Below are the read-throughs for the upcoming Apple and Amazon September earnings based on results from Google, Microsoft, and Twitter, along with their key takeaways.
Apple read
- As for the macro, Google did not caution as much about the soft supply environment in December as Facebook and Snap. Positive for holiday sales.
- The accelerating digital transformation continues to be strong, a positive for Apple hardware sales. We believe this tailwind is more significant than many anticipate and will last 2-3 years.
- Microsoft Surface hardware business was down 17% y/y, compared to down 20% y/y in June. While a potential red flag for Apple’s Mac and iPad sales, it’s worth noting that in June, Mac grew revenue at 16% and iPad at 12%. We expect that gap between Surface growth and Mac/iPad to remain. We’re looking for Mac and iPad revenue to be up 8% and 7% respectively in September.
- Apple’s IDFA had a fractional negative impact on YouTube growth and no measurable impact on Google Search and Twitter advertising revenue. We want to hear more from Apple about the business model behind its SKAdNetwork which has become an ad topic focus with the changes to IDFA.
- Microsoft gaming content grew 2% because of tough comps given less time was spent at home gaming compared to a year ago. It’s a slight negative for App Store gaming revenue, which the Street is already anticipating with Services growth declining from 33% in June to 21% in September.
Amazon read
- The accelerating digital transformation continues to be strong, which is positive for ecommerce.
- Google did not caution as much about the soft supply environment in December as Facebook and Snap. Positive for holiday sales.
- Azure revenue up 50% which is a positive for AWS.
Google takeaways
- Google continues to live up to its role as the oxygen of the internet, evidenced by September revenue growing 41%, the highest mark in 14 years.
- Beat the Street revenue by 3%.
- Profit was up 3x over the start of the pandemic.
- Retail foot traffic is slowing, so online ad spending increases. Small businesses in particular are buying search ads.
- Overall the business was not impacted by Apple IDFA, outside of a modest headwind to YouTube, which posted revenues of $7.2B (up 43%) vs. the Street at $7.4B. YouTube is now on a run rate to be as big as Netflix.
- Cloud was $5.0B vs. the Street at $5.1B
- Google is taking a page from Apple when it comes to hardware. With the Pixel 6 coming out, Google is talking about being good on hardware, software and services. This is more to pull off because of the open nature of Android compared to Apple’s vertical integration.
- Waymo and Verily are still lagging monetization.
- $1.9T market cap, up 60% YTD.
Microsoft takeaways
- Sleepy good results.
- Remote working and learning continue to help Microsoft, with revenue up 22% and beating the Street by 3%.
- Azure grew 50% y/y, vs. Street at 48%.
- Gaming content grew 2% because of tough comps given less time was spent at home gaming compared to a year ago. The Xbox console sales were a bright spot, up 166% y/y.
- Hardware sales were down 17% off of hard comps last year. We expect Apple will buck that trend.
- LinkedIn up 42% y/y but expect headwinds in the numbers. They have scaled back operations in China, which is the 3rd largest market for Linkedin.
- $2.3T market cap, up 32% YTD.
Twitter takeaways
- Ad revenue up 41% yy.
- Results were in line as their brand ad model avoided the direct response mess that Apple’s IDFA changes caused Facebook and Snap. Twitter is inching forward on their two-year return to growth roadmap.
- The big picture is they have work to do over the next two years around their DAU and revenue growth targets.
- DAU growth. They need to add 100m DAU’s (up 50% from current levels) over the next 9 quarters to hit their target. That implies a step up and sustained DAU growth of 18% y/y each quarter. Before the pandemic and election ramp, DAU growth was around 10%. That step will be challenging.
- Revenue growth target of $7.5B (up 40%) in two years is more achievable given they have done almost no direct response advertising and are starting to turn that on.
- Big picture: They are struggling in the US. They have 37m DAU in the US, up from about 36m a year ago. As a point of comparison, Snap has 96m US DAU’s and Facebook has 196m. That begs the question, why can’t Twitter get more US users? They have new products like Spaces (Clubhouse), and Revue (Substack newsletter) that are directed at solving the US DAU challenge.
- Twitter is an under-rated metaverse play because they are building in NFT ownership validation and just turned on Bitcoin tipping into the product.
- $49B market cap, up 13% YTD.