It’s not too unusual for the first quarterly earnings report for a newly public tech company to be a disaster. In 2012 Facebook’s stock tumbled as investors wondered whether the company would be able to transition its business to mobile. Twitter’s stock crashed when investors realized, thanks to its anemic user growth, that it wasn’t the next Facebook. Now Snap is going through the same hazing, with its stock tumbling more than 20 percent after investors realized that Cool Teens alone cannot sustain a multibillion-dollar corporation.
But Snap’s poor performance is an outlier in a quarter that was great for Wall Street overall, including the major tech firms. Apple crossed an eye-popping new milestone, Tesla now leads its competitors by one key metric, and even down-on-its-luck Twitter somehow got some good news for once. Welcome to earnings season.
Losers
Snap
Snap’s first earnings report raised plenty of red flags for investors who will not be satisfied until they hit upon the next social networking giant. Revenue, at $150 million, was less than the $158 million analysts expected, indicating Snapchat’s ad machine isn’t growing as fast as expected. User growth also stalled below expectations, reaching 166 million. Snap added more users in Q1 than in Q4 2016, proving that Facebook’s copycat antics haven’t fully hobbled it. But the company’s growth rate is down compared to a year ago, which is a bad sign for a firm that still wants to market itself as a startup. (The company’s chief financial officer tried to save face by telling analysts the company is “still in investment mode.”)
There were some promising tidbits hidden below the high-level negative numbers. Snapchat users spend 30 minutes per day in the app on average, 21 million people watched the company’s Oscars story, and 8 million people have viewed the company’s original shows. The app clearly has a highly engaged audience. But investors tend to decide very quickly which stats they will glom on to so they can determine a company’s potential, and for Snap, unfortunately, that appears to be figures (like daily active users) that are most easily comparable to Facebook. CEO Evan Spiegel finds himself in the unfortunate situation of Facebook stealing all his ideas in order to make Snapchat seem superfluous, while investors are dinging Snap for not growing as fast as the company that is stealing all its ideas. It may be a long 2017.
Pandora
Spotify is expected to go public in the next year, and its closest proxy in the public markets is Pandora, which has struggled to show that music streaming is financially viable. In the first quarter Pandora posted an adjusted loss of 24 cents per share, which beat analysts’ estimates of a 34-cents-per-share loss (the company has never been consistently profitable). Revenue of $316 million slightly missed analysts’ target of $318 million. Meanwhile, the company’s number of monthly listeners slipped from 79.4 million in Q1 2016 to 76.7 million in the most recent quarter. Its stock price is also hovering near its low point for the year, even as the overall stock market is on a tear. No wonder the company is considering selling itself when its latest round of financing closes.
Winners
Tesla
The electric car manufacturer where CEO Elon Musk hangs out two days a week became the most valuable U.S. automaker in early April, surpassing General Motors. GM has sold more cars in the U.S. than any other company in 2017 and generated $41.2 billion in revenue, as well as $2.6 billion in profit, in the first quarter. Tesla, meanwhile, lost nearly $400 million in Q1 and generated revenue of $2.7 billion. Tesla might not have profits, but with its preorder backlogs and driverless-car ambitions, it has potential. And if you’ve got the right combination of CEO charisma, gee-whiz futuristic features, and legally dubious accounting methodologies, sometimes potential is all you need.
Alphabet
Google’s parent company continued its solid performance, with revenue of $24.75 billion beating analysts’ estimates of $24.22 billion. Profits were also high, with the company posting earnings per share of $7.73 compared to estimates of $7.39. Alphabet effectively waved off concerns about major brands pulling their ads from YouTube after it was discovered mainstream ads were being served before racist videos. The company said YouTube revenue grew at a “significant rate” during the quarter.
Amazon
It was only eight months ago that I was roasting Amazon for being a perennial money-loser. Now, the company is enjoying its eighth straight quarter turning a profit, generating earnings of $1.48 per share compared to analysts’ estimates of $1.12 per share. Revenue also beat expectations, at $35.7 billion vs. a $35.3 billion estimate. The key to Amazon’s financial turnaround lies in its cloud computing business, Amazon Web Services. The division, whose clients include Airbnb and General Electric, pulled in $890 million in operating income during the quarter. Amazon’s North America business (which includes retail and subscription services) made $596 million in income; its international business lost $481 million. While Amazon may be defined by its sprawling warehouses full of domestic products, it’s really making its money off data centers full of servers.
Sorry, everyone who goes into a rage whenever Twitter makes changes to its interface, but those changes appear to be working. The beleaguered social network had a surprisingly stellar first quarter. Earnings were 11 cents per share (vs. estimates of 1 cent per share), revenue was $548 million (vs. estimates of $512 million), and the number of monthly active users grew to 328 million (vs. estimates of 321 million). Twitter credited the growth to improvements in the company’s algorithmic feed and a new Explore tab that aggregates trending content. But it’s also clearly tied to a Trump bump (which many news organizations have also benefited from) as the globe has become fixated on the president’s controversial actions and tweets. The company’s shares jumped more than 10 percent on the earnings report. Looks like the internet’s town square/endless kegger/vigilante firing squad will be with us for a while longer.
Bad news for Facebook recently: A string of highly publicized violent videos compelled the company to enlist 3,000 new people to review flagged content. An Austrian court forced Facebook to delete posts deemed hate speech, as part of a broader effort by European governments to police the site’s content. The company closed its Oculus VR film studio, a sign that the virtual reality hype may be stalling. Good news for Facebook recently: Attaining almost 2 billion users, pulling in earnings of $1.04 per share (beating an estimate of 87 cents), and generating revenue of $8.03 billion (beating a $7.83 billion estimate). Wall Street declared this tension between Facebook’s breakneck growth and its questionable ability to properly manage that growth a wash. Company shares dipped slightly right after the earnings release (likely because the company is forecasting increased expenses this year) but are still hovering near an all-time high.
Apple
Apple has ably shrugged off all the hand-wringing about the boringness of iPhone updates and the internet outrage over the loss of the headphone jack. Earnings per share of $2.10 beat analysts’ estimates of $2.02, while revenue of $52.9 billion missed estimates of $53.02 billion. iPhone shipments of 50.8 million were off from estimates of 52 million, but CEO Tim Cook shrewdly spun this miss by claiming that early hype for the iPhone 8 was stopping people from buying the current device. In effect, people aren’t buying the iPhone because they’re way too excited about buying a future iPhone, according to Cook. We’ll see if he’s right come September, but the rationale seems to make sense to Wall Street because this week Apple became the first company ever to exceed $800 billion in market capitalization.