You know Silicon Valley had a great quarter when even the go-to losers are somehow winners. Both Snap and Twitter, usually stuck in the shadow of Facebook, had huge stock rallies this week as their earnings report beat analysts’ expectations. It seems like, at least for one fleeting week, Wall Street got a little nervous about pouring all of its money behind five or so gargantuan companies and threw a bone to the little guys instead. That’s not to say the tech giants did poorly over the holidays — Apple and Amazon posted record profits. And all this happened before the tech sector unwrapped the greatest gift of all, an enormous corporate tax cut that should fatten their bottom lines even more in 2018.
It’s a great time to be an American, and by “an American” I mean “a multinational corporation,” because corporations are people. Welcome to earnings season.
Winners
Remember when Twitter was deep in the red and its growth was so anemic that it seemed like it was on the verge of being purchased or radically changed? It was a time of concern, sure, but also quiet reflection that maybe this cacophonous collision of trolls, activists, thinkfluencers, and bored office captives wasn’t the best way to organize public online discourse. Maybe Twitter deserved to wither on the vine.
Surprise, everybody who’s ever written a “why I left Twitter column” — Twitter doesn’t need you to make money. The company posted its first profit as a public company this quarter, earning $91 million. Overall user growth remains slow, with the service’s monthly active users staying flat at 330 million. But Twitter says its number of daily active users grew 12 percent compared to a year ago. (I wonder what all these Twitter addicts could be looking at?) And its revenue was $732 million, beating estimates of $686 million. The company’s stock jumped more than 20 percent on the news. Though the company’s future financial outlook is anything but guaranteed with chief operating officer Anthony Noto departing, Twitter isn’t going anywhere.
Snap
After going public nearly a year ago, Snap was quickly saddled with a difficult label: “struggling Facebook competitor.” But Q4 showed signs of a turnaround. The company added 8.9 million daily active users, its biggest growth spurt since the fall of 2016. The increase came courtesy of improvements to Snap’s Android app, which boosted retention, and a focus on growing users and revenue outside the United States. The company is still deep in the red, with its net loss more than doubling to $350 million year over year. But at least right now, Snap finally has a positive story to sell, and investors are buying. The company’s stock rose nearly 25 percent after its earnings report. Perhaps its redesigned app can help it continue its momentum in the new year.
Amazon
Q4 was the 11th straight quarter that Amazon earned a profit. In fact, it was Amazon’s largest profit ever, at $1.9 billion (though a significant portion of that was a onetime tax benefit due to the new GOP tax plan). Amazon used to be a company that posted regular losses in the name of future growth. Now it’s raking in profits and still growing rapidly — revenue of $60.5 billion, also a record, beat analysts’ expectations. With its cloud-computing business continuing to be incredibly profitable, and its consumer-facing aspirations always expanding, there’s no end to the company’s dominance in sight.
Netflix
Netflix performs best in the fall and winter, but that still didn’t prepare investors for the 8.3 million new subscribers the streaming service added in Q4, beating its own projections by 2 million. The company once again cited its original content as the reason for its rapid growth, noting that the critically derided Will Smith action movie Bright was one of its most-viewed originals ever. Netflix also revealed that the total number of streaming hours per subscriber grew 9 percent in 2017, indicating that people are using the service more even as it pares down its library of licensed movies and shows. Investors are betting that Netflix’s seemingly endless winning streak will continue in 2018. After the earnings report, the company’s valuation exceeded $100 billion for the first time.
Apple
Apple’s strong earnings report shed light on how the company intends to keep making more money in the era of smartphone saturation. Revenue and profits both reached all-time records of $88 billion and $20 billion, respectively, which exceeded analysts’ expectations. But iPhone unit sales were only 77.3 million, below expectations of around 80 million. Apple still won the quarter because of the $1,000 iPhone X, which pushed the average iPhone selling price up $100 compared to a year ago (it’s been the top-selling iPhone every week since it shipped, according to CEO Tim Cook). We’ve been waiting a long time for Apple to dream up the next iPhone, and that day may never come. But the company is getting better and better at wringing more money out if its loyal and affluent customer base.
Nintendo
Nintendo has promised to release another Mario Tennis game this spring, which means its future matters way more than the rest of these corporations. Right now 2018 is looking pretty rosy for the company. The surprisingly popular Switch sold 7.2 million units in the most recent quarter, which is more than half of what its predecessor, the Wii U, sold in its entire lifetime. Nintendo’s profit in the quarter, around $1 billion, was nearly double analysts’ expectations and marked the best performance for the company since 2009, when the Wii took over the world. Nintendo is bullish on the future as well, with plans to double Switch production next year.
This year Facebook is embarking on an experiment to see if it can make changes to its platform that drive down engagement but don’t hurt its business. Last quarter was an early sign that the plan might work. Facebook’s daily active users in the U.S. and Canada dipped for the first time ever, and overall usage of the social network decreased by 50 million hours (or about 5 percent) due to showing fewer viral videos in the News Feed. But revenue and profits both exceeded analysts’ expectations, and the company said ad prices increased 43 percent during the quarter. Whether the dip in engagement was truly because of careful orchestration by Facebook or because of user fatigue with the platform is tough to say. Either way, Facebook is proving it doesn’t need ever-risky usage stats to make more money, which is good news for a society that probably needs to be weaned off of Facebook.
Loser
Alphabet
The odd man out in a fruitful quarter for Silicon Valley, Google’s parent company disappointed investors, with its profits coming in below expectations. The company’s stock fell 2 percent on the news. The culprit was Google’s traffic acquisition costs, or the money Google pays companies like Apple to use it as the default search engine on their devices. As search engine usage has transitioned to mobile, Google’s traffic acquisition costs have risen, to the point that it’s starting to alarm investors. Still, the company’s revenue of $32.3 billion beat estimates, and CEO Sundar Pichai noted that its burgeoning cloud business now pulls in $1 billion in sales per quarter, which may eventually lessen the pressure on Google’s search performance. Google is hardly in a precarious position, but investors will be watching closely to see how the company’s various business lines grow in 2018.
