Amazon reported a Net Profit which was a big driver of the stock price. Amazon market cap swelled by over $20 billion in the regular trading session post results. AWS reported Op Income of $391 M and North America segment op Income stood at $703 M, Which boiled down to $92 million at the Net line. Did this justify by a $20 B increase in Market cap? An increase of over 200 times the reported Net Income.
Coming to Free cash flow, I would point to FCF less Financial lease payments and Capital acquired under capital leases rather than the FCF numbers the management wants us to see. And Amazon is still bleeding money every quarter.
Marginal profitability and negative (real) FCF, not quite the numbers which tell the tale of an attractive investment. Amazon is a speculative play at best and it continues to be just that. As an Investor, these aren't numbers which would inspire confidence of parking my money in that stock.
On the surface, Yahoo's bright spots in Q2 2015 appear to be revenue growth of 15%, 13% growth in search clicks and 4% growth in price per click. However, digging deeper, Mavens revenue, the key growth driver for Yahoo's core business was up 60% YoY and easily overshadowed the drop in non-maven revenues. It will be interesting if Yahoo can continue to grow maven revenues at this rate as the revenue base gets even bigger.
On the negatives, the obvious was the earnings miss and a significant decline in GAAP as well as Non-GAAP earnings. With a 350% growth in TAC and little topline growth to talk of, Yahoo will have to much better to convince investors of a successful turnaround story.
Apple Q3 2015 earnings ticked all the right boxes with revenue and earnings beating guidance as well as estimates. The key numbers were the increasing profit margins which led to a more than proportionate growth in earnings as compared to revenue growth. While the shortfall in iPhone sales and guidance are being touted as the dark spots, Does this justify a 7% drop in the price?
The slower than expected iPhone sales were still good enough to drive a strong profit margin gain which led to a Huge 44% EPS growth. The key point is the 112% growth in the Chinese market, inspite of the recent troubles surrounding the market. With no indications of a slowdown in iPhone sales in China, i would view the miss on iPhone sales as a minor point and look forward to further margin gains in the coming quarters and resulting EPS growth.
Guidance: Apple has consistently outperformed its guidance by an average of over $2 billion in last 8 quarters. With a midpoint of $50 billion and analyst estimates of $51.3, billion, i don't think the guidance justifies a sell-off.
Apple stock is a buy!!
Summing up Google's quarter:
Rev up 11% YoY, while EPS grew 17% YoY, implying that the profit margins finally turned around quarters of contraction.
Opex up 10.3% (slower than rev) even as capex was cut by 2%.
OCF up 24% while FCF is up by a whopping 50%.
To boot, this is the fastest topline growth in the past 4 quarters.
Brilliant cost controls without dragging down the topline growth. Couldn't have expected better numbers here. Google certainly is looking the cash machine it truly is.
Having ticked all the right boxes in Q2 2015, It will be interesting to see if the company can continue to execute on these lines.
Summing up Intel's Q2 2015: A best segment growth of 10% (Data Center Group) and a operating profit margin contraction across each segment. Not too much to talk about. Regarding the increasing R&D expense, I hope the management knows as to where they are investing. The only positive is that the declining PC segment contribution to topline was lower, which should reduce the impact of the future decline in the PC industry. Given that this is the biggest and most profitable segment begs the question if this was in fact a positive?
Investors looking for a positive among the negatives is a bad shape for the company to be in, and not the most convincing pitch to buy the stock.
It is time Intel gets its act together in the growing Mobile segment to mount some kind of a comeback in its topline growth as well as profitability.
User growth is often a precedent of financial growth when the channel of delivery is the Internet. Netflix ticked the right box with 3.55 million additions to its subscriber base. Looking at Netflix, I would look at the US market as a mature market and indicator of financial performance while the international segment would fit in as an evolving market. Netflix reported a 22% YoY growth in revenue and 49% YoY growth in Contribution profit from the domestic segment. I expect the company to continue to see its profit margins expand in the domestic segment, which indicates explosive earnings growth once the management ends its current investment drive. The increasing scale in overseas markets will accentuate the impact on overall future earnings. The only negative is the company's Free cash flow, pointed out by many. However, with an interest coverage ratio of over 2, I wouldn't term this as an immediate threat but something which needs to be monitored carefully. So all in all, the company ticked more right boxes in Q2 2015 with the only black spot being its free cash flow.
Facebook revenue growth, though below analyst consensus, was a huge 42% on a base of 2.5 billion. This is incredible growth which few companies of its size can talk of. On the earnings front, though the operating margin came in lower, this was in line with management's earlier commentary and isn't something to worry about. The biggest positives were continued growth in mobile users as well as mobile monetization, which drove the mobile revenue share to 79%, up from 59% a year ago. With the only bump being muted topline growth that was largely impacted by Forex headwinds, this was a quarter of more positives than negatives.
Facebook revenue growth, though below analyst consensus, was a huge 42% on a base of 2.5 billion. This is incredible growth which few companies of its size can talk of. On the earnings front, though the operating margin came in lower, this was in line with management's earlier commentary and isn't something to worry about. The biggest positives were continued growth in mobile users as well as mobile monetization, which drove the mobile revenue share to 79%, up from 59% a year ago. With the only bump being muted topline growth that was largely impacted by Forex headwinds, this was a quarter of more positives than negatives.
