Sizzle/Fizzle

Sizzle Of The Week: The Fangs Take A Bite Out Of Analyst Expectations

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Amazon was the last to report yesterday, so now the results are all in for the so-called FANG group of stocks — Facebook, Amazon, Netflix And Google.

Yes, technically they should be called the FANA stocks since Google officially changed its name to Alphabet three years ago; but FANA doesn’t have quite the same ring — or potential for plays on words — that FANG does.

But whatever one wants to call the group, they managed to burn a sizzling track through the week’s earnings — all four met or beat analyst pre-earnings forecasts, and some by a very wide margin.

Facebook’s quarterly earnings showed that, at least so far, their recent data snafus haven’t put even the tiniest of dents in Facebook’s results. The concern before going into the call was that the recent Cambridge Analytica scandal — coupled with Congress’ newfound interesting in regulating the platform — would blunt performance.

Au contraire. Facebook’s adjusted earnings per share clocked in at $1.69 — a wide beat on the $1.35 predicted by analysts. Total quarterly revenue was also a notable beat — $11.97 billion as opposed to the $11.4 billion that was the consensus prediction.

New additions to the platform, as well as average monthly and daily users, were both in line with analyst expectations — and monthly active users in the United States and Canada returned growth status by adding about a million news users, reversing Q4 2017’s brief negative growth in both regions.

Facebook’s big win, however, was in its ongoing and growing power in its mobile advertising business — which many had feared was certain to take a hit following the last six weeks of explosive revelations. That, by all accounts, did not happen.

Mobile is now responsible for 91 percent of Facebook’s advertising revenue (and thus, de facto, about 90 percent of Facebook’s total revenue, as $11.8 billion of the nearly $12 billion in revenue Facebook logged during Q1 came via advertising.)  All in all, mobile ad revenue was $10.7 billion, up 60 percent year on year.

In Q1, the average price per ad increased 39 percent, and the number of ad impressions served increased 8 percent, driven primarily by feed ads on Facebook and Instagram.

“Despite facing important challenges, our community and business are off to a strong start in 2018. More than 2.2 billion people now use Facebook every month, and more than 1.4 billion people use it every day,” Mark Zuckerberg told investors at the outset of the quarter call. “Our business grew 49 percent year over year to $12 billion in quarterly revenue. But as you know, we have important issues to address.”

Amazon notched the biggest earnings beat of any of the four FANG players, coming in well over analyst expectations in all categories. Revenue came in at $51.04 billion — well ahead of the $49.78 billion forecast by analysts and up 43 percent year on year. Earnings per share were $3.27 — more than double the $1.26 per share estimated.

Amazon Web Services (AWS) clocked in with $5.44 billion in revenue, beating out the $5.24 analysts were looking for. AWS on the whole grew 49 percent year over year during Q1, generating $1.4 billion in operating income and representing about 73 percent of Amazon’s total income.

“AWS had the unusual advantage of a seven-year head start before facing like-minded competition, and the team has never slowed down,” said CEO Jeff Bezos on the earnings call. “As a result, the AWS services are by far the most evolved and most functionality-rich.”

Amazon also had a pretty big surprise waiting in this quarter’s debrief with investors — Amazon Prime, the membership program that the world recently learned has over 100 million members, will be getting more expensive for users. As of the end of May, the annual cost of Prime will tick up to $119 — the first increase in price since Amazon first raised the cost from $79 a year to $99 in 2014.

“Prime provides a unique combination of benefits, and we will continue to invest in making this Prime program more valuable for our members,” Amazon CFO Brian Olsavsky noted on the call with investors.

Price increases aside, Amazon investors were very happy with what they saw this afternoon — and Amazon’s stock spiked 7 percent in after-hours trading.

Netflix  Unlike its fellows in the FANG, Netflix’s revenue and earnings results more or less hewed to analyst forecasts.  Revenue came in at $3.7 billion, a smidge above the $3.69 forecast by analysts ahead of the release. EPS, on the other hand, came in at 64 cents per share — exactly on target with analyst predictions.  A year ago, Netflix reported diluted adjusted EPS of 40 cents per share on revenue of $2.64 billion.

But Netflix did manage to notch a sizzle-y big beat of its own — in the total number of users it was able to add to the platform during Q1. All in, Netflix added 7.41 billion new members to its platform — well ahead of the 6.5 billion forecast pre-earnings. The bulk of those additional users were split between the U.S. and domestic markets.  Netflix added 1.96 million new U.S. users vs. the 1.48 million expected by analysts. Internationally, Netflix added 5.46 million as opposed to the 5.02 million forecast.

Netflix’s addition of more than 7.4 million subscribers set a new record for the streaming platform, marking growth of 50 percent from a year ago. In his remarks to analysts, Netflix CEO Reed Hastings noted that success aside — with all of the current and emerging competition in the marketplace, Netflix doesn’t have time for a run of self-congratulation.

“It’s all up to us and execution. The consumer has a lot of entertainment options. And then whether our share of that grows or shrinks is really up to, do we produce great content, market it well, serve it up beautifully? And if we do that really well, if we earn more of consumers’ time, then we continue to grow. And if we get lazy or slow, we’ll be run over, just like anybody else.”

Alphabet/Google reported revenue of $31.15 billion, beating out Thomson Reuters consensus estimates of $30.29 billion.  The bulk of those dollars — as usual — was driven by advertising revenue, which picked up 24 percent year on year to $26.6 billion  Net income per share came in at $9.93, beating the Street’s estimates of $9.33.

Alphabet further noted that paid clicks were up 59 percent as measured from last year, but that cost per clicks were down 19 percent — a direct result of Google’s advertising business increasingly drifting toward mobile.

“Other revenues” — the part of Alphabet’s business where mobile devices, smart speakers and Google Play all live — were also reporting big year-on-year growth.  All in all, even that segment grew $1 billion to $4.3 billion total.

Alphabet CEO Sundar Pichai, in his comments to investors, noted that Google is now ready to evolve to its next phase as a firm beyond merely connecting users to the data they need.”

“For me, mobile obviously raises the bar. And if you look at the evolution of search … we evolved to stay ahead of user expectations, and we evolved from just providing links to answers. I just feel at a high level, the next big evolution we are doing as part of mobile search and assistant is to actually help users complete actions, to help get things done.”

Alphabet got the least investor love post earnings, with stocks that inched up after earnings were announced — only to fall off again in after-hour trading.  However, within 24 hours, the stock had returned to growth territory.

In tech, of course, sizzles can sour. But for this week, FANG, collectively, put some teeth into earnings — and for that, they’ve certainly earned the top sizzle spot.

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