4 min read
Facebook, Amazon, Apple & Google Beat Expectations With Antitrust Hearings in the Backdrop
October 30, 2020
10 min read
Earlier this week, Facebook, Twitter and Google faced questions from the US Senate over Section 230 – the law that currently allows social networks to remain immune from being sued over content their users post on their platforms. The hearings fell into a larger discussion over social media’s censorship – or lack thereof – of political advertising and misinformation.
Twitter’s Jack Dorsey found himself questioned by senators over Twitter’s decision to put warning labels on some of President Donald Trump’s tweets, while leaving other leaders’ tweets untouched, as well as Twitter’s censorship of a New York Post article on Hunter Biden. Facebook’s Mark Zuckerberg revealed that the FBI had warned him of a possible “hack and leak” operation threatening him and other tech companies in the days leading up to the election. All three companies fiercely defended section 230, though, calling it “the most important law protecting internet speech” and a pillar of the ability for tech companies to offer access to a wide range of information.
Though these tech hearings may have seemed an ominous sign for some investors ahead of Thursday evening’s earnings deluge, the tech leaders again failed to disappoint, with all four beating earnings expectations – another indication that the pandemic has not taken the same toll on tech as it has on many other industries.
Below, we’ve compiled commentary from Thursday’s FAANG earnings call transcripts. To monitor FAANG stocks and market commentary around the antitrust hearings, start your free trial of AlphaSense or login to your account.
- Apple reported strong iPad and Mac sales, but it showed a decline in iPhone sales, and failed to offer guidance for the quarter ending in December.
- Amazon broadly beat expectations, with sales up 37% YoY, and profits up nearly 200%, even as Prime Day was delayed due to the pandemic.
- Alphabet also beat expectations, reporting $11.2 billion in quarterly profit, and showing digital advertising with a YoY increase, something they were not able to report last quarter.
- Facebook beat expectations on revenue and users, however still showed a decline in active users in North America from last quarter.
Please note highlighting:
Green highlights: positive sentiment
Red highlights: negative sentiment
On the quarter’s performance: We reported total revenue of $64.7 billion for the September quarter, up 1% from a year ago. This is a very impressive level of performance when we consider that this year, we did not launch and ship any new iPhone models during the quarter. Outside of iPhone, we grew 25% in aggregate and had strong double-digit year-over-year revenue growth in each of our product categories. We set all-time records for Mac and Services and a September quarter record for Wearables, Home and Accessories.
On Mac and iPad success: Next, I’d like to talk about Mac. Revenue was, by far, an all-time record at $9 billion, up 29% over last year and $1.6 billion above our previous record in spite of supply constraints during the quarter. We grew strong double digits in each geographic segment and set all-time revenue records in the Americas and rest of Asia Pacific as well as September quarter records in Europe and Japan. We have seen amazing customer response to the new MacBook Air and MacBook Pro and very strong demand during the back-to-school season.
iPad performance was also very impressive with revenue of $6.8 billion, up 46% and our highest September quarter revenue in 8 years despite supply constraints. Demand exceeded our expectations around the world as we grew very strong double digits in every geographic segment, including an all-time record in Japan and a September quarter record in the Americas.
On future guidance: As we move ahead into the December quarter, I’d like to provide some color on what we are seeing, which includes the types of forward-looking information that Tejas referred to at the beginning of the call. Given the continued uncertainty around the world in the near term, we will not be issuing revenue guidance for the coming quarter. However, we are providing some insights on our expectations for the December quarter for our product categories. These directional comments assume that COVID-related impacts to our business in November and December are similar to what we’ve seen in October.
We just started shipping iPhone 12 and 12 Pro, and we’re off to a great start. We are also excited to start preorders on iPhone 12 mini and 12 Pro Max next Friday. Given the tremendously positive response, we expect iPhone revenue to grow during the December quarter despite shipping iPhone 12 and 12 Pro 4 weeks into the quarter and iPhone 12 mini and 12 Pro Max 7 weeks into the quarter. We expect all other products in aggregate to grow double digits, and we also expect Services to continue to grow double digits.
On Prime member engagement: We also continue to see strong Prime member engagement. Prime members continue to shop with greater frequency and across more categories than before the pandemic began. They continue to expand their usage of Prime’s digital benefits, including Prime Video. Internationally, the number of Prime members who stream Prime Video grew by more than 80% year-over-year in the third quarter, and international customers more than doubled the hours of content they watched on Prime Video compared to last year.
On fulfillment network expansion: Although we had strong growth in our network in Q3, some of our fulfillment network expansion shifted out a few weeks and will happen in Q4 rather than Q3. Once new buildings open, they are short-term headwind to profitability as they ramp up and we prepare for Q4 peak. More of this headwind will be felt in Q4 rather than in Q3, and this is reflected in our Q4 guidance.
Looking ahead to Q4: As far as guidance is concerned, again, I think the — there’s a lot of uncertainty certainly in Q4. We generally have a lot of uncertainty around the holiday, things from holiday spending to what our cost to fulfilled normal orders would be, weather issues that can come up. This year is an election year, we saw some disruption in 2016. So there’s a whole host of issues that generally come to bear in Q4. I think the fact that COVID is dwarfing all of those is causing us a lot of uncertainty on our top line range.
We do see continuation — we saw a continuation in Q3 of some really good trends from Q2, and we projected those into Q4. Some of the negative factors that you mentioned as far in profitability is, again, the — we’ll see more of the capital investment and the people investment. We had added a lot of people in the last quarter, and then we added another 100,000 people in October so far. So there’s that.
On the DOJ lawsuit: On that note, regarding the DOJ’s lawsuit, we believe that our products are creating significant consumer benefits, and we’ll confidently make our case.
On the return of ad spend: Google Search and other advertising revenues were $26.3 billion in the quarter, up 6% year-over-year, as advertiser spend began to pick up in August. YouTube advertising revenues were $5 billion, up 32% year-on-year driven by ongoing substantial growth in direct response followed by a rebound in brand advertising from increased spending by advertisers. Network advertising revenues were $5.7 billion, up 9% year-on-year.
On hiring: In particular, the deceleration in head count growth this quarter reflects the actions we took at the outset of the pandemic to focus hiring on our highest-priority areas like Google Cloud. Excluding the impact of closing the pending Fitbit acquisition, we expect a moderate further deceleration in the pace of head count growth in the fourth quarter.
On political ads: We’ve also taken industry-leading steps to make ads transparent, so people know who’s trying to gain their support. Anyone who wants to run a political or social issue ad has to go through our authorization process first. And between March and September, we rejected ads 2.2 million times before they can run for trying to target the U.S. without authorization. We also built the ads library, where you can see any ad that is running on Facebook or Instagram and even if it’s not targeted to you. For political and social issue ads, you can see who paid for the ad and what audience the ad reached, making political advertising on Facebook more transparent than any other medium.
On ad revenue: Our total ad revenue for Q3 was $21.2 billion, which is a 22% year-over-year increase. Our largest verticals were e-commerce, retail and CPG, and we continue to see broad growth across sectors such as ads as advertisers continue to optimize for measurable objectives like sales and website visits.
On users: Now let’s start with our community metrics. In September, we estimate that approximately 2.5 billion people used at least one of our services on a daily basis and that approximately 3.2 billion people used at least one of our services on a monthly basis. Facebook daily active users reached 1.82 billion, up 12% or 197 million compared to last year. DAUs represented approximately 66% of the 2.74 billion monthly active users in September. MAUs grew by 291 million or 12% compared to last year.
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