Editor's Note: Tech Check is a new Real Money blog on tech stocks. Every trading day, Eric Jhonsa will provide insights and takeaways on major tech stories and trends.
What's Behind AMD's Big Pop and Favorable 2019 Outlook
AMD (AMD) missed Q4 revenue estimates (EPS was in-line) and guided for Q1 revenue of $1.2 billion to $1.3 billion, below a $1.47 billion consensus and implying a 24% annual drop at the midpoint. Nonetheless, the stock is up more than 18% in Wednesday trading.
Just like many other names that have rallied post-earnings over the least two weeks, depressed investor expectations are helping AMD a bit: Its stock fell 12% between Monday and Tuesday in the wake of Nvidia's (NVDA) sales warning, and is still 35% below its September high.
Also helping, however, is the fact that -- in spite of its Q1 outlook -- AMD is guiding for high-single digit revenue growth for 2019. That's somewhat favorable to a consensus for 6% growth, and implies a pretty big second-half revenue ramp.
Notably, AMD is offering this outlook even though CEO Lisa Su said on the earnings call that AMD expects its PlayStation/Xbox processor revenue to drop by about 20% this year, as the current game console cycle nears its end. In addition, AMD expects its consumer GPU sales to fall by a double-digit percentage this year. Though the GPU forecast has much to do with graphics card inventory corrections (the result of a plunge in demand from cryptocurrency miners), it nonetheless suggests AMD isn't expecting big share gains against Nvidia this year in the gaming GPU market, despite Nvidia's recent issues.
AMD's outlook does, however, suggest it expects a very strong year for its Ryzen PC CPU and Epyc server CPU franchises, and to some degree for its server GPU sales. As it is, these businesses were bright spots in Q4.
While its PC GPU sales tumbled in Q4 thanks to inventory corrections, AMD's PC CPU unit sales rose over 50% annually thanks to strong Ryzen demand, with average selling prices (ASPs) also growing. For comparison, while its ASPs rose, Intel's (INTC) PC CPU volumes fell 2% annually in Q4 amid supply constraints (particularly for cheaper CPUs).
AMD also saw its server unit shipments more than double sequentially, with Su noting demand was particularly strong for the company's flagship, 32-core, Epyc CPU. Higher server CPU and GPU sales both helped AMD's total data center revenue, which has been a small part of its business in recent years, account for a "mid-teens" percentage of total revenue.
In mid-2019, AMD plans to launch second-gen Epyc CPUs that -- with the help of a cutting-edge manufacturing process and a new CPU core architecture -- are promised to deliver an impressive 2x increase in performance per CPU socket relative to first-gen Epyc CPUs. It's also planning to launch third-gen Ryzen desktop CPUs that for similar reasons should deliver major performance gains relative to second-gen Ryzen parts.
Throw in the continued popularity of AMD's Ryzen Threadripper workstation/enthusiast desktop CPUs, Microsoft's (MSFT) plans to use AMD GPUs to power its upcoming cloud gaming service and an expected 50%-plus increase in the number of notebooks launching that feature AMD's Ryzen Mobile processors (they were just refreshed), and AMD's upbeat full-year outlook becomes easier to understand.
To an extent, AMD is vulnerable to the Chinese and cloud spending pressures that are weighing on Nvidia and Intel in the near-term, and its console processor sales are likely to remain pressured until next-gen systems arrive. But (as mentioned on Monday) the company isn't affected by some of the issues that are hurting demand for Nvidia's Turing-architecture gaming GPUs, and its relatively small PC CPU, server CPU and server GPU shares make it easier for share gains to offset industry demand pressures.
Markets now seem to have a better understanding of these differences.
Alibaba's Results Show It's Still Cheap When You Weigh All Its Parts
Jan 30, 2019 | 1:28 PM EST
Alibaba (BABA) is up over 4% post-earnings even though it posted December quarter revenue of RMB117.3 billion (up 41% annually and equal to $17.1 billion), below an RMB119 billion consensus. Helping out: Slower spending growth still allowed Alibaba to deliver non-GAAP EPS of $1.77, above a $1.70 consensus.
