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Facebook Q1 Eases Tech Woes After Apple, Microsoft, Alphabet Flop

During a tough earnings season for tech companies like Apple ( AAPL ), Alphabet ( GOOGL ), Microsoft ( MSFT ), Netflix ( NFLX ) and Twitter ( TWTR ), Facebook ( FB ) stood out from the pack Wednesday with a first-quarter report that crushed expectations. The social-networking leader’s Q1 revenue jumped 52% year over year to $5.38 billion, topping the consensus estimate of $5.26 billion. Earnings per share minus items surged 83% to 77 cents, above the consensus estimate of 62 cents. Growth in the top and bottom lines accelerated for the third consecutive quarter. Facebook stock shot 9% higher in extended trading, after closing up 0.1%. Among other metrics in its Q1 report, Facebook said daily active users climbed 16% to 1.09 billion on average. Monthly active users rose 15% to 1.65 billion, and mobile monthly active users increased 21% to 1.51 billion. Mobile advertising revenue represented approximately 82% of total ad sales in Q1, up from 73% a year earlier and in line with estimates. The latest advances come amid a broader effort to enhance the user experience and continue to grow revenue. As part of its video monetization strategy, Facebook has been methodical in rolling out video ads, including on its photo- and video-sharing app Instagram. In the past year, Facebook also has been more aggressive expanding advertising on Instagram and offering better analytics and measurement tools for advertisers. And the company also boosted its video ad platforms, creating new ad formats and ad buying options, with enhanced targeting capabilities. That strategy appears to be paying off. Facebook now has 3 million advertisers, up from 2 million six months ago. Facebook didn’t provide specific numbers on Oculus Rift shipments, which began late last month, and said it won’t have a material impact on 2016 revenue. But CEO Mark Zuckerberg was upbeat about virtual reality on a conference call, saying “We see virtual reality as the next big computing platform, and we’ll continue to make investments in that area.” Facebook also said Wednesday its board of directors approved a proposal to create a new class of non-voting capital stock. If approved, the company intends to issue two shares of Class C capital stock as a one-time stock dividend for each outstanding share of Class A and Class B common stock. Facebook said the proposal would allow Zuckerberg to maintain his long-term vision for the company, mitigate succession risk and potential future voting dilution, while also enabling him to pursue his goals of giving away 99% of his shares “to advance human potential and promote equality via the Chan Zuckerberg Initiative.” “I’ll be able to keep founder control of Facebook so we can continue to build for the long term, and Priscilla and I will be able to give our money to fund important work sooner,” Zuckerberg said in a statement. The Q1 report caps a heady month for Facebook, during which Zuckerberg unveiled his roadmap at Facebook’s annual F8 Developer Conference. He emphasized pushing Facebook’s Messenger chat platform deeper into the business world with chatbots, enhancing Live video with virtual reality, and expanding the social network to remote regions of the world. Analysts believe the monetization strategy of Messenger will closely follow that of Instagram, with both platforms seen becoming multibillion-dollar businesses. “We had a great start to the year,” said Zuckerberg in a statement. “We’re focused on our 10-year roadmap to give everyone in the world the power to share anything they want with anyone.”

