The earnings reports are in — and they are quickly separating the sizzlers from the fizzlers. Apple sorta fizzled, but the markets don’t seem to have noticed. Facebook sizzled incredibly, and the markets definitely noticed.
Retail had a good week, both in concept with contextual commerce and Macy’s getting high-tech with a little help from IBM. Not having such a good week, other than Apple, were FinTech IPOs.
So what’s the inside scoop?
Contextual Commerce
We’ve been talking about it for two years, and PYMNTS’ Karen Webster identified as one of the six big things that would shape the direction of commerce this year. Back in January, she argued that what passed as contextual commerce was literally a commerce “bolt on” in environments that looked like they could be a natural for commerce since they attracted lots of eyeballs but weren’t conducive to commerce for one reason or another.
A few announcements this week really do start to payoff what I meant by contextual commerce in the true sense of the word – enabling “in the moment” transacting in an environment where consumers are, well, in the moment. Airbnb visitors can now book airline tickets (logical since consumers have just booked a room), Venmo users can how make purchases at the merchants that Venmo users are or could be splitting the tab anyway, and Pandora now lets listeners order concert tickets for their favorite artists after listening to their music. Context + commerce = sizzle
Millennials
If you’re a millennial, the FinTech world is literally beating a path to your front door. There are digital banks popping up just to woo them. Traditional banks are adapting services to attract more of them. PayPal and Visa’s partnership includes real-time access to funds that millennials “Venmo” to each other if there’s a Visa debit card involved. Messenger and chatbots are designed to make the millennial messaging crowd even more tightly aligned to its messaging platform. And the contextual commerce opportunities that I just spoke of are in response to millennials and their use of those channels to tickle the very fickle fancies of this generation and get them hooked for life. Millennials are clearly a sizzle. The next step? Turning that sizzle into sizzling bottom lines for banks and retailers is the hope.
Macy’s
In a world where choice is increasing and time is diminishing, who wouldn’t love the idea of having an intelligent personal shopper make recommendations on what to buy from a zillion possible choices based on expressed preferences and past purchases? Macy’s – and its new IBM Watson partnership — is all about making human sales associates and consumers smarter about what to buy when they shop Macy’s. For the sales associates, it puts data at their fingertips – relevant data. For the consumer, it does the same things. For Macy’s, it hopefully rings their registers by saving the consumer time and giving them relevant things to buy. You gotta love Macy’s appetite for innovation – they are willing to experiment with a lot of new ideas on the path to reinventing their relationship with the customer. And what’s cooler for a consumer to say than they’re being dressed by the coolest super computer in the world?
Apple
Let’s see. Profits down 27 percent – and in a slump. Revenue down for a second straight quarter. Sales of the iPhone down off – again – and now a consistent pattern. China opportunity at risk. The usual non-specific hand-waving about Apple Pay and being up 400 percent, but only when asked in the Q&A.
What everyone latched onto was the data point related to Services revenue, which was up 19 percent – a sign, analysts say, that Apple is turning the corner with its revenue mix. We’re not so sure. Services is where Apple has tremendous margin pressure since hardware is where they get their margin, thus the dismal profit performance. Services is also a tiny part of their business – as in a pinspeck — so 19-percent growth on a tiny base is still tiny. Yet Apple CEO Tim Cook came out ebullient on the earnings call: “We are pleased to report third quarter results that reflect stronger customer demand and business performance than we anticipated in the start of the quarter.”
Apple’s stock took a 6 percent uptick since performance wasn’t as bad as analysts thought. So, is this a new normal – or good old-fashioned fizzle?
Bank Regulation
You know that things are sort of bad when the only thing that Democrats and Republications in the U.S. agree on is that banks need to be cut down to size. Both parties have put language in their respective platforms that would revive the Glass-Steagall Act – the Act that once separated investment banking and commercial banking.
Bernie Sanders got the ball rolling early in the season, with Hillary Clinton promising to address the “shadow banking” activities conducted by hedge funds and other financial entities. Donald Trump supports the return of the legislation and has said he would roll back much of the freedom big banks have had to cross-pollinate services.
Brookings Institution senior fellow Elaine C. Kamarck said that this means only one thing: that regardless of who sits in the Oval Office in 2017, there will a much tougher attitude toward the financial industry since “millions of Americans think that they were the victims of Wall Street and that the next President had better pay attention.”