Also likely helping: Alibaba's "China commerce retail" revenue, which includes its giant Taobao and Tmall marketplaces, saw revenue rise 35% to RMB 81.1 billion ($11.8 billion), or 69% of total revenue. Amid a backdrop of macro and trade worries, the segment's sales growth was nearly on par with the September quarter's 37%.
Moreover, while the segment's commission revenue growth slowed to 24%, its "customer management" revenue, which is driven by ads and accounts for over half of segment revenue, managed to accelerate to 28% thanks to higher ad click-through rates. This growth also came in spite of Alibaba's recent decision not to monetize a new Taobao product-recommendation feed for the time being. On its call, Alibaba said the feed has helped improve user engagement, and that the company is preparing to monetize it.
User metrics for Taobao/Tmall also still look solid. "Annual active consumers" (users who have made a purchase in the last 12 months), grew by 35 million sequentially to 636 million, and mobile monthly active users (MAUs) grew by 33 million sequentially to 699 million.
Meanwhile, although a lot of them are losing money for now, many of Alibaba's other businesses are still reporting strong top-line growth. "Cloud computing" revenue, which covers the AliCloud cloud infrastructure platform, rose 84%. Digital media and entertainment revenue, which includes the Youku Tudou online video platform and the UCWeb browser, grew 20%. And the China commerce retail segment's "Others" revenue, which includes Alibaba's direct e-commerce and physical retail businesses, grew 122%.
Alibaba's "international commerce retail" segment was admittedly a weak spot, with revenue growth slowing to 23% from the September quarter's 55%. Alibaba blamed this on a decision by its Lazada Southeast Asian e-commerce platform to emphasize marketplace sales, on which Alibaba only collects revenue on a portion of the sale, over direct e-commerce sales.
Macro uncertainty is still a real concern for Alibaba and various other Chinese tech firms. And for U.S. investors, the fact that the dollar's gains against the renminbi have led Alibaba's dollar-based growth to be lower than its RMB growth also can't be overlooked.
However, given how much its stock has already been pressured, and also how much its near-term earnings remain depressed by investments in newer businesses, I'd still argue that Alibaba's stock remains fairly cheap on a sum-of-the-parts basis.What's Behind Apple's Post-Earnings Rally
Jan 30, 2019 | 11:33 AM ESTAs was the case for the chip stocks that rallied last week in the face of several light sales outlooks, low expectations are helping Apple (AAPL) out as its stock trades up nearly 5% in spite of soft March-quarter revenue guidance. Though this estimate has dropped by $0.30 following its report, Apple still only trades at 12.5 times fiscal 2020 (ends in Sep. 2020) consensus EPS expectations...and that's before one accounts for $130 billion in net cash.
Meanwhile, as discussed in last night's earnings takeaways column, Apple's reporting of a 62.8% December-quarter services gross margin (well above a total gross margin of 38%) is being well-received, since that points to a healthy long-term margin expansion opportunity assuming services revenue (up 19% last quarter in spite of an unfavorable accounting change) continues seeing solid double-digit growth.
Apple's disclosure that it has an active installed base of over 900 million iPhones was also encouraging. Despite its current sales pressures (2020 might be better), the iPhone is still Apple's lodestar -- it plays a critical role in driving many of the company's services big revenue streams, from the App Store to Apple Music to Alphabet/Google's (GOOGL) search ad revenue-sharing payments, and also plays a critical role in cross-selling everything from iPads to Apple Watches to AirPods (and maybe next year, an AR/VR headset).
With iPhone unit sales having ranged between 212 million and 231 million during Apple's last four fiscal years, there are clearly quite a lot of older and/or used iPhones still in operation. And with the iPhone active installed base even growing last quarter, when iPhone revenue fell 15%, it's probably only a matter of time before the base tops 1 billion.
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