Facebook delivered a beat to earnings forecasts, but with the US Department of Justice launching an investigation can Big Tech continue to deliver for shareholders?
Results from Facebook were even better than expected, showing that it continues to drive user growth and ad revenue growth. Facebook is still loved by advertisers. Remember its not just Facebook but the entire ecosystem that matters. And the data it has on us all.
Daily active users rose 8 per cent as expected to 1.59bn, with monthly active users were also up 8 per cent. Ad revenues rose more than expected, up 28 per cent to $16.9bn versus the $16.5bn expected. Earnings per share came in at $1.99 against the $1.88 expected.
One astonishing fact: Mobile advertising revenue represents approximately 94 per cent of advertising revenue.
DoJ investigation
This week the Department of Justice said it was embarking on an investigation into anti-trust activities. Being broken up is a tail risk for tech giants and the news of this sweeping investigation has increased this risk.
Alphabet, Amazon, Facebook certainly appear to be in the cross-hairs. Shares in these stocks are weaker pre-market. The EC is also upping its scrutiny of tech giants, whilst a new Digital Services Act is also being planned to control illegal content. The broad sense is that these companies are facing increased regulatory and legal risks that could affect their future earnings growth and profitability.
Whilst its far too early to say if any would, or could, be ripe to be broken up, theres a real threat this will depress multiples and mean we need to reset expectations. Given the Fangs have been at the front of the market expansion in recent years, this will act as a drag on sentiment as well. Calls have been growing louder and louder for the authorities to at least look at antitrust issues for the tech giants. Political pressure is building – lawmakers sniff votes in tackling big tech
Alphabet earnings
Q1 was a disappointment as Alphabet reported its weakest sales growth since the fourth quarter of 2015. Ad revenue growth declined to 15 per cent from 24 per cent in the same quarter a year ago. A repeat of that could cause investors some concern. Transparency, or lack of it, is the real worry with management unwilling to really get into any kind of detail about why growth slowed so much. EPS in Q2 is seen at $11.15.
Alphabet earnings were a big disappointment as revenue
growth missed expectations. More competition for sure is a factor as the likes
of Amazon and Facebook move forwards.
Google will have to get used to competition more – the previous quarters
report was a bit of heads up on that front.
A tough comparison to last year was also a factor as
changes to YouTube a year ago delivering a boost then that was not repeated
this year. FX headwinds were also a big factor in the slower revenue growth and
should not be ignored and may worsen in Q2. Sales of the Google Pixel have also
proved disappointing. Other bets division set to remain a big loss maker.
Overall, revenues rose 17 per cent yoy, to $36.3bn, the slowest pace in three years. Income beat, though, with EPS at $11.90 versus the $10.53 expected, excluding an EU fine of €1.7bn, which brought earnings down to $9.50 a share. Watch also for the income from investments, an area that delivered a healthy boost a quarter ago.
Amazon
Amazon is maybe seeing a plateauing in revenue growth but much juicier margins mean profits are better and continue to defy gravity. Q1 EPS came in at $7.09 against the $4.72 expected. Total revenues grew at just 17 per cent – the slowest sRead More
