The second half of July means Q2 earnings are out. While some results were surprising, others showed companies’ continued growth, and in one instance, even a potential rebound. We offer our analysis on six companies' results, as well as our own forecasts.
Facebook released better-than-expected results on July 24, reporting $16.9 billion in revenues, 1.59 billion in daily active users (DAUs), and $7.05 in average revenue per user (ARPU). This came just as the company was fined a record-setting $5 billion by the Federal Trade Commission (FTC) as a result of the 2018 Cambridge Analytica scandal.
“This company has repeatedly shown that it can grow both its ad revenues and user base, even in the face of enormous challenges," said Debra Aho Williamson, principal analyst. "Its earnings release demonstrates that it still has that power."
“We expect Facebook’s worldwide ad revenues will increase 22.5% this year. That’s a higher growth rate than for digital advertising as a whole, which we expect will increase 17.6%. The FTC settlement, which was announced the same day as Facebook’s earnings, doesn’t appear to have direct impact on Facebook’s ad business, but other regulatory or governmental investigations may have an impact in the future. We also think that Facebook will continue to scrutinize its own business practices and could decide to make changes to its targeting capabilities on its own.”
Facebook's worldwide digital ad revenues will be $67.37 billion this year (including Instagram's $14.41 billion), which will increase 20.1% to $80.93 billion next year. The company currently controls a 20.2% share of the worldwide digital ad market, right behind Google (31.1%).
There are roughly 1.76 billion monthly Facebook users worldwide, which is up almost 6% vs. last year.
Amazon reported revenues of $63.4 billion in its Q2 earnings delivered on July 25, a 20% increase from the same period last year. Its Amazon Web Services (AWS) made $8.4 billion in sales, and subscription services made $4.7 billion, which is 37% up from last year.
“Amazon has a decidedly mixed bag in Q2, with exceptional top line revenue growth but some cause for concern on the bottom line,” said Andrew Lipsman, principal analyst. “Increased costs for one-day delivery were baked in and likely helped on the top line, but the unexpected hit to profits came from the slowdown in the cloud business. Heightened competition from Microsoft and Google could really crimp this high margin revenue stream over the next few quarters.”
Amazon's US ecommerce sales will grow another 17.7% this year to $221.13 billion. This gives the company more than a one-third (37.7%) share of the US ecommerce market. US ecommerce sales total $586.92 billion, which is 10.7% of all US retail sales.
We also estimate that for the first time, more than half of US households (51.3%) will be Prime members.
Alphabet, Google’s parent company, reported revenues of $38.94 billion in Q2 2019, which is up 19% from the same period last year. Its traffic acquisition costs, or how much it paid to affiliates that direct traffic to its website, were $7.24 billion, which made up 22% of its total ad revenues.
“With a showing quite similar to Q1, Google’s Q2 earnings again display the moderating growth that has come to characterize 2019 for the company,” said Monica Peart, senior forecasting director. “Strength in mobile advertising is holding search ad growth steady and in a positive turn of events, global currency positions are beginning to stabilize against the US dollar, giving Google ad revenues minor relief vs. Q1.”
Google remains the dominant company in worldwide search ad spending, and we estimate that it will capture 61.1% of the search market worldwide, generating $103.73 billion in net digital ad revenues this year.
Twitter reported $841 million in revenues, a 18% increase year over year. It has 139 million average monetizable daily active users (mDAUs), up 14% from the same period last year.
“Twitter’s value proposition to advertisers is not the size of its audience, but the engagement of its users,” said eMarketer senior analyst Jasmine Enberg. “The strong growth in mDAUs shows that Twitter users are sticking with the platform, and that should resonate with advertisers. Next quarter’s earnings will show whether Twitter can keep up amid negative feedback over the website redesign rolled out in July."
Twitter will have 283.1 million users worldwide this year, and while we expect its user base to continue to grow in the next several years, Twitter's share of worldwide social network users will drop from 9.6% in 2019 to 9% in 2023.
Twitter's worldwide total ad revenues will reach $2.97 billion in 2019.
Snapchat reported 203 million DAUs, which is up 8% year over year, a positive sign after a slowdown in growth last year after a much-scorned redesign. It generated $388 million in Q2 revenues, up 48% compared with the same period last year.
"It’s great to see Snap showing strong signs of growth this quarter,” Williamson said.
“Clearly the relaunch of the Android app has had a meaningful impact on the Q2 user figures, especially outside of the US and Europe, where the Android operating system is especially popular. The popular face filters have also helped drive usage and engagement. Now, the challenge is to convince those newly added users to stick around and use Snapchat on an ongoing basis. As long as it continues to roll out compelling new features, it will do that.”
This year, Snapchat will have 281.3 million users worldwide, an 8.5% increase over 2018. We expect Snapchat's net worldwide ad revenues will increase 30% to $1.36 billion, giving the company a 0.4% share of the worldwide digital ad market.
Netflix’s results were the biggest surprise of the bunch: The company generated $4.92 billion in revenues and lost 126,000 domestic subscribers, while only adding 2.83 million international subscribers. The company attributed its numbers on its weaker Q2 content slate and a recent price hike.
“The drop in US subscribers suggests that viewers on lower pricing tiers dropped Netflix as a result of the price increase, given that the average subscriber is now paying significantly more than Netflix had previously guided,” said Eric Haggstrom, forecast analyst. “Netflix has a difficult road ahead with looming competition and the removal of popular content, but a strong content schedule in Q3 should draw many former subscribers back in.”
We estimate that there will be 158.8 million Netflix viewers in the US this year, which is 67.6% of digital video viewers and 55.9% of internet users.
For more in-depth discussion on Netflix’s surprise drop in subscriber numbers, listen to our latest podcast.