PayPal Q1 EPS, Revenue Beat Wall Street Expectations, Stock Up Late

Going solo suits PayPal ( PYPL ). The payments giant Wednesday beat analyst Q1 revenue and earnings estimates, sending shares rising after hours, as Q2 sales guidance edged views and EPS guidance met expectations. Delivered after the market close, PayPal said it logged $2.54 billion in Q1 sales, up 19% from the year-earlier quarter, while earnings per share minus items rose 28% to 37 cents. It’s the third straight quarter PayPal has beat earnings estimates. Analysts polled by Thomson Reuters had expected $2.5 billion and 35 cents. “Our first-quarter results continue to demonstrate the power of our global payments platform to attract and engage consumers, increasing our global scale and in turn attracting new merchants and partners to PayPal,” CEO Dan Schulman said in the earnings release. For Q2, the payments company expects revenue to rise 16% to 18%, to $2.57 billion-$2.62 billion. The company estimates EPS ex items at 34 cents to 36 cents, up from 33 cents in Q2 2015. Wall Street had modeled $2.57 billion and 35 cents. The company reiterated its full-year guidance of sales growth of 16% to 19% and non-GAAP earnings of between $1.45 and $1.50. In 2015, sales rose 15% and EPS ex items came in at $1.30. PayPal said it increased its total active accounts 2% to 184 million from the 179 million it reported in its Q4 results . In Q4, the company added 6.6 million accounts, up 3% over Q3. PayPal says now has 14 million merchants using the platform, up from 13 million in Q4, with new merchants that include Panera Bread ( PNRA ) and Crate and Barrel. And PayPal said it added new countries and merchants in its partnership with China e-commerce giant  Alibaba ‘s ( BABA ) Alibaba Wholesaler unit. In its earnings release, the company said it continues ahead on its plans to monetize Venmo, the company’s peer-to-peer payments app popular with millennials. There is no charge for users, but the company has started to make its “pay with Venmo” option available to select merchants, charging fees to merchants for those transactions. It plans to expand the service to more merchants but hasn’t given a timeline. The San Jose, Calif.-based company, which last July spun off from former parent eBay ( EBAY ), saw its stock rise 2% in after-hours trading Wednesday, after the company released its earnings. PayPal stock rose a fraction in Wednesday’s regular session, to 40.01. The stock is just below a 40.03 buy point, but in buy range from a lower 38.62 entry. PayPal is an IBD Leaderboard stock, with a strong Composite Rating of 92, where 99 is the highest. Yet, PayPal competes with a bevy of tech leaders that have been expanding into payments and digital wallets, including companies such as Alphabet ‘s ( GOOGL ) Google and Apple ( AAPL ). Since its spinoff from eBay, PayPal stock has dipped as low as 30 in last August to 41.75 in March, its highest point since touched 42.55 in its July 20 debut on Nasdaq. With more freedom, PayPal has taken on such initiatives as running  a multimillion-dollar commercial in this year’s  Super Bowl  telecast .

Twitter Stock Decline Latest Ill As New Ads Cannibalize Older Ones

Twitter ( TWTR ) collected a wave of price-target cuts and ratings downgrades on Wednesday, and its stock continued to fall, after the microblog late Tuesday posted a Q1 revenue miss and gave Q2 revenue guidance well below expectations. Twitter was down more than 15% in afternoon trading in the stock market today , near 15 and at a two-month low. The company said in a letter to shareholders that its revenue “came in at the low end of our guidance range because brand marketers did not increase spend as quickly as expected in the first quarter.” The weak demand among brand advertisers also resulted from newer advertising types, mainly video, cannibalizing the company’s legacy “promoted Tweet” ads. The continued slowdown in Twitter usage has come about despite a series of new features it rolled out last year, including video tool Periscope and Moments. The company said monthly active users rose to 310 million, up 3% year over year and up from 305 million in Q4. But that marked the ninth straight quarter of slowing year-over-year user growth. Twitter posted user growth of 18% year over year in Q1 2015. Still, the 310 million edged the midpoint of analysts’ views that Twitter’s user tally would be 307 million to 310 million. Pivotal Research Group cut its price target on Twitter stock to 27 from 39 on Wednesday. But the investment bank said its long-term view was positive. “Despite the slowdown in brand-related spending cited during the conference call, Twitter remains the fourth-most-important player in digital advertising outside of China (after Alphabet ( GOOGL )-owned Google, Facebook ( FB ) and Verizon ( VZ )‘s AOL). This position is unlikely to be altered any time soon,” wrote Pivotal analyst Brian Wieser in an industry note. Wieser lowered his estimated for 2016 revenue growth to 26% from 33%, but said “we continue to expect that the platform retains its current level of importance to consumers and advertisers alike.” Twitter’s Promoted Tweets Victimized By Other Twitter Ads Twitter’s higher-performing ad products — including auto-play video, app installs and direct response — “attracted greater demand than that of legacy Promoted Tweets, thereby cannibalizing previously housed revenue,” said Monness Crespi analyst James Cakmak in a Wednesday report. Cakmak said potential pluses for Twitter that could bring strength in the second half of the year include the microblog’s Web streaming deal recently reached with the National Football League. “This deal and perhaps more content partnerships can help serve as a user accelerant, assuming the product experience is right,” said Cakmak. This month, Twitter expanded its three-year relationship with the NFL to include streaming 10 “Thursday Night Football” games, as well as pregame analysis shows, postgame highlight shows and behind-the-scenes Periscope broadcasts next season. Cakmak added that search leader “Google’s dependence on Twitter content” is another positive. “Twitter makes Google stay relevant in real-time search, giving them every incentive to help the company succeed.  This is a critical alliance vs. Facebook,” he wrote. But Monness Crespi cut its price target on Twitter stock to 22 to 25. The real reason advertisers do not want to spend more on Twitter is because “its focus remains too narrow,” said Edison Investment Research analyst Richard Windsor in an industry note Wednesday. “To turn this around, Twitter needs to find something to encourage users to spend more time within its properties and break out of being a news broadcaster.”