This is the third and final post in my series on major tech companies’ earnings, and this one previews earnings for the week of February 2nd-6th. The first post is here, and last week’s post is here. I won’t review last week’s post in detail because it was a long one and could easily be a post in its own right (perhaps next week I’ll do a look back at all the earnings so far and pick out trends). But I recommend you go back and compare it with what happened this past week – most of what I previewed was fairly accurate.
The major earnings coming this week are sparser than last week. We only have Sony on Wednesday and Sprint and Twitter on Thursday. So I’ll spend a bit more time talking about each of them than I have in the past. Also reporting this week are several smaller businesses that might be of interest to some readers – three gaming companies (Take-Two Interactive, Glu Mobile and Activision Blizzard), as well as IAC, Pandora, Yelp and LinkedIn.
Sony – Wednesday, earnings at 5am US Pacific Time
Sony has officially requested an extension to the deadline for filing its results this quarter because its systems have been in such disarray since the hack. But it’s still holding an earnings call to give a high level view of its performance and its strategy and outlook for the year.
There have been several major themes with Sony over the past couple of years:
- Constantly shifting forecasts – the company has frequently revised its financial forecasts, almost always downwards, as over-optimistic goals haven’t been met and it misses its own guidance.
- Paring back and refocusing – this has happened at two levels: it’s exited the PC business and spun off its TV business while, in other areas, it’s focused on the most profitable segments, for example in smart phones.
- Increasing integration between its various activities. I’ve described Sony as a dysfunctional company in the past, in that it’s been like a family where no one talks to anyone else. Sony has so many assets internally that could be compelling if brought together but it’s often struggled to achieve that integration. Over the last couple of years, we’ve seen some more of this integration and that’s a good sign.
As far as what to look for this week, I think the smart phone business is probably the most interesting one to focus on, because that’s one area where – despite some progress for a period – things have turned south and it’s missed its forecasts. Sony has some great smart phones (though they’ve struggled to get them on US carriers) but it’s just not selling at the scale it needs to be to be really effective. There have been rumors about job cuts and other restructuring so I expect management to give an update on their strategy for the business.
Playstation has been doing great and, although Microsoft’s Xbox has been doing better over the last couple of months due to some price promotions, I’d expect some good numbers from Sony in the console business again. There will obviously be an update on the movie business and the ongoing impact of the hack of a few weeks ago. The hack itself was a good example of Sony’s failure to get the parts of its business to work together. Once it decided to release “The Interview” digitally, it failed to do so through its own streaming service, Crackle, for several weeks.
The funny thing about Sony is its strongest business is Financial Services, a business many people might not even realize they’re in. Almost all of its other divisions are modestly unprofitable or unpredictably so, fluctuating widely from one quarter to another, especially the movie business, which is very hit-driven. The movie business was likely significantly impacted by the non-release in theaters of The Interview this quarter, of course. But Sony’s business is enormously fragmented, with around a dozen significant reporting segments adding up to a complex mosaic of financial results.
Sprint – Thursday, earnings at 5:30am PT
Sprint is the third and last of the carriers I’ll cover in these weekly pieces, having talked about AT&T and Verizon earlier (T-Mobile hasn’t announced its reporting date yet). Sprint is the third largest of the carriers, too, though T-Mobile has been threatening to overtake it for some time, and T-Mobile CEO John Legere set a goal of passing Sprint in total subscribers by the end of 2014. I said back in August I didn’t think this would happen and now I’m certain it didn’t. Sprint, though, has continued to leak subscribers for most of the past year and only recently became more aggressive about trying to keep its current subscribers and increase switching from the other three major carriers, as new CEO Marcelo Claure took over a few months ago. But Sprint’s metrics have generally been the weakest among the big four. It’ll take quite a bit of work to get things moving in the right direction again, especially with T-Mobile also aggressively pursuing competitors’ subscribers and Verizon and AT&T getting more aggressive at fighting back.
Sprint has previewed its earnings already and it had positive postpaid net adds for the first time in a year (although only barely) with just 30,000 net subscriber additions on the postpaid side. Marcelo Claure will have to continue to articulate his new strategy for turning Sprint around and for focusing on more than just price promotions. Sprint has talked a lot in past quarters about its network upgrade program and the future benefits it will provide, but this quarter I expect to hear more about what it’s actually done on its network, because that’s all customers and potential customers really care about. T-Mobile and Sprint both suffer from some of the same scale challenges, but to date, T-Mobile has arguably been more effective in overcoming those than Sprint. One example is marketing, where T-Mobile has very effectively leveraged social media and viral campaigns to achieve good brand awareness without spending massive amounts of money on advertising. Both the smaller operators also had Super Bowl ads this past weekend, but T-Mobile has been much smarter about multiplying the effect of that spend by previewing the ads and leaking teasers ahead of time. Sprint needs to get much better at doing this kind of thing if it is to compete going forward.
Twitter – Thursday, earnings at 2pm PT
Twitter always suffers from comparisons to Facebook (and even comparisons to Facebook’s subsidiary Instagram in recent months) – Facebook is much larger, growing much faster, and vastly more profitable. Twitter is enormously popular among certain segments and in certain markets, but has a fraction of the scale and has struggled to monetize usage effectively. Recently, Twitter founders Ev Williams and Jack Dorsey have been suggesting Twitter’s real value is the social good it does, the way it’s transformed how we follow major news events, and so on. Twitter has been positioning itself on earnings calls as a media company or a media platform and clearly its recent video product announcement is part of that story too. But fundamentally, Twitter has asked investors to measure it on user growth, engagement and monetization, and yet the core metrics it has given investors to measure progress simply aren’t delivering. This, above all else, is why Twitter and its CEO Dick Costolo are so embattled.
There have been hints on recent earnings calls about new metrics for measuring what Costolo calls “logged out users” – those who visit Twitter but don’t log in – and he’s given some suggestions of the size of that audience. But the key challenge remains monetizing usage, when Twitter knows very little about those users or their interests and therefore can’t effectively target advertising. In the meantime, the core logged-in user audience has been growing slowly. There’s no immediate prospect of catching up to Facebook and even Instagram recently passed Twitter in the number of monthly active users.
I’d expect Costolo to continue to sell his stories about the three groups of users Twitter is targeting, as shown in the diagram below:
But investors will need more details about the size and growth of these audiences, how Twitter intends to target them effectively with advertising, and how Twitter will grow that ad spend over time. It hasn’t provided satisfactory answers to any of these questions on previous earnings calls. As such, much of the reaction to Twitter’s earnings is typically a direct response to core user growth, with most other metrics ignored. Unless Twitter had a monster Q4 for user growth, I’d expect the initial reaction from investors to be negative, unless Costolo and others can provide either better new metrics and/or evidence it has a plan for monetizing these other groups of users effectively. I’d expect investor sentiment to be even more negative.
There is some nice and utilitarian information on this site.