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AlphaSense
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October 16, 2020
11 min read
Over the next two weeks, five of the world’s biggest tech companies–Apple (AAPL), Amazon (AMZN), Alphabet (GOOGL), Netflix (NFLX), and Facebook (FB)–will report earnings. In Q2, all beat expectations, despite COVID-19 disrupting every other sector, accounting for nearly $5 trillion in market value.
Last quarter, the NYSE FAANG index dominated other indices with a 46% gain (YTD as of July 24th). These massive market gains continued throughout the third quarter.
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After Q2 earnings, FAANG stocks saw a slight uptick in sentiment after dropoff in Q1. They are slowly rebounding after positive Q2 earnings. This chart does not reflect Q3 payments. | Sentiment analysis for Amazon, Netflix, Apple, Facebook, and Google vs. Peer Median
What were the major trends in an executive commentary last quarter? And what assumptions can we make about FAANG’s Q3 earnings? We’ve compiled highlights from last quarter’s earnings, including significant themes, executive commentary, and ungated document links to help you prepare for this week’s considerable bank earnings.
Amazon
On overall performance from Q2: “Our consolidated revenue and operating income significantly exceeded the top end of our guidance range. Strong maximum line performance was driven by increased consumer demand, led by Prime members. We continue to see high Prime member engagement throughout the quarter. Prime members shop more often with larger basket sizes. Worldwide streaming video hours doubled year-over-year, primarily driven by Prime video. In addition, we’re reaching more customers with our grocery offerings. Online grocery sales tripled year-over-year. Existing Prime member renewal rates improved, and the Prime member growth rate accelerated in the U.S. and worldwide.
On AWS growth: “Turning to AWS. This is now a $43 billion annualized run rate business, up nearly $10 billion in run rate in the last 12 months. Customer usage remains strong, although growth varies across industries as a result of the COVID-19 crisis.”
Apple
On Q2 results: “Total revenue was $59.7 billion, a new June quarter record, up 11% from a year ago despite a 300 basis point headwind from foreign exchange. Our performance was strong across our entire portfolio as we grew revenue in each of our product categories and set June quarter records for Mac, for wearables, and services. Similarly, our results were powerful worldwide, with growth in all geographic segments and new June quarter records in the Americas, Europe, Japan, and the rest of Asia Pacific. Products revenue was $46.5 billion, up 10% and a June quarter record. iPhone returned to growth, and we saw robust double-digit growth from iPad, Mac, and wearables.”
On uncertainty due to COVID and planning for Q3: “Similar to last quarter, given the uncertainty around the world in the near term, we will not be issuing revenue and margin guidance for the coming quarter….”
On revenue growth throughout Q2: “After seeing flat year-over-year revenue growth in the first few weeks of April, we saw a considerable recovery in May and June. Our total ad revenue for Q2 was $18.3 billion, which is a 10% year-over-year increase.”
On ad revenue growth and decline: “On a regional user basis, ad revenue growth was strongest in U.S. and Canada, Asia Pacific and Europe, which grew 14%, 11%, and 9%, respectively. Rest of World declined 6% and was impacted by challenging macroeconomic conditions as well as foreign currency headwinds.”
On July performance: “In the first three weeks of July, our year-over-year ad revenue growth rate was approximately in line with our Q2 ad revenue growth rate of 10%. We expect our full quarter Q3 year-over-year ad revenue growth rate to be roughly similar to this July performance.”
On COVID’s impact: “The macroeconomic environment caused by the pandemic created headwinds for our business. Our revenue declined on a reported basis and is flat year-over-year on a fixed FX basis. This quarter, like other companies, we saw the early signs of stabilization as users return to commercial activity online. This is true across most of our advertising verticals and geographies. But, of course, the economic climate remains fragile.”
On search trends and ad revenue: “I would say that following a rough end to the first quarter, ads revenue gradually improved in the quarter, not only in Search but YouTube and Network. And so for Search, we ended March at a mid-teens percentage decline in year-on-year revenues. And then, as we progressed through the second quarter, we saw a gradual return in user search activity to more commercial topics, and then that was followed by an increase in spending by advertisers. So that resulted in a gradual improvement in year-on-year Search revenue trends in the second quarter. Nevertheless, we ended flat to last year by the end of June, and you know to carry it forward, although we’re pleased that ads revenue gradually improved throughout the quarter.”
Netflix
“In Q1 and Q2, we saw significant pull-forward of our underlying adoption leading to huge growth in the first half of this year (26 million paid net adds vs. prior year of 12 million). As a result, we expect less growth for the second half of 2020 compared to the prior year.”
“…growth is slowing as consumers get through the initial shock of Covid and social restrictions. Our paid net additions for June also included the subscriptions we canceled for the small percentage of members who had not used the service recently.”
On 2021: “for 2021, based on our current plan, we expect the paused productions will lead to a more second-half weighted content slate in terms of our big titles, although we anticipate the total number of originals for the full year will still be higher than 2020.”
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