Technology Stock Roundup: Earnings, Twitter, An Acquisition
While earnings beats from Facebook FB, ActiVision Blizzard ATVI and NVIDIA Corp NVDA saw technology stocks soaring for yet another week, Twitter’s TWTR decision to remove its favorites button and the ATVI acquisition of King Digital also made headlines.
Tech Earnings Continue
Facebook: Facebook proved yet again that it deserves to be called the social networking leader. The company topped the Zacks Consensus Estimates on both the top and bottom lines. Despite the large user base, MAUs and DAUs were both up double-digits. Perhaps most impressive however was the 61% increase in the price per ad, which is phenomenal given that the price per ad has been declining or growing at single-digit rates on other leading platforms.
ActiVision: The weak seasonality notwithstanding, ActiVision Blizzard beat on both the top and bottom lines. Digital sales accounted for 64% of the company’s revenue, growing 25% year over year with MAUs growing more than 30%. The company also announced that it was acquiring King Digital.
NVIDIA: NIVIDIA blew past the Zacks Consensus Estimates for revenue and earnings, driven by strength in gaming and automotive which have become focus areas of late. This has helped it offset the weakness in professional graphics to PC OEMs particularly. This was positive for both revenue and profit margins. The company also raised its dividend 18%.
TripAdvisor: TripAdvisor TRIP missed the Zacks Consensus Estimates on both top and bottom lines. The company saw growth across all geographies except Asia with currency remaining a spoiler, similar to other travel companies. One bright spot was its non-hotels revenue.
Twitter: All Heart
In an obvious and long-overdue attempt to go mainstream, Twitter has decided to do away with one of its well-known symbols (the “star”). Hardcore Twitter users have expressed dismay and discord, while at the same time admitting that they used it for varying purposes, from bookmarking to expression of emotions.
This is possibly one of several difficult and necessary steps that Twitter intends to take to add definition to itself. While it stands the risk of ire from its core user base (because social media usage is habit-forming, that’s why it succeeds), Twitter can’t allow its user growth to stagnate. And if hearts is what it takes to get the younger, always-connected generation on the platform, that’s what it intends to do. It does seem like the way to go. Hopefully, the extension of characters comes next.
ActiVision Buying King Digital
ActiVision is using $5.9 billion in mostly balance sheet cash to acquire Candy Crush maker King Digital in its second largest deal ever. The acquisition will reportedly boost its 2016 EPS by 30%. There’s minimal customer overlap since ActiVision focuses mainly on consoles to target its half-billion customers while King is entirely into the emerging mobile games segment (19% of total dollar spend on video game software based on TTM revenue in Sept 2015, NPD estimates).
The console-installed base will not see the growth rates of yesteryear, and competition will continue to increase as mobile and free-to-play gain momentum. Another bonus is King’s female user base, which adds a new dimension to the targeted demographics. For King, it’s a godsend since the company has been largely unsuccessful at duplicating its success in the Candy Crush franchise.
Company | Last Week | Last 6 Months |
AAPL | +1.31% | -3.35% |
FB | +5.03% | +36.56% |
YHOO | -3.99% | -22.03% |
GOOGL | +3.27% | +40.50% |
MSFT | +4.33% | +17.60% |
INTC | -0.06% | +4.95% |
CSCO | -1.38% | -1.23% |
Other stories you might have missed-
Corporate
Apple in Vietnam: Reuters reports that Vietnam’s national business registry website enlists one Apple AAPL Vietnam Limited Liability that is based in Ho Chi Minh City to conduct wholesale business. The firm will sell iPhones, and provide IT, maintenance and advisory services in the country where iPhone growth has been exploding in recent times.
Facebook Building VR Team: Facebook has started a new unit called computational photography applied research group to focus on virtual reality and augmented reality content creation. The first three hires -- Michael Cohen, Rick Szeliski and Matt Uyttendaele -- are from Microsoft, where they worked on various research projects like hyperlapse (for stabilizing videos) and Blink (uses multiple photos to create a good shot).
Amazon Opens First Physical Book Store
Legal Regulatory
Alibaba-JD Fight It Out: In what looks like a mud-slinging attempt just ahead of the world’s largest shopping day, JD.com has issued a letter to State Administration for Industry and Commerce (SAIC), which is China’s anti-competitive authority. JD alleges that Alibaba restricts sellers by forcing them to choose a platform for the Singles Day (11/11) shopping event.
