As Amazon targets the Middle East, and Apple invades India, we welcome you to the International edition of the Samadhi Brief.
Amazon (tries) to acquire Souq.com; takes on fake listings
After several months of speculation, Amazon (NASDAQ:AMZN) and Middle Eastern e-tailer Souq.com have reportedly come to an agreement on an acquisition estimated at around $650-750m (we've seen estimates as low as $580m). In an interesting development, it has been reported that Emaar Malls has offered Souq.com $800m (including a $500m upfront payment).
AMZN also intensified its efforts against fake product listings. Retailers will soon be able to register their logos and intellectual property into a database, providing Amazon with more resources to identify and remove counterfeit items.
Bottom line: AMZN continues to charge forward, sacrificing near-term margins for long-term market share. Souq, the largest e-tailer in the Middle East, provides AMZN with another valuable asset as Amazon looks to achieve world e-tail domination. We anticipate AMZN will continue to pursue a deal with Souq.com, a move that we view as key to its expansion strategy in the Middle East.
Apple buys Workflow; begins iPhone assembling in India
Apple (NASDAQ:AAPL) acquired star application Workflow, a productivity app that won an Apple Design award in 2015. The three-man team will join Apple full time, and Workflow will now be listed on the App Store as a free offering rather than costing $2.99.
AAPL will also reportedly begin assembling earlier models of the iPhone in India. AAPL is looking to earn favorable tax treatment from the Indian government, but as of yet, there has been no official word as to the status, terms, or conditions of its tax deal.
Bottom line: Automation and productivity apps will likely become increasingly useful as we continue to leverage technology to make our lives more connected and, ultimately, efficient. By manufacturing in India, AAPL is looking both to improve margins and to take share in a market that it has historically struggled in; Apple lags behind nine other manufacturers in India's smartphone market at present, although it commands 62% of the premium niche, characterized by handsets above $450 (source: 9to5mac.com). That said, we have doubts as to whether AAPL can bring its sales and pricing strategy to India in a way that moves the needle, particularly considering the counter-strategy of Android-based manufacturers that presently dominate the market.
Micron (NASDAQ:MU) reported strong 2Q FY17 earnings on Thursday, posting EPS of $0.95 (+$0.05 vs. consensus) and meeting consensus revenue of $4.65b (+58.75% y/y). Its gross margin was 38.5%, up 18 percentage points y/y. The stock traded up +7% Friday.
Tencent (OTCPK:TCEHY) reported 4Q FY16 earnings on Wednesday, missing on the top and bottom lines. Revenue was $6.32b (+44.1% y/y), compared to $6.39b consensus, and EPS was $0.16 vs. consensus of $0.18. All values above were converted from RMBs as of the exchange rate on 31 December 2016.
Following news of advertiser boycotts, in which a handful of notable brands have withdrawn from YouTube advertising due to concerns about their ads being displayed on racist videos, BAML voiced its concern about an impending hit to GOOG's top line. It has been additionally reported that reduced ad rates are being sought by advertisers.
Bottom line: We anticipate declines in short-term interest surrounding GOOG. However, while certainly not a positive, we believe the negative sentiment surrounding GOOG's advertising is overblown from a long-term perspective.
Twitter (NYSE:TWTR) takes on extremism
Twitter reported that it has suspended over 636,000 accounts since 2015 that were related to extremism. Of those, 376,890 (59%) came over the last six months of 2016.
Bottom line: TWTR's bot problem has continually dogged the company and its executives, especially following controversy tied to last November's election. Management certainly has its hands full going forward.
MSFT also released a modified version of Windows 10 in China, after the Chinese government took issue with undisclosed aspects of the original software and curtailed sales in the country.
Microsoft and Toyota have reportedly teamed up to work on smart car technologies, continuing the tech + automotive trend as both industries gear up for autonomous driving.
Bottom line: MSFT provides another example of a Western company facing roadblocks in China, and joins a long list of tech giants pursuing autonomous driving in some capacity.
In case you missed it…
Instagram hits 1m active advertisers
Facebook-owned (NASDAQ:FB) Instagram hit another milestone earlier this week, eclipsing 1m active advertisers. According to Venturebeat, that number is a fourfold increase over the last year and dwarfs Twitter's reported 130,000 active advertisers.
Bottom line: Instagram, a cornerstone of FB's social media portfolio, continues to excel and boost FB's revenue growth.
### Samadhi Partners
Disclosure: I am/we are long AMZN, GOOG, MSFT, FB.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: This information is intended as an informational newsletter only. No investment advice is offered. Samadhi Partners, a provider of equity research services and newsletters, is a commonly-controlled affiliate of Samadhi Capital Partners that offers a long/short and long-only strategy. Samadhi and/or its affiliates may have positions in stocks mentioned and/or traded in these names as of today.I am/we are short APPL.
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