Alphabet’s Earnings Miss Forecasts

Alphabet Inc. (NASDAQ: GOOG, GOOGL) yesterday (21 April), announced financial results for the quarter ended March 31, 2016. Google continues to prop up the company’s overall performance turning a profit whilst ‘Other Bets’ operate at a loss. Immediately after the announcement that Alphabet’s earnings missed forecasts, its stock fell. Also in this piece; Microsoft show strength in the cloud and search advertising revenue increased by 18%; Netflix’s share price takes a tumble; and Verizon continues to go from strength to strength. 

“Our Q1 results represent a tremendous start to the year with 17% revenue growth year on year and 23% growth on a constant currency basis. We’re thoughtfully pursuing big bets and building exciting new technologies, in Google and our Other Bets, that position us well for long term growth,” said Ruth Porat, CFO, Alphabet.

The following summarises results for Google compared to all other Alphabet businesses (Other Bets) (in millions; unaudited):

Revenue and profit rose from 2015 but missed analysts’ forecasts. Revenue, at USD$20.26bn (£14.14bn), was about USD$120m (£84m) less than expected. Earnings per share, excluding certain items, were USD$7.50 (£5.23) when the consensus estimate was USD$7.96 (£5.56). Legal battles and the transition from a desktop to mobile advertising world are likely to have contributed to the slight downturn.

Google’s advertising revenues were over USD$18m (£12.6m); an increase of 16% year-over-year.

The growth in advertising revenue came from a 4% increase in paid clicks on Google’s Network Members’ websites and 2% growth in the cost-per-click on Google websites. Aggregate paid clicks fell year-on-year, as did paid clicks on Google websites and cost-per-click on Google’s Network Members’ websites.

NASDAQ: GOOG

Source: Google Finance

NASDAQ:GOOGL

Source: Google Finance

Microsoft’s third quarter results

Yesterday, (21 April) Microsoft Corp. (NASDAQ:MSFT) announced results for the quarter ended 31 March 2016. Microsoft showed strength in the cloud and search advertising revenue (excluding traffic acquisition costs) grew 18%. Results missed analysts’ expectations and shares fell as much as 5%.

– Revenue was USD$20.5bn (£14.31bn) GAAP, a 6% decrease year-on-year

– Operating income was USD$5.3bn (£3.7) GAAP, a 20% decrease year-on-year

– Net income was USD$3.8bn (£2.7) GAAP, a 25% decrease year-on-year

– Earnings per share was USD$0.47 (£0.33) GAAP, a 23% decrease year-on-year

“Organisations using digital technology to transform and drive new growth increasingly choose Microsoft as a partner,” said Satya Nadella, chief executive officer, Microsoft. “As these organisations turn to us, we’re seeing momentum across Microsoft’s cloud services and with Windows 10.”

Microsofts’s commercial cloud annualised revenue run rate now exceeds USD$10bn (£6.97bn); Windows 10 active on over 270 million devices.

Revenue in Productivity and Business Processes grew 1% (up 6% in constant currency) to USD$6.5bn (£4.5bn), with the following business highlights:

– Office commercial products and cloud services revenue grew 7% in constant currency driven by Office 365 revenue growth of 63% in constant currency

– Office consumer products and cloud services revenue grew 6% in constant currency with Office 365 consumer subscribers increasing to 22.2 million

– Dynamics products and cloud services revenue grew 9% in constant currency with Dynamics CRM Online seat adds more than doubling year-on-year

Revenue in Intelligent Cloud grew 3% (up 8% in constant currency) to USD$6.1bn (£4.3bn), with the following business highlights:

– Server products and cloud services revenue increased 5% in constant currency driven by double-digit annuity revenue growth

– Azure revenue grew 120% in constant currency with usage of Azure compute and Azure SQL database more than doubling year-over-year

– Enterprise Mobility customers more than doubled year-on-year to over 27,000, and the installed base grew nearly 4x year-on-year

Revenue in More Personal Computing grew 1% (up 3% in constant currency) to USD$9.5bn (£6.6bn), with the following business highlights:

– Windows OEM revenue declined 2% in constant currency, outperforming the PC market, driven by higher consumer premium device mix

– Surface revenue increased 61% in constant currency, driven by Surface Pro 4 and Surface Book

– Phone revenue declined 46% in constant currency

– Xbox Live monthly active users grew 26% year-on-year to 46 million

– Search advertising revenue, excluding traffic acquisition costs, grew 18% in constant currency with continued benefit from Windows 10 usage

“Digital transformation is the number one priority on our customers’ agenda. Companies from large established businesses to emerging start-ups are turning to our cloud solutions to help them move faster and generate new revenue,” said Kevin Turner, chief operating officer, Microsoft.

NASDAQ:MSFT

Source: Google Finance

Verizon continues to strengthen

Verizon Communications Inc. (NYSE, Nasdaq: VZ) also announced Q1 earnings yesterday (21 April) and reported continued earnings and operational growth. Strong results demonstrate ability to compete effectively as company remains focused on network leadership and developing new markets.

Earnings per share increased by 4% year-on-year.

“Verizon’s strong first-quarter results demonstrate our capacity to compete effectively, while executing on our plan of continued network leadership and seeding new growth markets in mobile video and the Internet of Things,” said chairman and CEO Lowell McAdam.

AOL had its highest first-quarter revenues in the last five years.

New revenue streams from IoT (Internet of Things) are growing, with revenues of approximately USD$195m (£136m) in first-quarter 2016, a year-on-year increase of about 25%.

Since the beginning of the year, Verizon has moved to strengthen America’s best networks by announcing its intention to acquire XO Communications’ fibre optic network business and an agreement to deploy a new fibre platform in Boston. Both will support a mix of new technologies, including 5G wireless services.

Verizon also completed its sale of local landline businesses in California, Florida and Texas on 1 April. The company used the proceeds to pay down debt in second-quarter 2016. In addition, Verizon recently announced plans to expand its video platform by adding unique content from Hearst and AwesomenessTV, and through a joint venture with Hearst to acquire Complex Media.

NASDAQ:VZ

Source: Google Finance

Netflix shares fell by more than 10% on Tuesday (19 April) afternoon following the release of the video-streaming service’s Q1 2016 earnings. Despite expanding the Netflix service to 130 new countries in January and finishing Q1 with over 81 million members, the forecast for its overseas business was disappointing and US expansion is slowing. The company predicts net additions of USD$500,000 (£348,588) in Q2 2016 (slightly above analysts’ forecasts), however, that represents a 45% year-on-year decline.

International subscriber growth could be the key to continued financial success and help Netflix realise its hefty multiple. More than one in three (42%) subscribers are outside the US after the company launched in 130 new countries in January this year.

For any company, each new market brings unique cultural challenges, competitors and rights negotiations. For Netflix this is going to mean additional marketing, content production and legal costs which will reduce international margins. That means that if Netflix is to be substantially more profitable by next year, as the market expects, profit is going to have to come from the US – perhaps through increased subscription charges (already planned, but not implemented) but also, perhaps through advertising?

NASDAQ: NFLX

Source: Google Finance

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