Groupon reported a pretty strong Q4, beating analyst estimates on topline as well as bottomline. Moreover, the company reported strong growth in number of Active customers, spend per average customer and number of orders, which are key drivers of the firms topline. One of the concern was a lack of earnings, as the company burned over $1.5 billion in operating expenses through 2014. This compares to a cash and equivalents balance of $1.1 billion and, at a free cash flow of 200 million for FY 2014, Groupon's ability to fund its current investment drive remains a key question/concern, with its cash balance coming in at 77% of TTM Op-ex.
One of the most important bits of the guidance was Q1 2015 EBITDA estimate of $45 million to $65 million. The guidance implies an YoY growth in the range of 12% to 61%, a pretty wide range for sure. However, when we consider that Groupon is focussed on continued investment in Ticket Monster and Ideeli, the EBITDA guidance assumes an even greater significance. The growth in EBITDA could translate into substantial bottomline growth, once the investments in ticketmonster and ideeli begin to pay off.
The company is leveraging its cost of sales which could improve further as the scale of operations grows further. A rapidly growing company which can use scale of operations to its advantage is one sure sign of a potential winner. The brilliant cost controls and the economies of scale at play here & coupled with the firms rapid topline growth!! That's the recipe for rapid earnings growth. No wonder a 41% topline growth magnified into a 96% growth in earnings. I won;t be surprised if this one outgrows its current valuations!
The company posted a broad based revenue growth across its three major operating segments. What is worrisome is the inability to convert any of that strong topline growth into meaningful earnings growth. The Op-Ex outgrew revenue in Q4, and considering the fact that LinkedIn is actively trying to grow its international operations, any magical turnaround in the earnings isn't expected in the short term. Paying 15 times the sales for a company whose earnings growth is highly uncertain just doesn't add up as an investor. LinkedIn is very much a part of the social media bubble we are today in.
Twitter addition to its user base was marginal (1.4% QoQ) in Q4. Though the company did present strong financials, user growth is a key long term growth driver. User growth and monetization are the two key drivers of financial growth for an ad based model like Twitter. Looking at Facebook as an example, monetization improvements become critical once user growth has plateaued. Twitter's revenue growth was largely a function of increasing timeline views as well as ad revenue per timeline view. However, it is impossible to keep growing these 'monetization metrics' forever. As an investor i would have liked to see better user growth, lack of which makes it hard to justify Twitter's astronomical valuations.
A slowing topline growth, Falling operating profit margins, Increased competition for ad dollars from Facebook and Twitter and a decline in Free cash flow. While this is definitely far from a good performance, it hardly passes off as an average performance. With currency head winds expected to continue in 2015, these trends don't augur well for Google investors.
A 15% revenue growth, an earnings beat on estimates that were lowered 80% in the last three months = Amazon posted the slowest yearly revenue growth in its history accompanied by a decline in earnings. Not exactly something to cheer about. Let's look at Free cash flow. Free cash flow after adjusting for finance principal lease repayments and capital acquired under capital leases came in -$ 2 billion. Not exactly a cash spitting machine Amazon is made out to be. It is no surprise Amazon raised $5 billion in debt through 2014. More coming your way. Add to that Amazon's declining Inventory turns, a very central measure of a retailer's efficiency and the pop in the stock price remains a mystery to the fundamentalist. Amazon remains a case of irrational exuberance. However, you shouldn't bet against this stock as it has proven time and again that its ability to stay at irrational valuations could be far longer than you could stay invested.
Everyone is talking Alibaba, but let's not forget about the value-thieves. Yahoo's revenues were stagnant year over year. Cash from operations is down 25% since 2013, and GAAP income from operations down 76%. Without the hidden treasure of Alibaba to keep investors interested, I'm not optimistic about where rump-Yahoo is headed.
Interesting bullet point here. Basically, the Company was not able to properly hedge its currency exposures, and took a hit of $31.5MM on its results. Also, the Company decreased its income tax expense by $24.4MM from reductions for "uncertain tax positions", which translates into a decrease in taxes. This would require further investigation to see if this is indeed a valid tax reduction, or is it management trying to manipulate the numbers?
I ordinarily view a company's cash flow statement as more important than its income statement -- because the cfs is where you find the actual *cash* profits. Groupon's a special beast, however, and not in a good way. "Net cash used in investing activities" includes, but is not limited to capex. So while it looks here like Groupon generated free cash flow of $59.4 million in 2014, you have to scroll down several pages, to the "Supplemental Financial Information and Business Metrics," to see that FCF for the year was actually more like $200.5 million. Why Groupon decided to bury this good news is beyond me.
Both paid and total membership numbers are up, while revenues grow and "contribution" profits hold pretty steady. So good news all around, right?
Not quite. Free cash flow levels have shrunk steadily over the past four quarters, swinging from marginally positive to deeply negative. Netflix is burning cash and calling the ashes "great progress."