HP Enterprise Is Still Finding it Hard to Grow Revenue
With the help of a low valuation, HP Enterprise (HPE) is up about 2% in late trading Thursday after the company posted mixed January quarter results (revenue slightly missed, but EPS beat), issued in-line April quarter EPS guidance and raised its fiscal 2019 (ends in October) EPS guidance by a nickel to a range of $1.56 to $1.66 (up about 3% annually at the midpoint). But the numbers hardly put to rest the long-term growth concerns that have dogged the company.
Total revenue fell 1.6% annually to $7.55 billion, with HPE's giant "Hybrid IT" segment, which includes its server, storage and IT services businesses seeing revenue drop 3% to $5.97 billion. Compute (server) revenue fell 3%, storage revenue rose 3% and HPE's Pointnext (IT services) revenue fell 6%.
Margin expansion helped HPE beat EPS estimates in spite of the revenue miss: The company's non-GAAP gross margin rose by 2.8 percentage points annually to 31.1%, thanks in part to lower DRAM and flash memory prices. EPS also got a boost from $814 million worth of stock buybacks.
While total enterprise IT spending remains fairly healthy, much of the growth has been driven by spending on software and public cloud services -- areas that HPE, whose top line still depends heavily on hardware sales to Global 2000-type enterprises, has limited exposure to. The company chose to abandon its efforts to compete in the market for servers used within the hyperscale data centers run by cloud giants, arguing it's a highly commoditized, low-margin business. While HPE's argument has some truth to it, it's hard to ignore the fact that the cloud giants have (a recent spending pause notwithstanding) driven most of the IT hardware market's growth in recent years, and that traditional enterprise server and storage sales are being gradually cannibalized by cloud adoption.
There are some bright spots to HPE's top-line performance in the January quarter. Its "Intelligent Edge" segment, which supplies Ethernet switches and Wi-Fi hardware and software, saw revenue rise 5% to $686 million. And though total Hybrid IT revenue fell, some product lines -- generally ones for which HPE has made smart acquisitions over the last three years -- recorded strong growth. High-performance computing (HPC) revenue rose 59%, all-flash storage array sales rose 20% and sales of hyperconverged infrastructure (HCI) offerings that integrate server and storage functions rose 70%.
Nonetheless, for now, the growth delivered by the better-performing areas within HPE's server and storage product lines are merely offsetting declines seen elsewhere. And given the long-term outlook for traditional enterprise server and storage spending, as well as the fact that companies like Dell Technologies ( DELL) , NetApp ( NTAP) and Lenovo ( LNVGY) provide stiff competition in this space, this isn't an easy problem to fix.Roku's Earnings Report Features Plenty of Encouraging Numbers
Feb. 21, 2019 | 5:48 PM EST
Roku (ROKU) topped Q4 estimates on the back of a 77% increase in Platform (software and services) revenue, and (though Q1 revenue guidance is merely in line) guided for 2019 revenue of $1 billion to to $1.025 billion, above a $985 million consensus and implying 35% to 38% annual growth. The stock is up about 4% in after-hours trading, and has now roughly doubled from its December low.
Active accounts rose 14% sequentially and 40% annually to 27.1 million, and streaming hours on Roku's platform rose 18% sequentially and 69% annually to 7.3 billion; those numbers fit with the guidance Roku gave in its early January pre-announcement. Average revenue per user (ARPU) rose 30% to $17.95 -- still a low number considering how much streaming the average Roku user is doing -- and the company says over a quarter of the smart TVs sold in the U.S. last year were powered by its software.
Platform revenue, which (since Roku treats hardware sales as a loss leader) produces nearly all of Roku's gross profit, is expected to account for about two-thirds of 2019 revenue; that implies it will grow about 60%. As Roku notes in its shareholder letter, the TV streaming ad market (still in its early stages) presents a big long-term opportunity for the company, which (with the help of its user data) can run targeted video ads on both third-party apps and its ad-supported Roku Channel.
"In the mobile market, viewers shifted to mobile devices from desktop well ahead of advertisers. It took a few years, but advertiser spend on mobile eventually caught up with mobile viewer share," Roku says, making an observation that Facebook (FB) and Alphabet/Google (GOOGL) execs are unlikely to disagree with. "In the TV streaming world, viewer share is well ahead of TV ad budget share, but the rapid growth of our Platform revenue suggests advertisers are starting to respond," it added.
Roku's stock isn't as cheap as it was in late December, but given its Platform business' growth rate and 70%-plus gross margin, its current valuation (a little over eight times expected 2019 Platform revenue) isn't exactly in nosebleed territory. Though it's probably better at this point to wait for a pullback if one hasn't bought in yet, Roku remains an intriguing play on online video's ascension.
Why an Apple Credit Card Could Pay Off
Feb. 21, 2019 | 12:03 PM ESTApple's (AAPL) plans for new 2019 service launches apparently include an Apple-branded credit card: The Wall Street Journal reports Apple is working with Goldman Sachs (GS) on an "Apple Pay card" that would use Mastercard's (MA) payment network and roll out to employees for testing during the next few weeks, before seeing a full launch later this year.
The WSJ originally reported about the effort last May. In its new report, the paper says that users of Apple and Goldman's card would reportedly get "about 2%" cash back on most purchases, and potentially larger amounts on purchases of Apple hardware and services. Apple also hopes to sell consumers on "new features for the Apple Wallet app that would encourage users to pay down their credit-card debt and manage their balances."
Apple is also reportedly hoping that the card will help boost adoption of Apple Pay. Tim Cook disclosed on Apple's January earnings call that global Apple Pay transaction volume more than doubled annually in the December quarter to over 1.8 billion, but Apple hasn't shared dollar figures or its revenue take. The company would undoubtedly get a larger cut on transactions done via an Apple-branded credit card than the 0.15% cut it reportedly gets from Apple Pay transactions.
Amazon.com (AMZN) , it's worth noting, has seen good uptake for its Prime Rewards card, which is offered with Chase's help and uses Visa's (V) payment network. The card gives eligible Prime members 5% cash back on Amazon and Whole Foods purchases, along with smaller amounts on other purchases.
With the benefit of hindsight, an Apple-branded credit card should have arrived a while ago. Between the strength of Apple's brand, favorable user demographics, ability to promote a credit card both online and via Apple Stores and the appeal of meaningful discounts on Apple hardware, the card should fare well, provided the details are handled right.
The report comes ahead of a March 25 event where Apple is expected to unveil new video and news services. The company has also been reported to be thinking about launching a subscription gaming service, and there has long been speculation that it will eventually launch an " Apple Prime" service that bundles services and hardware upgrades.To see Tech Check coverage from the previous trading day, click here.