The Singles Day phenomenon was created and popularized by Alibaba to give Chinese customers an excuse to shop. The company offers huge discounts and promotions on the day with its retail partners seeing tremendous growth and customers, great deals. The SAIC does have a regulation forbidding ecommerce companies limiting or barring merchant partners from taking advantage of promotions on other platforms. Alibaba has denied the charges.
It’s possible that concerns over inventory availability led to sellers preferring one platform over another and Alibaba has already said that it provides better services to customers and merchants. At any rate, if found guilty, Alibaba may have to pay a hefty sum in fines.
New Technology/Products
Intel IoT Strategy: Intel INTC had a media event last week, where it introduced three new chips for the IoT market: the Quark D1000, Quark D2000 and the Quark SE system on chip (SoC). The first two will be available by year-end with the third one slated for a first-half 2016 launch. The SoC includes a microcontroller, as well as gyroscopes, accelerometers and pattern matching software. In fact, software from Intel-owned Wind River will allow the devices to connect to the cloud, which will then run apps or analyze data.
Microsoft Automates Win 10 Upgrades: Trust Microsoft to take the most sly and surreptitious approach to force users onto Windows 10 and then again force them to use Microsoft cloud services and then relentlessly track them to sell other services and advertising. Microsoft is seasoned at muscle-man tactics and it’s only taken them a few years to determine how to do it again. So like it or not, Windows 10 is getting automatically downloaded onto your PC to move gradually from an “optional” upgrade to a “recommended” upgrade.
Most PCs are programmed to automatically accept recommended upgrades, so soon enough you will have upgraded to Microsoft’s new OS without ever needing to give permission. According to NetMarketShare, most Windows 7 and 8.x users aren’t interested in upgrading to the new OS yet, with Win 7 usage dropping a mere 0.82% since the October launch of Win 10, Win 8.0/8.1 dropping a mere 0.10% and XP dropping 0.53%.
Apart from the usual bugs and problems that a new version of Windows generally brings, Win 10 also specializes in tracking users. This may be why they are dragging their feet despite the fact that it’s a free upgrade. But the cloud business is way too profitable for the company and it needs to get its installed base invested in Microsoft before the competition gets close.
Google Smart Reply: Alphabet’s GOOGL Google has announced a new auto-response feature for Gmail. Auto-response uses machine learning and artificial intelligence to determine the contents of an email and structure three quick responses. You can either go with any of the Google responses, or immediately jump into one to modify and send. Privacy watchdogs could take another crack at Google, because it is kind of creepy if even a machine can read your email (and it could make it easier for hackers, maybe). But of course it’s rather convenient too, especially if you’re trying to send a reply from a small mobile screen.
Google Rethinks Android One Requirements: The first time Google launched Android One in India, the program didn’t generate great sales and Google executives said later on that they’d do better next time. What they seem to have done now is greatly reduce hardware restrictions so sales can pick up although this means that the latest features may not work that great.
The problem with the Android One strategy was Google trying to push the latest and greatest to low-end customers who are accustomed to making do with devices that somehow do the job. So on the one hand, it was losing clout with partners because they weren’t able to differentiate and so, adopt different pricing strategies. And on the other, it didn’t generate great sales because customers weren’t able to appreciate the difference.
Google Project Wing Launch Date
Google DoubleClick for Billboards: Google tested its programmatic ads in some of the most sought-after billboards in London's Waterloo Station, Euston Road and the Vauxhall roundabout. The project is in the “proof-of-concept” stage according to the company and many issues need to be ironed out including serving dynamic creative content, determining impressions versus credits, reporting, audience data collection, yield management and of course latency (since users on the road are on the move).
The problems notwithstanding, the fact that it has got to this stage means that advertisers will soon be on board. They are already familiar with DoubleClick and they already know the effectiveness of programmatic buying. So it is a matter of when not if now.
Amazon Local Is Dead: Amazon, Google and just about everyone else is quitting the local daily deals business. While Groupon and LivingSocial (in which Amazon also has a share) are still standing, it appears that the model isnt working out too good. Both services are cutting headcount, LivingSocial by 200 and Groupon by 1,100, so there is reason to be concerned. That said, Groupon is making big changesthat just might save the company.
