Welcome to the earnings and CEO resignation-filled April 29th edition of Seeking Alpha's Eye on Tech newsletter.
Eye on Tech Coverage
AWS, destroyer of (corporate IT) worlds: Amazon's (NASDAQ:AMZN) public cloud platform saw revenue rise 64% Y/Y to $2.57B (more than a $10B/year run rate), and op. profit rise over 3x to $604M.
Meanwhile, international sales growth doubled to 24% from Q4's 12% (lower forex pressures were partly, but not fully, responsible), and North American growth improved slightly to 27%. 30%+ electronics and general merchandise growth was recorded for both regions, to go with single-digit media growth. Amazon is still clearly grabbing online retail share in the U.S. and elsewhere.
While Amazon's international ops are still unprofitable, North American op. profit more than doubled to $588M in spite of still-heavy spending growth. That (along with AWS) fueled a big GAAP EPS beat. Though not as profitable as it could be if it was optimizing for profitability rather than growth, Amazon seems to have reached a point where it can consistently deliver annual profits and positive free cash flow (FCF was $1.6B over the last 12 months) while continuing to invest aggressively.
Mentioned on the earnings call: Paid units rose 27% Y/Y, 3rd-party sellers made up 48% of paid units, active customer accounts (purchase made in last 12 months) rose by 5M Q/Q to 285M, constant-currency international growth was the strongest in 3½ years (Amazon says Prime helped), Prime Now is now in 30 metro areas, and international margins are being hurt by Indian investments and efforts to "build the underpinnings of the Prime program in our international countries."
Synergy Research's Q1 cloud estimates drive home AWS' dominance, and the share gains seen by the top 4 players. Of note: Synergy doesn't count SaaS revenue, thus their AWS growth estimate (57%) is slightly lower than reported AWS growth of 64%.
With the stock down 45% YTD going into earnings, LinkedIn's (NYSE:LNKD) numbers were well-received. Shares would likely have risen more (they finished after-hours trading up 8.1%) if Q2 and 2016 revenue guidance wasn't merely in-line.
The core hiring (jobs/recruiting) business saw revenue growth slip to 27% from 32%, but marketing improved to 29% from 20% as healthy demand for Sponsored Update news feed posts offsets display ad declines. And subscription sales growth improved to 22% from 19%, as strong demand for Sales Solutions offerings (now 40% of subscription revenue) offset slower growth for premium user subscriptions. Within hiring, LinkedIn reports seeing a "better than expected impact from pricing" for field sales, and solid new account growth.
GAAP costs/expenses rose 42% Y/Y, outpacing revenue growth of 35%. LinkedIn expects greater capex leverage in 2017. It also expects to "realize greater than 40% in future opex savings within cost of revenue."
Unique visiting members rose a modest 9% Y/Y to 106M, but page views still grew 34%. Cumulative members (not the same as active users) rose by 19M Q/Q to 433M.
LinkedIn's report isn't without blemishes, and questions about visitor growth and subscription growth still remain. But there are enough top-line and bottom-line positives in the Q1 report to suggest the reaction to the Q4 report was excessive.
IDC estimates tablet shipments fell 14.7% Y/Y in Q1 to 39.6M. Based on the firm's estimates, more than 8 smartphones were shipped for every tablet, and (though PC sales are also weak) 3 PCs were shipped for every 2 tablets.
The tablet market remains handicapped by an aversion among PC users to fully ditch PCs for tablets (even if they're using PCs less), the popularity of phablets, and a general lack of the subsidies, installment plans, and upgrade plans that boost smartphone upgrade rates.
Market leaders Apple (NASDAQ:AAPL) and Samsung (OTC:SSNLF) once more lost share, as the industry's sales mix continues shifting towards cheap Android tablets. The iPad Pro does appear to have narrowed Apple's share losses a bit. Amazon, lifted by strong sales of its $50 Fire tablet, is gaining ground, as is Huawei.
Symantec (NASDAQ:SYMC) blames the warning on an enterprise mix shift away from up-front license revenue towards subscriptions and ratable contract structures.
While that mirrors a broader shift in enterprise software spend, it's hard to ignore the fact Symantec has been losing security software/services share for some time, as upstarts rapidly grow enterprise sales and free and "freemium" offerings gain ground with consumers. Enterprise security revenue was down 3% Y/Y in calendar Q4, and consumer security revenue down 10%.
Michael A. Brown is stepping down as CEO (once a successor is named) after two years on the job. He oversaw job cuts, the sale of Symantec's Veritas storage software unit (yielded post-tax proceeds of $5.3B), and a smattering of product launches targeting faster-growing cybersecurity markets.
One unanswered question is whether Symantec will still pursue Brown's plans to use some of the Veritas proceeds to make security acquisitions. Given recent trends, a few reasonably-priced deals meant to fill product line and/or technology gaps would make sense.
