Earnings Insights and Key Charts: Facebook, Amazon, Samsung

Facebook Earnings Takeaways

While there are some key reasons to be cautious about Facebook (namely teens in the US are slowly beginning to disengage), Facebook’s earnings showed they are growing in many key areas where investors want to see them grow. This chart in particular is the first I look at each quarter when Facebook releases earnings.

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This chart is telling because it has typically shown Facebook’s challenge to monetize the rest of the world. The big concern for Facebook was they could not grow revenues outside of the West. Clearly, Western markets are extremely valuable. However, you can only extract so much value that leads to growth from one market. Facebook needs show they can grow in other markets as well. While all of Facebook’s other markets are nowhere near the revenue of the US, the key point is they are growing.

In Friday’s Unpacked, I shared some data specific to Facebook’s advertising upside. The question of capturing a greater spend of advertising budgets was brought up frequently on Facebook’s earnings call as analysts were trying to understand the nature of their conversations with advertisers. Facebook’s management reinforced that advertisers were very happy with the return on their investment spends with Facebook, claiming quality of ads had much to do with it. With Instagram poised to capture more of an advertising share of the wallet as well as Facebook at large, it seems investors see the key challenges facing Facebook as being overcome. If they continue to show growth, not just in US which seems likely, but in rest of the world by increasing ARPU in other regions on a quarter-over-quarter basis, I expect their stock to continue to rise.

Amazon

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By most accounts, Amazon had a great quarter. Yet, their performance fell short of expectations in a few areas. Some underlying numbers may be what is causing some pause with investors.

Amazon is poised to continue to dominate the US retail to e-commerce shift. This is likely a winner take all, or at least most, scenario and Amazon is that winner. As I dug through some of the numbers and several hedge fund research notes, an interesting bit of information surfaced related to Amazon’s fulfillment costs. This is one key point listed as to why Amazon didn’t beat consensus estimates. Amazon’s fulfillment costs rose in Q4 2015 after four straight quarters of decline. In short, their factories were at max or demand exceeded capacity — causing them to run less efficiently (slower shipping, packaging errors, more overtime hours, etc.) to meet shipping deadlines and demand. As one financial analyst pointed out in their research note, “We think Amazon’s 4Q15 demand was even greater than it estimated.”

While this is a reason to be bullish, it means Amazon needs to invest more of their profit into more fulfillment centers. Analysts are forecasting Amazon’s fulfillment costs to be higher in 2016 and 2017 as they invest to meet demand. This is another area where Amazon’s investment in additional delivery fleets come in. While many speculated Amazon would invest and build shipping fleets to eventually replace their partners like UPS, USPS, and FedEx, they seemed to calm investor concerns around that point by stating their fleet investment is designed to help meet demand, not replace existing partners.

Long term, Amazon needs to make strides in India. If their dominant market and growth story depends on the US, they will only grow to a point. Amazon is still a distant third to Snapdeal and Flipkart in India, but India remains a market where e-commerce is poised to grow in dollar value. This will remain an important part of the Amazon story to watch.

Samsung

Similar to Facebook, I have a specific chart I look at for Samsung. Here it is, as charted by Jan Dawson:

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Readers will know I am not optimistic of Samsung’s mobile/smartphone side of the business. Their blended ASP was about $180. That’s ASP of smartphones and feature phone sales which totaled about 97m units combined for the quarter. Their feature phone sales declined ~15m units and smartphone shipments were around ~82m. With smartphone shipments up and feature phone sales down, the flat YoY blended ASP of $185 is not a good sign for the unit. Smartphone ASPs were then ~$225 range which was lower than last year’s Q4 by my estimates. Their tablet ASP was also around $180 even as shipments rose 1m units to 9m for the quarter. This tells us one singular story: Samsung sells a lot of low-end phones and low-end tablets. Competing in the low-end is not sustainable and they will lose this battle to the Chinese.

What is perhaps of more concern is the components division struggles. However, realizing most their components and margin are geared to sell to high-end manufacturers and the high-end is becoming mostly saturated and seeing slower growth, this is not terribly surprising. Which means these groups will likely continue to struggle. The semiconductor side of the business is where a lot of their upside is, in my opinion. However, with Apple rumored to go back to TSMC for 100% of the iPhone 7 business and Samsung’s mobile unit rumored to go back to Qualcomm in more of their mid-high end devices, it seems the outlook for components is not rosy.

Their consumer electronics division fared well, but this was on the back of higher margin 4K TV sets being up YoY at retail, mostly US retail.

2016 is likely to be a very tough year for Samsung all around.

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Ben Bajarin

Ben Bajarin is a Principal Analyst and the head of primary research at Creative Strategies, Inc - An industry analysis, market intelligence and research firm located in Silicon Valley. His primary focus is consumer technology and market trend research and he is responsible for studying over 30 countries. Full Bio

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