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Fabernovel publishes its report on tech giants’ Q2 results

Fabernovel has published the second issue ofGafanomics – The Quarterly, a new report dedicated to comprehensively analyzing tech giants’ results. This edition focuses on the second quarter of 2019. The new economy is currently opening the way for fresh value creation opportunities, and Fabernovel’s report takes on board our experts’ financial, strategical and technological perspectives to analyze the driving forces powering major tech companies and their development strategies.

The sun has continued to shine on the Street for the Tech segment, the second best performing sector in the US in the last three months after Healthcare. In still supportive financial markets soothed by low interest rates but sensitive to Donald Trump's tweets on the Trade War, Tech giants benefited from a good Q2 earning season: c.60% of the firms of our sample of 20 companies beat or came in line with consensus expectations (vs c.50% for the S&P 500)

Jean-Christophe Liaubet, Partner, Fabernovel

Q2 (from April 31st to July 31st of this year) has reaffirmed that tech giants are pursuing three key strategic trends. The first of these is prioritizing growth in turnover over profitability. In Q2, the businesses we surveyed* recorded an average increase in sales growth of 22% but a 4% EBIT decline. Secondly, the online advertising model has performed solidly. Snapchat has bounced back strongly and the operational results at Google parent company Alphabet and Facebook have barely been dented by users’ growing misgivings around how their data is utilized. Thirdly, companies are dynamically diversifying. Facebook has announced the launch of Libra, its new cryptocurrency based on multiple real-world currencies, marking the company’s ambition to diversify its economic model (98% of which is currently based on advertising) and to move towards the super-app style of working (for more information about this, see WeChat, the shape of the connected China – Slide 9).

This quarter was also characterized by intensified regulatory pressures on GAFAM, including a record $5 billion fine for Facebook, a new inquiry by the Federal Trade Commission into recent acquisitions, and France’s “GAFA tax” levied on up to 3% of digital companies’ turnover.

Three new businesses have also made waves with their stock market flotations.

●      Slack has been valued at $23 billion and Fabernovel has analyzed its model in a special Gafanomics study,

●      Cybersecurity company CrowdStrike was valued at more than $6 billion when it went public, but its share price since doubled and more,

●      Fiverr could be compared to an early noughties Amazon for the job market.



TOP: Alphabet bounces back in Q2

After a disappointing Q1, Alphabet has reported better-than-expected financial results for Q2, with traffic acquisition costs (TAC) as a percentage of advertising revenue down compared with the previous year. TACs are the expenses Alphabet incurs to make sure businesses choose Google services, so it serves as a good illustration of how well its model is doing.

The company has also reported a significant increase in other, non-advertising revenue. Most of this comes from selling cloud services but, thanks to the launch of the new Pixel 3a smartphone, it has been supported by hardware product sales too. These other revenue streams have made the company $6.18 billion—a 39.5% increase on the previous year—contributing to 28% growth in the Group’s total revenue.


FLOP: Amazon disappoints

Amazon’s investors have gotten used to seeing forecasts met and often beaten, but this time around, operating results were well below expectations at $3.2 billion, instead of the projected $3.7 billion. The business’ management costs have showed that investing in same-day deliveries has significantly impacted Amazon’s margins and forced the business to predict even weaker results in Q3 2019. Amazon has also seen its business-oriented cloud computing service AWS record its least vigorous growth in turnover for five years. This is relative, however: it has still grown 37%, which is way above the 17% Microsoft has reported. Lastly, on August 1st, Amazon also announced that it will not be able to absorb France’s new GAFA tax (mainly due to its tight margins) and that, as a result, it will have to pass costs onto French businesses that use its marketplace.


Q2’S BIG SURPRISE: Netflix’s stock market value declines

Netflix’s share price has fallen 10% since it lost 126,000 American subscribers and got just half of the 5 million new subscriptions it expected, recording a figure of 2.7 million. The main reasons for this were price increases in certain regions and the arrival—in an already highly competitive marketplace—of new operators such as Disney, WarnerMedia and NBCUniversal at the year’s close.

However, Netflix has beaten its own forecasts, achieving a turnover of $4.9 billion in Q2—that is a $2.3 billion (or 26%) increase on the previous year.


Q2’s BIG CLASH: Slack arrives and Microsoft goes on the offensive

Although Microsoft always refused to reveal its user numbers, on July 11th it finally chose to publish an infographic comparing Teams’ daily active user numbers to Slack’s, just three weeks after the latter went public. This infographic shows that growth has been rapid, with Microsoft taking on nearly 3 million new users.


Spotlight on the healthcare market, tech giants’ new Eldorado

In the latest issue of Gafanomics – The Quarterly, Fabernovel focuses on developments in the healthcare market. This major market is set to reach $10,000 billion worth of value by 2022 and will play a crucial part in humanity’s future. Historical operators have long been behind the curve in that they have relied solely on acquisition to generate growth, but they are now starting to feel the heat from startups as well as digital giants, who have spied plenty of potential for themselves. Tech giants’ intention is to offer quick solutions to existing problems by capitalizing on their existing infrastructure and improving our lifestyles. Here are a few examples:

  •  Improving our bodies: Robotics exoskeletons, augmented reality and gene editing
    ●      Wearables: Smart watches with Apple, patches and ears support
    ●      Diagnosis: Machine learning and IA for detecting cancer with Google or IBM, voice recognition for respiratory conditions with Amazon
    ●      Healthcare journeys: Health data, patient transport with Uber, for example
    ●      Continuous professional improvement: Tencent is reducing the pressure on hospitals by making appointments easier to book on WeChat
    While data protection is a challenge tech operators still need to overcome to be able to penetrate the healthcare market, established industry players have reacted by investing in R&D, launching innovative—rather than groundbreaking—initiatives or creating partnerships with peers or the big tech giants. This is the case for Sanofi, for instance, which has teamed up with Alphabet subsidiary Verily to create Onduo, a smartphone app designed to help patients better manage their diabetes. By doing this, Sanofi is uniting its expertise and resources with Verily’s own agile working methods and entrepreneurial spirit.
    As well as tapping into the health market’s financial opportunities, these ventures represent an opportunity for tech giants to both change their image and develop their corporate social responsibility by making tech a force for good in the world.  

*For this quarter: Uber, Baidu, Tencent, Twitter, Tesla, Apple, Lyft, Microsoft, Zoom, Amazon, Paypal, Netflix, Spotify, Google, Samsung, Salesforce, Alibaba, Square, Facebook et Snap

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