Q3 Earnings 2019: Snap, Twitter, and Amazon

Background:

Snap Inc., Twitter and Amazon released their Q3 earnings this week. Here are the headlines.

Details and Implications:

Snap Inc: Snap Inc. reported another quarterly increase in users and revenue, signaling that changes to its social-media app and new tools for advertisers appear to be paying off. Snap’s third-quarter revenue rose 50% YoY to $446mn vs the $435mn expected from analysts. It gained 7 million new daily active users (DAUs) this quarter reaching 210 million DAUs, up 13% YoY and the third quarter in a row of growth for the company. Discover programming on Snapchat has continued to gain traction with coveted young audiences. Daily Discover viewing time increased 40% in the quarter over last year, and more than 100 Discover channels saw over 10 million viewers per month in Q3, the company said. Snap has also managed to continue cutting losses. Net loss improved to $227mn from $255mn last quarter.

Twitter: Twitter’s shares plunged 19% in early trading on Thursday after its Q3 revenue and earnings missed Wall Street’s forecasts. The company blamed product issues and weaker advertising demand. Revenues rose around 9% YoY to $824mn but fell short of the $873.9mn expected and down 2% from the $841mn for the previous quarter. Twitter’s advertising revenue rose 8% to $702mn as advertising sales in the US grew 11% but this was a sharp drop from their 32% growth in the third quarter of 2018.

More positively, its ‘monetisable daily active users’ (mDAUS) grew by 6 million to 145 million, a 17% YoY increase. Twitter defines mDAUs as authenticated users who could be shown advertisements. The company credited the growth to product improvements, organic growth, and marketing. Twitter stated it has more work to do to deliver improved revenue products and will continue to prioritise its ad products, progress on health – improving its ability to proactively identify and remove abusive content – and investments to drive ongoing growth in mDAUs.

Amazon: Amazon reported third-quarter earnings beating Wall Street revenue estimates but missing on profit sending shares tumbling in after-hours trading. Revenue was $70bn vs $68.8bn estimated, up 24% from the same quarter last year but profits fell to $2.1bn, a drop of 26%. Amazon warned investors during its last earnings call it was planning to heavily invest in its delivery operations to make one-day delivery standard for Prime subscribers, but it spent more than projected on this in Q3. It also pointed to increased spending on the growing cloud business and bolstering its advertising sales force and gave dismal revenue guidance for Q4, the important holiday shopping season.

Amazon Web Services (AWS) was responsible for nearly 72% of Amazon’s almost $3.2bn in operating income. AWS revenue of $9bn, up 35% vs Q3 2018 but its growth rate was down slightly compared to the last quarter. Amazon’s subscription services revenue which mainly accounts for Prime membership fees, was up 34% to $4.96bn. “Other” revenues, which is now dominated by Amazon’s ad business, was better than expected up 44% to $3.59bn. That’s up from a Q2 growth rate of 37%.

Summary:

For Snap Inc. after a rough 2018, an increased focus on advertising technologies this year appears to be paying off, but it still has a way to go before reaching profitability. Twitter’s platform bugs impacted revenue and ultimately led the company to an earnings miss. The return to a heavy investment cycle is cutting into Amazon’s profitability in the short-term but the business believes it’s a long-term decision that is right for its customers.

Further Reading:

Snap Inc | WSJ | Twitter | Business Insider | Amazon | The Street