Selling the IoT chip unit, which provides Wi-Fi, Bluetooth, and Zigbee chips for auto, industrial, and consumer/wearables products, furthers Broadcom's (NASDAQ:AVGO) efforts to pare its debt load and streamline its product/end-market focus following the Broadcom/Avago merger. Broadcom's Wi-Fi/Bluetooth mobile combo chip business (services Apple, Samsung, and others) isn't part of the deal.
For Cypress, already a supplier of microcontrollers and memory to the auto and embedded markets, the deal provides cross-selling and product opportunities, and gives it more exposure to the growing consumer IoT market. Qualcomm (NASDAQ:QCOM), Texas Instruments (NYSE:TXN), and others are also targeting the IoT connectivity chip space.
T.J. Rodgers, who founded Cypress in 1982, is stepping down as CEO. Candid as ever, Rodgers admits the board and management have been urging him to "bring new blood into operations." Cypress finished down fractionally following its announcements.
Textura (NYSE:TXTR), once a Citron Research short idea, is a top provider of cloud software for managing construction projects. Oracle (NYSE:ORCL) plans to combine Textura's offerings with its existing Primavera project-management software suite to create a new Engineering and Construction Global Business Unit.
Together with the 2016 purchases of Crosswise (cross-device tracking services), Ravello Systems (software for managing/running server virtual machines in cloud environments), and AddThis (website sharing/personalization tools that produce marketing data), the Textura deal suggests Oracle is stepping up its M&A activity following a 2015 slowdown.
The deal also highlights Oracle's willingness to expand into vertical markets to grow cloud software sales, rather than merely sell cloud apps that can be used by enterprises in general.
Baidu (NASDAQ:BIDU) beat EPS estimates with the help of a surprise 8% drop in R&D spend. However, the company's strong Q2 sales guidance - it implies 28.1%-31.1% Y/Y adjusted sales growth, nearly even with Q1's 31.2% - might be the bigger story for markets, particularly given Chinese macro concerns.
SG&A spend rose a steep 33.5% in Q1, as promotional spending for various services continue weighing, and traffic acquisition content costs also grew as a % of revenue. On the other hand, Baidu's mobile monetization efforts are a clear success - mobile is now 60% of revenue - and the company saw a 268% increase in GMV for "transaction services" (to $2.5B) thanks to strong uptake for Baidu's online-to-offline service offerings.
Notable Tech News
Priceline CEO/Booking.com chief Darren Huston resigns over personal conduct issue - Huston had been Priceline's (NASDAQ:PCLN) CEO since the start of 2014. He was also serving as the head of Priceline's Booking.com unit (easily its largest source of travel bookings). Booking.com COO Gillian Tans is the new head of the division, and chairman Jeffrey Boyd, who was Priceline's CEO from 2002-2013 (while Priceline grew to become the giant it is today), is filling in as interim CEO. Priceline finished down 2.7% vs. a 1.2% drop for the Nasdaq.
Google CEO Pichai talks up search and AI efforts in "founder's letter" - Larry Page and Sergey Brin have historically co-authored Google's (GOOG, GOOGL) annual founder's letter. But with Page having kicked himself upstairs to the role of Alphabet CEO, Pichai did the honors this year.
Unsurprisingly, Google's huge AI/machine learning investments (the company is arguably ahead of the pack here), and their impact on various consumer and enterprise services, get a lot of attention. Pichai: "[AI is] what allows you to use your voice to search for information, to translate the web from one language to another, to filter the spam from your inbox, to search for 'hugs' in your photos and actually pull up pictures of people hugging… Your phone should proactively bring up the right documents, schedule and map your meetings, let people know if you are late, suggest responses to messages, handle your payments and expenses, etc."
He insists Google still has much work to do in making search and assistant services more context-aware - "The average parent has different needs than the average college student. Similarly, a user wants different help when in the car versus the living room." - and asserts "the next big step will be for the very concept of the 'device' to fade away," with each connected device acting as "an intelligent assistant helping you through your day."
That last remark is perhaps as much a reflection of Google's strategic goals - the company clearly sees a big long-term opportunity in being the top provider of personalized, AI-driven, cloud services delivered across multiple platforms, and perhaps also in leveraging the data produced by those services - as it is a prediction of how the future will unfold.
Google hires ex-Motorola chief Osterloh to run hardware ops - Rick Osterloh, who recently left Lenovo's Motorola Mobility unit (was acquired from Google in 2014), will reportedly be in charge of Nexus devices, Chromebooks, Chromecast, the OnHub home router, and the Project Ara modular phone initiative. He'll also assume control of Google Glass from Nest Labs chief Tony Fadell, recently the subject of some less-than-flattering reports about his reign at Nest.
The move has some parallels with Google's decision to put Diane Greene in charge of both the Google Cloud Platform and Google Apps. In each case, Google has put disparate products targeting many of the same potential customers under common leadership.
