Facebook (Q3) and Apple (Q4) were the last of the FAANG stocks to report earnings this quarter.
Details and Implications:
Facebook’s Q3 report showed strong earnings per share ($1.76 v $1.47 expected) but like the other tech stocks that reported last week, came in slightly below analysts’ estimates on revenues. Overall revenues grew 33% year on year to $13.73bn (vs $13.78bn expected). Mobile accounted for 92% of Facebook’s ad revenue, up 88% from the same quarter last year. Daily active users (DAUs) across its family of apps were up 9% year on year at 1.49bn (vs 1.51bn estimated) overall. Facebook is still adding users every quarter, just not in the U.S. or Europe as user daily averages in the US and Canada were flat at 185 million and in Europe they dropped by around 1 million from Q2 levels.
Mark Zuckerberg shared that the company is betting on Stories as the next big thing: “The trends that we have seen suggest that in the not too distant future, people will be sharing more into Stories than they will into feeds”. He also acknowledged that Stories features are growing faster than the company can monetize, so it will need to work on building out ad products to run alongside that user content. Investors were told to expect increased expenses in 2019 as Facebook looks to invest significantly in the business, building out new products such as Facebook Watch, Instagram TV and Facebook Marketplace and improving cyber security.
The fiscal Q4 results were always all going to be about how many iPhone’s had been sold, and Apple missed estimates on that, shipping 46.89 million handsets (versus 47.5 estimated). The company also spooked the market by issuing light guidance for the next quarter, suggesting a range of $89bn to $93bn in revenue against estimates of $93bn.
Those two things combined saw Apple’s share price drop as much as 7% in, after-hours trading, pushing Apple’s market cap back below the historic $1trn mark (it has recovered since then). Despite slowing sales, Apple has successfully locked in a strategy of increasing the average selling price of each iPhone, hitting $793 per unit versus forecasts of $750. Despite all of that Apple actually posted some strong results. Revenue was 20% up year on year to $62.9bn (v $52.5 in 2017) with $10bn of that being generated through non-hardware sales: iCloud, Apple Music and the App Store. As Mindshare’s Global Head of Innovation Jim Cridlin noted in The Guardian: “The model they have set up around app advertising right now is pretty compelling…if you want your app to be surfaced, you have to pay for that real estate now.”
Cridlin added that Apple’s advertising ambitions may increase as it shifts the balance of revenue generation between hardware and services. “There are rumours that they have been exploring an ad network by partnering with folks like Pinterest, and Snapchat, and others,” he told The Guardian. “Once you do that, you open the data up to the wider platform. By keeping its ad offering, at least the way it is right now with consumer data all to itself, [Apple] can still wholly control it.”
The story of the FAANG quarterly reports has been one of missed estimates and a cooling of expectations about future growth. It should be said that this is all in the context of continuing double digital growth and $bn revenue reporting. But the attempt to at least temper expectations is interesting as all the giants deal with the multiple issues of scaling their user bases, increasing adoption of cross-sold services and diversifying their offerings.