FinTech IPOs
Maybe it’s the summer heat or the summer doldrums or summer vacation, but the dearth of IPOs in FinTech so far this year – and activity on the part of unicorns has a lot of industry pundits speculating as to why. One popular opinion is that an IPO requires said company to open their books to a hard look, which in a sea of, um, highly optimistic valuations might burst a lot of investor bubbles. If that’s the case, then the real fizzle could be what happens if the perception/reality gap never closes – meaning that there isn’t a business model strong enough to sustain a profit-making business in the future. Investors of any kind – public market or private – won’t have much of an appetite to keep the funding home fires burning.
And that could spell big fizzles down the road.
When one writes about payments, financial services, commerce or technology, hype abounds. Very rarely do we encounter someone claiming “I’m offering a moderate improvement to the world as we know it today – comparable to many other such moderate improvements.”
No, we tend to hear exciting compound words like “ground-breaking” “game-changing” and, of course, the house favorite “disruptive-innovation.” OK, so maybe that last one isn’t so much a compound word just yet, but given the frequency with which the two travel together these days, it seems only a matter of time before they are joined in holy matrimony by a hyphen.
Which is why we here at PYMNTS love earnings season the way most people love the holiday season, because for us it’s a little Christmas that comes around four times a year. For a day every firm — from the tallest to the smallest — has to drop the hype, ditch the spin and just report the numbers.
Sometimes those numbers need a little bit of spin, while others, well, they spin heads.
Such is the story that Facebook gets to end the week with — all indicators were in the black, the Street expectations were met and exceeded — all and all a good time by the numbers. But the numbers don’t quite explain the ebullience that broke out in after hours trading on Wednesday, as Facebook has done to the head of the “master class in mobile monetization.” That’s no small feat, and one that has turned a lot of heads.
Facebook By The Q2 Numbers
Crushed.
That was the favored description of Facebook’s actual earnings to what analysts were predicting.
Facebook earned 97 cents per share on $6.44 billion in earnings, handily topping the 82 cents and $6.02 billion that was the consensus pre-earnings prediction.
There are, on average, 1.7 billion active users on Facebook per month, meaning if Facebook were a country it would be the most populous one on Earth. In fact, if you added the population of China (#1) to the entire population of the United States (#3), Facebook users would still outnumber the group. Daily active users are up to 1.13 billion (making Facebook the #3 most populous nation on Earth on any given day).
And boy, can Facebook ever monetize that user base. Through the sale of advertising, Facebook averages $3.82 average revenue per user, up from $3.32 last quarter and well, well above the $3.59 expected.
“We’ve worked hard to make becoming an advertiser as easy as possible for businesses,” Sheryl Sandberg, chief operating officer noted in the Facebook earnings call after the results were released.
Apparently it has worked — Facebook will take 67.9 percent of the social-media advertising spend on the planet Earth this year, according to eMarketer estimates.
The Mobile Picture
The raw numbers are impressive, but the Street’s excitement came more from Facebook’s indisputable power on mobile. A prior concern had been that Facebook would not be able to keep up in a mobile first with mobile-first apps designed for the smartphone ecosystem.
So far, that fear has not been born out.
Monthly users on mobile increased 20 percent year over year, and daily users on mobile increased 22 percent year over year. And that big mobile shift is big money for Facebook, as it allows the company to sell more of the higher-priced ads that appear in those feeds, executives said on a conference call.
Which makes it rather unsurprising that the vast, vast majority of Facebook’s $6.42 billion of ad revenue came via mobile. All in, mobile brought in 84 percent of the total, or $5.42 billion (once again beating the $4.84 billion expectations). Mobile revenue for Facebook on the whole is up 81 percent year over year.
The Facebook family of apps, including Messenger and Instagram, also posted some strong results. Messenger now has a monthly audience of 1 billion mobile users, the company announced last week.
“The scale we’ve achieved with our messaging services makes it clear that it’s more than just a way to chat with friends,” Zuckerberg said, emphasizing the company’s push into customer service and enterprise chat.
And Facebook is clearly more than just a way to keep up with friends and family — it is instead becoming a user’s home away from home on mobile. For example, search on Facebook has exploded to more than 2 billion per day.
“The growing way that people use search is to find what people are saying about a topic across more that 2.5 trillion posts. Now people are doing more than 2 billion searches a day between looking up people, businesses, and other things they care about.”
Facebook says it isn’t monetizing that yet, but if we were Google, we might not be sleeping so well. If we were Twitter, well, let’s just say we’re glad we’re not Twitter right now.
But it is a pretty darn sizzling week to be Facebook — the force that increasingly seems to be the common factor in smartphone usage everywhere.
And if Zuckerberg and Co. are to believed, they are only getting started.
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