With Microsoft (MSFT) , Alphabet (GOOG) , Apple (AAPL) , Amazon.com (AMZN) and Facebook (er, I mean, Meta Platforms (FB) ) all recently reporting, I thought this would be a good time to once more highlight interesting disclosures made during the companies' earnings reports and calls.
1. Alphabet Is Seeing Only a Modest Hit From New Apple User-Tracking Rules
Both Facebook/Meta and Snap (SNAP) reported that iOS policy changes that require users of an app to give their consent to having their activity tracked across third-party apps and websites (and thus hurt the ad targeting and measurement abilities of various apps) dinged their Q3 sales and would also take a toll in Q4.
But Alphabet had a different story to tell: It soundly beat Q3 estimates on the back of better-than-expected Google Search ad revenue, with total ad revenue growth coming in at 43% (better than Facebook's 33%). The fact that Google Search ad targeting is to a large extent keyword-based limits its exposure to the iOS policy changes, as does the fact that advertisers are still generally able to track when a search ad click leads to a website transaction.
Moreover, when asked on the Q3 call about the impact of the iOS changes, CFO Ruth Porat suggested they haven't had much of an effect, save for a "modest impact" on YouTube ad sales that mostly centered around direct response ads (i.e., ads meant to drive an action such as an online purchase or app install). YouTube's Q3 ad sales did fall a little short of consensus, but were still up 43% to $7.2 billion.
2. Labor Shortages Are a Big Deal for Amazon -- In More Ways Than One
"In Q3, labor became our primary capacity constraint, not storage space or fulfillment capacity," said CFO Brian Olsavsky on Amazon's Q3 call. He added that labor shortages aren't just affecting delivery times, but are also raising transportation costs by affecting inventory-placement within Amazon's warehouses.
And of course, a tight labor market spells higher labor costs for Amazon, which added another 133,000 employees in Q3 (bringing its headcount to 1.47 million) and has promised to hire more than 150,000 workers in the U.S. alone in seasonally big Q4. While some of this labor-cost uptick comes in the form of signing bonuses that could diminish if/when labor shortages ease, Olsavsky said about half of the increase comes via wage hikes and should thus be considered permanent.
With its deep pockets, automation investments and massive warehouse/logistics infrastructure, Amazon is probably better-equipped to deal with a tight labor market than many peers. But with the company estimating labor costs, productivity losses and cost inflation will have a combined $4 billion Q4 impact, they still carry a steep short-term price for the company.
3. Apple's Chinese Sales Appear to Be Getting a Big Boost from Huawei's Woes
Though supply constraints led Apple's total September quarter revenue to come in $1.7 billion below consensus, the company's "Greater China" revenue (it covers China, Hong Kong and Taiwan) rose 83% annually to $14.56 billion, easily beating a $10.83 billion consensus.
An easy annual comparison boosted Greater China's growth rate. But the region's quarterly revenue also rose 31% relative to Apple's Sep. 2019 quarter...and it do so in spite of a shaky Chinese smartphone market.
A strong local reception for Apple's iPhone 13 line certainly helped. But it also looks as if Huawei's smartphone struggles (following crippling U.S. sanctions) are providing a big lift. Whereas research firm IDC ranked Huawei as the world's #2 smartphone maker by unit volume in Q3 2020, Huawei failed to crack the top-5 in IDC's Q3 2021 rankings. Apple, meanwhile, took Huawei's old spot, with IDC estimating global iPhone shipments rose 20% annually in Q3 to 50.4 million units.
4. Facebook/Meta Plans to Make Giant AI Investments Next Year
In its Q3 report, Meta (this name is going to take some getting used to) guided for 2022 capex to be in a range of $29 billion to $34 billion. That's far above 2021 capex guidance of roughly $19 billion, not to mention reported 2020 capex of $15.7 billion.
On the Q3 call, CFO Dave Wehner said that a major contributor to 2022's capex growth is Meta's "investment in our AI and machine learning capabilities, which we expect to benefit our efforts in ranking and recommendations for experiences across our products, including in feed and video, as well as improving [ad] performance and relevance." He later added that the ad-related AI investments will help Facebook "balance out the loss of [data] signal" it has seen due to platform changes such as the ones Apple has implemented.
Meta's capex plans are naturally good news for Nvidia (NVDA) , which maintains a dominant position in AI training accelerator market and has a decent chunk of the burgeoning AI inference accelerator market. Long-time Facebook suppliers Intel (INTC) and Arista Networks (ANET) should also benefit, as should top data center switch ASIC supplier Broadcom (AVGO) .
5. Microsoft Thinks Inflation and Supply-Chain Issues Could Boost Software/Cloud Spending
"[In] an inflationary environment, the first place any business should go to is how to really ensure that they're able to get productivity gains when dealing with constraints," said CEO Satya Nadella on Microsoft's call. "For example, if you have supply-chain constraints, one of the things you want to do is run your factories at the efficient frontier."
To give an example, Nadella said supply-constrained companies could invest in creating digital twins of factories to help optimize output. "So I think any which way you look, whether it's [with] the knowledge worker, first-time worker, whether it's actually digital twins and simulation, all of those things are going to be the best way for any company to deal with inflationary pressure so that they can...have the best productivity and thereby the best ability to be able to meet aggregate demand out there," he added.