POV: Q2 2022 Earnings

Background

Alphabet, Amazon, Apple, Meta, Twitter and Snap all announced Q2 earnings in the last week. Here are the highlights.

Details and Implications

Alphabet: Reported revenues of $69.7bn up 13% YoY and nearly in line with expectations with CEO Sundar Pichai stating that in the second quarter the company’s performance was driven by Search and Cloud. Advertising revenue increased 12% to $56.3bn of which YouTube ad revenue was $7.34bn though the rate of growth for YouTube has slowed as it faces more competition from the likes of TikTok. Alphabet’s Cloud reported revenues of $6.28bn.

Amazon: Despite a $2bn loss due to its Rivian investment, shares in Amazon climbed 13% after the company reported better than expected Q2 revenue and gave an optimistic outlook. Overall revenue grew 7% to $121.2bn vs. $119.09bn expected, with advertising revenue $8.76bn vs $8.65 expected and AWS revenue rose 33% to $19.7bn. However, Amazon’s e-commerce business declined 4%, though physical store sales grew 12% YoY.

Apple: The company reported Q3 earnings beating expectations. Revenue of $83bn was up 2% YoY. iPhone revenue grew 3% YoY to $40.67bn, but it is the company’s Services revenue that is its fasted growing segment, up 12% YoY to $19.6bn. The company did not provide formal guidance but said ‘we expect revenue to accelerate in the September quarter’.

Meta: It was the first ever revenue decline for Meta, though it still reported revenues of $28.8bn. The Facebook app’s Daily Active Users (DAUs) increased by 8 million from last quarter, Monthly Active Users (MAUs) were down 2 million. The company reported a 30% increase in time people spent watching Reels (its short form video app which competes with TikTok) across Facebook and Instagram – however Reels don’t yet monetize as effectively as other content formats.

Twitter: Missed analyst expectations as revenue dropped 1% YoY to $1.18bn vs. $1.32 expected. It was Twitter’s biggest revenue miss ever, which the company partially blamed on “uncertainty related to the pending acquisition of Twitter by an affiliate of Elon Musk” as well as the challenging macroeconomic environment. Monetizable Daily Active Users (mDAUs) were slightly down at 237.8 million vs 238.08 million expected and costs and expenses for the quarter rose 31% YoY to $1.52bn. Twitter did not provide Q3 guidance given the pending acquisition and court case.

Snap: The company reported disappointing Q2 results despite reducing its guidance for the quarter in May. Q2 revenues of $1.11bn, a 13% increase on a year ago, were short of the 16% expected growth. Daily Active Users (DAUs) were 347 million vs. 344.2 million expected. Snap now plans to slow its rate of hiring and rate of operating expense growth. It did not provide guidance for Q3 citing uncertainties related to the operating environment.

Summary:

Alphabet, Amazon and Apple’s diverse offering, including Cloud for Alphabet and Amazon and services for all three, are proving to be profit engines and providing flexibility for the future. Apple’s iOS privacy changes mean that Meta has lost some of the rich data tracking that powers its ad business. It will be hoping that its efforts to create a more frictionless commerce experience on the platform and its transition to a metaverse-first business will compensate over time. Twitter’s future will depend on the outcome of the Musk situation.

Further Reading:

Alphabet  | CNN (Alphabet) | Amazon | Apple | Meta | The Guardian (Meta) | Twitter | Snap |