M&A and Collaborations
Google-Lending Club: The search giant has just entered into an agreement with Lending Club to obtain financing for prospective AdWords customers. Google no doubt will earn something off loan referral conversions, but it also stands to gain if cash inflows or customer acquisitions are faster. The terms are attractive (borrow up to 120K for a year with 0% fixed interest for the first 6 months and 9.9% thereafter, quick quotes within 5 minutes, no additional paperwork, no origination fees, no prepayment penalties, no hidden fees and funds flow into AdWords account within three days).
Google Flights-Lufthansa: German airlines company Lufthansa has agreed to make its flights available through Google Flights in the U.S. This allows customers looking to travel to directly book on Google Flight search. But Lufthansa recently announced a surcharge of 16 euros for flights not booked on its own website, making its flights relatively expensive. Industry experts are divided on the wisdom of adjusting prices to drive sales and some feel that this doesn’t automatically lead to higher revenue.
Pandora-Sony/ATV: Pandora announced a “multi-year” direct licensing deal with Sony/ATV, bypassing the usual channels of Ascap and BMI, which offer blanket licenses to businesses using music (radio stations, online streaming, etc). Publishers rely on these bodies for volume and they therefore have leverage to lower rates. While the rates are likely higher than what these associations would have fetched (Sony has reportedly threatened to pull out if the rates aren’t revised), the direct deal means that Pandora will see reduced uncertainties.
H-P Enterprise Spinoff Complete: Hewlett-Packard completed the separation of its enterprise business from its computing business on Nov 1, leading to a surge in Hewlett-Packard Enterprise shares, now trading under the symbol HPE. The appreciation is not unusual at the start given that indexes adjust holdings to accommodate the new company. The S&P 500 now includes HPE, replacing Hudson City Bancorp while HPQ remains as is.
Some Numbers
More Apple Watch Numbers: Research firm Canalys estimates that Apple has sold 7 million Watches since it launched in the second quarter. The average expectation is at around 6 million units, of which 3.5 million units are thought to have been shipped in the Sep quarter. Strategy Analytics has the number slightly higher at 4 million, estimating Apple’s share at 75.5%.Competition is expected to increase this quarter with new offerings from Fossil and Tag Heuer, but Apple is expected to have another strong quarter.
Apple GT Agreement: GT Advanced Technologies, which had hoped to sell sapphire substrates to Apple and couldn’t, has agreed to auction its sapphire-making equipment to raise the $439 million it owes Apple. The iPhone maker will drop the claim in exchange for the proceeds from the sale and take possession of the equipment GT is unable to sell as soon as a bankruptcy judge approves the transaction.
Microsoft Cuts Free OneDrive Storage: The largest cloud providers appear to be realizing the importance of freeing capacity as enterprise adoption picks up. Microsoft is the latest to take down its unlimited offering, citing user abuse. The company also capped its free storage at 5GB, which is down from the 15GB offered earlier (for comparison, Amazon offers 5GB only to Prime members and unlimited photo storage for $1 a month, Google offers 15GB free, and Apple offers 5GB free or 50Gb for $1 a month). Google also sells 1TB for $10 a month and this is where it has aggressive competition from Microsoft, which sells 1TB for $6.99+Office 365.
Microsoft Halo 5 Record Sales: Microsoft said that Halo 5 was the fastest-selling XB1 exclusive game to date, hauling in $400 million in the first week.The game had the highest week one attach rate for a Microsoft first-party title on XB1, and was the most played of any game on the platform and also on Xbox Live. The franchise has now brought in more than $5 billion over its lifetime.
Google+ Gains In Social Login: In the U.S., it’s common practice to sign onto web pages and apps using a social ID and Gigya periodically conducts surveys to determine the share of players in this authentication process. According to the firm, 90% of respondents used this method. Facebook continues to lead with a 64% share (down from 66% in Q2), Google went from 20% to 22% and Yahoo from 11% to 4%. Google+ grew in ecommerce for a 19% share of that segment with Amazon and PayPal declining to 6% and 2%, respectively. G+ also gained in media/publishing, where its share went to 24% at the cost of Facebook, which went to 54% of the segment. Twitter, Yahoo and LinkedIn were steady in media/publishing at 6%, 4% and 2%, respectively.
Amazon’s Holiday Deals Are Here: Amazon Black Friday deals have been coming forward each year and this year, Amazon decided to kick them off on Nov 2. “Lighting deals” will be doubled this year and Prime members will have acess to them 30 minutes earlier than others. Competition is clearly pushing retailers, as Wal-Mart and Target started their holiday deals on Sunday, Nov 1.
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