Ranking Big Tech’s Earnings Performance
1) Facebook flexes its ad muscles
Despite macro uncertainty, widespread business closures, and brand campaign pauses, Facebook topped expectations across the board.
Ad revenue: Revenue of $18.7 billion topped estimates of $17.3 billion. Ad Revenue growth came in at 10%, better than the 8% expected, but down from 19% in Q1. Facebook expects sustained growth of about 10% growth in the third quarter despite challenges including macroeconomic uncertainty and ad boycotts.
Diverse ad base: Facebook emphasized the depth of its advertiser base, which has provided the company stability during a time when an economic downturn is coinciding with an ad boycott from large brands. Facebook has now surpassed 9 million active advertisers, and its top 100 advertisers made up just 16% of its ad revenue in the recent quarter, compared to 20% the last time it was disclosed.
Engagement: Facebook has a whopping 2.70 billion MAUs, up 12% y/y, and DAUs grew 12% y/y to 1.79 billion. It was the second straight quarter of MAU acceleration. North America remains strong, with 8 million DAUs added in the U.S. & Canada during the last two quarters. That’s more DAU additions than the previous seven quarters combined, according to Stifel.
2) Apple cruises past $400 a share
Big beat driven by iPhone: Revenue was up 11% y/y in the June quarter compared to an average of 0.4% y/y revenue growth over the previous six quarters, according to Loup Ventures Managing Partner Gene Munster. Apple delivered a big surprise with 2% year-over-year growth in iPhone revenue, crushing Wall Street’s projection for iPhone revenue to be down 15% year-over-year. iPhone growth was mainly fueled by the iPhone SE launch.
Services, which accounts for 22% of revenue, experienced growth of 15%, matching expectations. This is a drop from the 17% rise in the March quarter, due to weakness in Apple Care and Advertising.
Looking ahead: Apple did not give financial guidance, citing macro uncertainty. The company did, however, say it expects positive Y/Y growth for the iPhone to continue.
4-for-1 stock split: Apple won't be above $400 for long. The company announced a stock split, a move likely applauded by the Robinhood army.
3) Amazon Aces the Quarter
A clear winner from the stay-at-home trend, Amazon posted 9-year high revenue growth of 41% year-over-year.
Grocery game strong: During the quarter, grocery sales remained strong, increasing 3x from the prior year. Wedbush says it thinks that a large percentage of new grocery customers will remain customers indefinitely and aid Prime member growth. Wedbush estimates that Amazon Prime membership grew by about 10 million in the second quarter to around 167 million, up 27.5% year-over-year.
E-commerce king: RBC estimates Amazon’s share of US eCommerce to be around 40%. The firm says over 50% of U.S. shoppers start their search on Amazon.
One weak spot: Amazon Web Services is the one blemish on Amazon’s Q2 report card. Revenue growth in Amazon’s cloud segment dropped to 29% from 33% in the previous quarter. Margins stayed strong at 31%, however.
4) Alphabet is the weakest link
Softness in global advertising put a dent in Alphabet’s quarter. Google advertising (not including YouTube) declined by 10% y/y. YouTube Ads Revenue grew just 6% y/y in Q2, far below the 33% jump in Q1. This is because YouTube is more skewed toward brand advertising than Direct Response, which has been more resilient in the face of COVID-19. Much of Google's ad business is reliant on the travel and hospitality business, which could take some time to bounce back.
Downgrade: Stifel lowered its rating from Buy to Hold in response to the result:
“We are lowering our rating from Buy to Hold as we view the outlook for a progressive return of advertising spend across several of Google’s key verticals as appropriately priced into GOOGL.”
