The Big Six in Q3 2016

Every quarter, after most of the big tech companies have reported earnings, I do a roundup comparing some of the key metrics for the “big six” consumer technology companies – Alphabet, Amazon, Apple, Facebook, Microsoft, and Samsung. Here’s this quarter’s analysis.

Revenues – Apple top dog, but Alphabet passes Microsoft

Apple has been the top dog by revenue on a trailing four-quarter basis for some time but, in some ways, the biggest news symbolically this quarter was Alphabet passed Microsoft:

Both companies had around $85 billion in revenue in the last twelve months, well behind Amazon at $128 billion, itself well behind Apple and Samsung at $216 billion and $179 billion over the same period. At Amazon’s current growth rate and with Samsung’s recent struggles, it’s possible Amazon could eclipse Samsung in scale in the next couple of years. Facebook, of course, continues to be the smallest of the six by some margin:

Interestingly, Facebook signaled on its earnings call it’s likely to see somewhat slower growth going forward as it begins to saturate ad loads. It will be worth watching to see to what extent Amazon and Alphabet can begin to close the gap on growth rates. Apple, meanwhile, continued its revenue growth turnaround and projected modest year on year revenue growth in the next quarter. Microsoft has just hit positive growth again for the first time in a long while, mostly thanks to the anniversary of the Windows 10 launch, which requires revenue deferrals in accounting.

Margins and profits

As well as being the fastest growing company in our set, Facebook also has the highest margins:

Apple’s margins have taken a slight hit over the past year as revenues shrank but should begin to rebound in the coming months as revenue growth returns. Amazon, of course, is by far the least profitable from a margin perspective and even dipped slightly from its recent modest improvements in margin in Q3. Samsung’s margins took a hit from the impact of the Note7 recall (as I wrote about last week), while Microsoft’s margins have bounced around quite a bit as it has taken write-downs.

A very different picture emerges, however, when you look at dollar profits rather than just margins:

Here, Apple blows away the competition, with around $60 billion of operating profit over the past year, roughly equivalent to Facebook’s revenues since its IPO in 2012, and approximately ten times Amazon’s operating profits over the past three plus years. Microsoft, Samsung, and Alphabet have all generated around a third of that amount in the past year, though their trajectories are rather different, with Alphabet ascendant while Microsoft and Samsung stall somewhat.

Mixed trends in capital investment

These companies compete across a variety of markets but one area where three compete very directly is in enterprise cloud services, where Amazon, Alphabet, and Microsoft each have a strong presence. However, the investment trends behind those cloud services are quite varied between these three companies. Alphabet’s capital intensity has been falling over the past year and a half, especially since Ruth Porat took over as CFO and instituted something of a period of austerity at the company. Amazon’s capital intensity has dipped a little last year but has been rising for the last two quarters – one of the reasons for its dip in profits in Q3. Microsoft, meanwhile, is rapidly raising its capital investment globally as it ramps up spending on cloud infrastructure.

Interestingly, Facebook as well is investing more heavily in infrastructure, with a capital intensity higher than any of the other companies in our set and now has wireless operator-like levels of capital intensity, remarkable for a company which operates a consumer online services business. But given Facebook’s recent focus on video, its servers now need to handle much more content and bandwidth than in the past. Apple and Amazon’s capital intensity has been fairly similar, at around 5%, though Apple’s jumped a little in the last two quarters.

As always, there’s far more to these companies than just these simple metrics and it’s worth diving deeper into their financial and operating data to pull out some of the additional detail. I have a larger set of charts on each of these companies and more of these comparative charts as part of my Quarterly Decks Service and Ben and I also discussed several tech companies’ earnings on this week’s podcast.