WSJ: Google and Fiat discussing self-driving car partnership - The report fits with past Google remarks suggesting the company wants to be a provider of autonomous driving hardware/software to automakers, rather than an automaker itself. Google has previously been rumored to be planning a JV with Ford (NYSE:F), as it pushes forward with a goal of bringing a self-driving car to market by 2020.
Samsung beats Q1 estimates, but shares drop in Seoul - Samsung had already forecast a solid quarter three weeks ago - solid Galaxy S7 sales helped, as did growing 14nm chip sales - so that was priced in. Consumer electronics, mobile, and chip revenue rose Y/Y, while display revenue fell. TV and LCD earnings are expected to improve in Q2, but smartphone/tablet demand is expected to be flat Q/Q "amid weak seasonality" (and tough Chinese Android competition).
With DRAM prices hit hard in recent quarters, Samsung (has been ramping capacity to gain share) says it's focused on "profitability-focused [DRAM] product mix" in 2016. Also, server/mobile DRAM and SSD demand is expected to be "solid" in Q2. That, along with rival SK Hynix's (OTC:HXSCF) recent comments, has to be music to Micron's (NASDAQ:MU) ears. Micron closed up slightly on Thursday in spite of a tech selloff.
Samsung's Q1 segment performance and Q2/2016 outlook. Source: Earnings slides.
Yandex jumps after Q1 sales beat and 2016 guidance hike - Revenue rose 34% Y/Y in rubles and 15% in dollars, thanks to 27% Yandex (NASDAQ:YNDX) site ad sales growth, 43% ad network sales growth, and 132% "Other" (Yandex.taxi) growth in rubles. Net income of RUR1.1B ($15.8M) was officially below estimates, but that had much to do with a big forex loss. "Adjusted" net income rose 41% to RUR3.2B ($46.9M). And full-year ruble revenue growth guidance has been upped to 15%-19% from 12%-18%.
Meanwhile, LiveInternet estimates Yandex's Russian search share grew fractionally for the second straight quarter (to 57.6%). Russian antitrust pressure on Google over its Android bundling policies could be helping out.
Groupon sells off after Q1 beat and EBITDA guidance hike - After initially rising in response to the numbers, Groupon (NASDAQ:GRPN) finished down 6.3% after hours. Billings fell 5% Y/Y (worse than a 2% revenue decline), as international weakness offset North American growth. $63.4M worth of buybacks gave a boost to EPS. However, operating margins fell for all three of Groupon's regional reporting segments, as a $37M increase in marketing spend more than offset a $9M drop in SG&A spend.
Groupon's core daily deals business remains fairly stable, and the company is taking needed steps under new CEO Rich Williams to narrow the focus of its Goods/e-commerce business (i.e., avoid competing head-on with Amazon). But its big marketing investments haven't yet done a lot to improve growth.
Skyworks slumps due to light calendar Q2 guidance - Though it shouldn't be surprising Skyworks (NASDAQ:SWKS) is guiding light following major client Apple's FQ3 guidance, the size of the shortfall (about $50M in revenue) was apparently enough to spark a moderate after-hours selloff for the RF chip giant.
Skyworks' FQ2 (calendar Q1) report still has some positives: Gross margin rose to 50.8% from 46.7% a year ago, strong design win activity was reported among Chinese OEMs, and "blended content" within the Galaxy S7 rose 20% relative to prior-gen devices (to some extent a reflection of how the RF content needs of the average phone continue to grow).
Synaptics tumbles after weak results/guidance; Chinese talks reportedly ongoing - Like Skyworks, Synaptics (NASDAQ:SYNA) is an Apple supplier. However, its calendar Q2 guidance was markedly worse, and suggests the company is facing more serious Apple inventory issues and stiff headwinds in its PC touchpad/fingerprint sensor business.
Meanwhile, just ahead of earnings, Bloomberg reported the Chinese group that has been in talks to buy Synaptics has lowered its offer to $100/share from $110/share, and was waiting to "see how the market values Synaptics after it announces earnings." "The market" reacted by dropping Synaptics to $71 in after-hours trading.
Twitter changes App Store listing from "Social Networking" to "News" - Desperate times calling for desperate measures? Twitter's (NYSE:TWTR) move, which comes shortly after shares were clobbered due to the company's results/guidance, aims to increase the company's App Store visibility - whereas Twitter's app was ranked #5 in the "Social Networking" section, it's #1 in "News." Twitter also might be looking to better sell iOS users on its ability to act as a one-of-a-kind real-time news service.
Bloomberg: Rovi close to deal to acquire TiVo - A deal could be announced on Friday morning. Both TiVo (NASDAQ:TIVO) and Rovi (NASDAQ:ROVI) have large revenue-generating patent portfolios, and depend heavily on software/service deals with pay-TV providers. Though best-known for its DVRs, TiVo recently topped 7M global subscribers thanks to software/service agreements with European pay-TV firms, and has content-discovery and set-top/portal server software businesses that could complement Rovi's program guide and metadata offerings.
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