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Technology Round Up - August 2, 2012
There have been many noteworthy developments in the technology space recently. Some of these will likely have a material impact on the companies in the sector and the markets they serve.
Facebook’s First Earnings Release as a Public Company
Shares of Facebook (FB) traded lower following the company’s second quarter earnings release. The stock had rebounded somewhat, following a selloff that accompanied its lackluster initial public offering. The company posted results that were mostly in line with consensus expectations. However, top-line growth continued to slow, to 32% (on a year-over-year basis) for the recent interim. Non-GAAP net income totaled $295 million ($0.12 per share). However, the company posted a GAAP loss of $157 million ($0.08), due to variable compensation costs. Facebook finished the period with 955 million users, a nice increase from the 901 million at the end of the first quarter and up 29% over the past year.
Investors remain concerned about slowing revenue growth prospects going forward. In particular, they are worried that limited advertisements on its mobile site will hurt performance, as more people access the site from mobile phones (rather than from a desktop or laptop computer). Moreover, the company has announced that it will be significantly increasing its rate of investment, which will hurt margins for the remainder of the current year and beyond. Facebook appears to be prioritizing long-term success at the expense of short-term profitability. This creates uncertainty in the near term, which the equity markets do not like. The stock’s lofty valuation has adjusted somewhat to reflect this new reality.
Shares of video-game developer Zynga (ZNGA) dropped considerably following its earnings release. The company’s results fell short of consensus expectations, and Zynga has reduced its estimates for the full year. It has experienced softness among its core games and delayed the introduction of an upcoming title. Moreover, Zynga reported a considerable decline in Draw Something players.
The stock has collapsed in price since March. The lackluster trading debut of Facebook, and that company’s recent earnings release were certainly contributing factors (Zynga generates the vast majority of its revenue stream from the Facebook platform). A secondary offering of shares in April may also have been a factor. Users appear to be shifting from PC-based social gaming to mobile games. This challenge may also present a long-term opportunity for Zynga. Indeed, the company is looking to expand beyond Facebook into mobile video games and real money gaming (gambling). In the meantime, Zynga ought to benefit from several big Facebook titles coming later in the year. Most investors should probably remain on the sidelines for the time being, to see if the company can establish a track record of sustained bottom-line growth.
Yahoo!’s New Chief
Yahoo! (YHOO) has appointed Marissa Mayer as President and Chief Executive Officer. Ms. Mayer is a leading consumer Internet executive. She joined Google (GOOG) in 1999, and led efforts for many of its most recognizable products for over a decade. She was most recently Vice President of Local, Maps, and Location Services. The addition of Ms. Mayer is only one of several important changes that have occurred at Yahoo! over the past few months. The company is in the midst of an important transition. It has been increasing its focus on core operations and prioritizing resources. Ms. Mayer will probably continue with these efforts going forward.
Also noteworthy, Yahoo! has recently resolved a dispute with Facebook, settling litigation based on accusations of patent infringement several months back. Moreover, the two companies have formed a strategic agreement that expands an existing multiyear deal allowing Facebook users to share Yahoo! content. It also includes the cross-licensing of patents and collaboration on advertising offerings.
Apple’s Closing the Gap in the Domestic Smartphone Market
Google’s Android operating system appears to be ceding market share to the likes of Apple (AAPL). According to second-quarter estimates by market-research firm Strategy Analytics, Android’s share of the domestic smartphone market decreased from 61% to 56%, compared to the second quarter of last year. Weakness in the overall market and the maturing penetration of smartphones among contract mobile subscribers have been headwinds for Android phones. Smartphone shipments declined roughly 5% in the second quarter, with Android phones comprising the lion’s share of the decrease. However, Apple’s share of the U.S. smartphone market in the second quarter is now 33%, up from 23% a year earlier as iPhone sales continue to increase. The Android platform remains the clear market leader, but we expect Apple to continue to gain ground. Apple ought to benefit from the upcoming launch of a new iPhone. It appears the company will unveil its sixth-generation iPhone in September. Be sure to check in with the Tech Roundup for more on this exciting new offering in the coming months.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.