its difficulties over the last few years, it seems shareholders are very pleased with performance, a month into Swan’s tenure. Share price has jumped 19% over the course of the last six months, including a 5.5% increase in overnight trading since the results have been announced.

Looking at the individual business units, the Data Centre Group revenues increased to $23.5 billion across the year, up 2%. The IOT business unit brought in $3.8 billion, up 11% compared to 2019. The PC-centric business increased revenues 2% in the final quarter, but performance was flat across the year bringing in $37.1 billion.

Under intense competition from the likes of Advanced Micro Devices though it appears enthusiasm for product launches at CES earlier this month have been backed up on the spreadsheets.

Ericsson shares drop on disappointing North America numbers

Sales at kit vendor Ericsson barely grew in Q4 2019, with most of the blame being pinned on the protracted merger of T-Mobile US and Sprint.

When adjusted for adjustments total sales increased just 1% year-on-year, thanks to a 9% decline in North America. As you can see from the tables below, Ericsson had plenty of growth earlier in the year in North America, so this is a fairly significant reversal of fortunes. Ericsson would like us to believe it was an aberration brought about by the uncertainty surrounding the TMUS/Sprint merger, but that’s been going for a while so it’s not obvious why it would suddenly have such a profound effect.

“Due to the uncertainty related to an announced operator merger, we saw a slowdown in our North American business in Q4, resulting in North America having the lowest share of total sales for some time,” said Ericsson CEO Börje Ekholm. “However, the underlying business fundamentals in North America remain strong.

“Operating income was impacted by increased operating expenses. The increase is related to the Kathrein business acquisition, increased investments in digitalization and added resources to strengthen security as well as our Ethics and Compliance program. For 2020 we expect somewhat higher operating expenses, which will not jeopardize our financial targets.”

It looks like investors didn’t totally buy the North America narrative either, with Ericsson’s shares down around 8% at time of writing. Ekholm spoke at length about how important it is to continue to build for the long term and not sacrifice that for short-term gains. That’s fine, but many more quarters like this and even that strategy will be called into question.

Xiaomi still growing as Christmas spending sprees approach

Chinese smartphone vendor Xiaomi has reported another quarter of year-on-year growth, and while it might not be as aggressive as previous quarters, the Holiday season is upon us.

The Christmas period might be profitable time of year for many, but Xiaomi might have more reason to cheer than many. 5G networks are being switched-on, and its smartphones are adorning the shelves. Huawei might be stealing market share in the Chinese domestic market, but Xiaomi has a significant advantage in the international markets; it doesn’t have a White House propaganda campaign of hate to counter.

Revenues over the last three months accounted for approximately $7.64 billion, a year-on-year increase of 5.5%. This might be down on previous quarters, though it always worth bearing in mind the company is still growing, thanks mainly to diversification. Xiaomi is primarily known as a smartphone manufacturer, but the team is sweating the brand into numerous different market segments.

That said, the smartphone business still accounts for the lion’s share of revenues.

Chinese market share European market share
Company Market share Company Market share
Huawei 42.4% Samsung 35.7%
Vivo 17.5% Huawei 22.2%
Oppo 17.4% Apple 18.6%
Xiaomi 9% Xiaomi 10.5%
Apple 5.2% HMD Global 1.8%

Q3 2019 Market share statistics courtesy of Canalys

The on-going US aggression has had two very contradictory impacts on the Huawei business, which are having contradictory impacts on Xiaomi. In Europe, Huawei devices are becoming less attractive to the consumer, which benefits Xiaomi sales, but there seems to be a doubling-down of efforts in China, which is eroding Xiaomi market share.

Revenues for the Xiaomi smartphone business were recorded at roughly $4.6 billion, down 7.8% year-on-year, though in shipping 32.1 million units (down 3%) across the period it is sat in fourth position for market share rankings, with 9.2%.

The next financial earnings from Xiaomi will certainly be more telling on the success of the Xiaomi smartphone business, as this three-month period will include the Christmas spending sprees; a solid performance from Xiaomi could see the brand be cemented as a mainstay in the Western markets. However, it will have to fund some aggressive marketing campaigns if it is to reverse the year-on-year shipments decline for this period.

Ultimately, the Xiaomi smartphone business is not in a bad position, though when you look at the wider portfolio there are some ambitious plans underway.

Alongside the smartphones and laptops, Xiaomi has an IOT business which incorporates the team’s virtual assistant, it has now sold 213 million units to date, while there are also various different smart home appliances. Xiaomi’s TV shipments in mainland China during the period led the market, while it also sells air conditioners, refrigerators and washing machines.

Outside the hardware segments of the technology world, Xiaomi is also nurturing an Internet services business. This unit includes advertising and gaming from mainland China smartphones, as well smart TV and Mi Box subscriptions, bringing in approximately $750 million for the quarter.

The smartphone business is the core business for Xiaomi, but the team is doing a very good job at sweating the brand in associated hardware and software segments. This is a Chinese company which is flying under the White House’s radar, but it does seem to be making the right moves.

HP on the up as PC segment boosts earnings

Share price in HP is up 2% during overnight trading as increased sales in its ‘Personal Systems’ unit push revenues beyond analyst expectations.

With the final quarter of the year returning increased growth for the business, full-year revenues were recorded at $58.8 billion, up 0.5% from 2018. Net earnings for the business were down year-on-year, though this will be partly down to the acquisition of acquisition of Bromium, enabling the business to venture into security services.

Perhaps the most interesting aspect of this earnings call is the success of the ‘Personal Systems’ unit, which includes the sales of laptops and desktop PCs. This segment has been a difficult one for many companies to swallow in recent years, though 4% year-on-year increase in revenues to $10.43 billion shows there is still life left in the party.

“We continued to outperform the PC market with broad-based growth across all regions and product category,” CEO Enrique Lores said during the earnings call. “In calendar Q3, we grew faster than our competitors gaining 1.2 points of shares. While we are proud of these results, share gain continues to be an outcome, not an objective.”

The next quarter is likely to see sales decrease for laptops and desktop PCs, though this is partly down to seasonal demands and constraints on CPU supply. This is largely unavoidable, but this is also a segment which could see some interesting developments over the mid-term future.

One area which is yet to make any meaningful impact on the technology landscape is embedded connectivity in laptops. This might not surge the price of laptops north, but it perhaps will force enterprise organisations into a refreshment cycle of inventory.

With more companies encouraging mobile workforces, embedded connectivity is becoming more important. It is easy to tether laptops to smartphones currently, but why would you when standalone connectivity is an option, especially if the bill can be sent directly to your boss.

The personal computing segment is not the most exciting or innovative aspect of the technology world, though with connectivity being promised everywhere and anywhere possible, there is still something to talk about.