News From Around the US Investing World 7.26.2019
In this week’s update:
- Facebook earnings report and record fine
- Microsoft beats earnings expectations again
- More about ServiceNow
Facebook earnings report and record fine
Facebook’s Average Revenue Per User Growth Rate, by Geographic Region
Facebook was slapped with an unprecedented US $5 billion fine (9% of the company’s 2018 revenue) by the Federal Trade Commission (FTC), and has also disclosed a separate SEC fine of US $100 million for allegedly misleading investors about the risk of data misuse. The company described the data misuse as hypothetical to investors, even though it was aware of real instances of misuse. As part of the FTC fine and settlement, Facebook and its executives get blanket immunity, not just for any violations that the FTC has claimed, but also for any violations that it hasn’t claimed. The FTC, however, is not done. It announced new antitrust investigations into Facebook. Nonetheless, the share price of Facebook popped one day after the disclosures, on the back of its Q2 stronger-than-expected earnings. Three key takeaways that the company reported:
1.) Revenue: $16.9 billion vs. $16.5 billion forecast (28% increase compared to last year)
2.) Average revenue per user: $7.05 vs. $6.87 forecast by FactSet (which is an 18% increase from a year ago), powered by a 28% year over year growth in its most profitable region, US & Canada (Tweet This!). See the image above for growth trends. Data is taken from the company.
3.) Despite the massive fines and continuous negative PR, Facebook’s advertising business has remained strong in this region. It’s good to be a duopoly (Facebook and Google dominates digital advertising).
Microsoft Beats Earnings Expectations Again
Microsoft beats earnings expectation again. The company reported its latest earnings last week, and it was another strong quarter. See the chart above for year-over-year percentage change. Four key highlights from this quarter’s report:
1.) Revenue beats expectations (US $33.72 billion, vs. US $32.77 billion as expected by analysts), a 12% increase over the same period last year.
2.) Earnings also beat analysts’ estimates (US $1.37 per share vs. US $1.21 per share as expected by analysts), a 21% increase over the same period last year.
3.) Gravity is starting to catch up to its cloud growth. Revenue from Azure increased 64% year-over-year, the lowest growth rate in at least four years.
4.) All of Microsoft’s business units experienced growth, except for gaming revenue, which saw a 10% decrease, primarily due to slowing Xbox hardware sales (revenue for Xbox declined by 48%).
More about ServiceNow
What is ServiceNow? It is a software as a service (SaaS) company that provides digital workflow solutions for other businesses. About 75% of Fortune 500 companies use its services. Some key facts:
1.) The company offers five major services which include IT, Security, HR Service Delivery, Customer Service and Business Applications.
2.) In Q2 2019, 94% of its revenue came from recurring subscriptions, with an 86% non-GAAP subscription gross margin.
3.) It enjoys a 98% renewal subscription rate.
4.) Despite this, the company has not turned a profit in the past 7 years.
In the most recent quarter, the company performed better than analysts expected. It reported a revenue of US $833.9 million (vs. analysts’ consensus of US $832.37 million). Its sales increased 32.0% year-over-year from $631.06 million. The company’s earnings rose 44.9% to $0.71 from $0.49 in the second quarter of 2018.
Despite the better-than-expected performance, the stock price fell after the announcement. This is likely because the company’s share price has been valued highly compared to its peers. The company must continue to report better-than-expected results or its share price will likely continue suffer. Investing in ServiceNow is a high risk and potentially high reward proposition.
1.) Uber is testing a monthly subscription plan in San Francisco and Chicago. For a flat $24.99, users get unlimited free Uber Eats delivery and free JUMP (bikes and scooters) rides, as well as a fixed discount on every ride.
2.) Speaking of Uber, Starbucks announced a US-wide partnership with Uber Eats. Uber will charge a $2.49 booking fee for every Starbucks delivery order. On this front, Swiggy, based in India, is ahead of the game.
3.) Snap’s share price bounced to above US $17 for the first time since March of last year (from a low of US $4.82 in December). The company reported strong daily active user growth, primarily in the ‘rest of the world’ region (Global: +8%, North America: +3%, Europe: +5%, Rest of the world: +21%). Compared to Facebook, Snap’s average revenue per user is significantly lower. In Q2 2019, Snap made US $3.14 from each user in Europe and North America (10X less than Facebook), and only US $1.20 from each user in the ‘rest of the world’ region (Tweet this!).
4.) Tesla stumbles again. The company reported a US $480 million loss, a figure that was larger than what investors expected ($1.12 vs. $0.40 expected).
Thanks for reading!