GOOG/AMZN/TWTR – Mixed bag.

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Solid quarter at Google but Amazon slips back into bad habits. Twitter in limbo.  

Alphabet

• Alphabet reported good results as recent strength that it has seen in advertising from mobile devices and YouTube continued to underpin growth.
• Q3 16A revenues-exTAC / adj. EPS were $18.3bn / $9.06 compared to consensus at $18.0bn / $8.61.
• Excellent momentum from the core business was impacted somewhat by increasing investments in “Other Bets”, higher TAC due to the shift to mobile as well as an increase in GNA expenses as a percentage of revenues.
• Alphabet is capitalising well on the increasing number of users of smartphones and from the shift in advertising spending from fixed to mobile but these trends are likely to start slowing soon.
• This is why Alphabet must fix its problems with Android (see here) so it can increase the advertising spend per user which is currently less than half on Android than it is on iOS.
• In my opinion Alphabet remains fully valued limiting its scope for strong capital growth going forward.

Amazon Q3 16A

• Amazon reported disappointing results as it is once again ramping up spending at the expense of profits.
• Q3 16A revenues / EPS were $32.7bn / $0.52 compared to consensus at $32.7bn / $0.78.
• Spending on warehouses, on demand delivery and TV production was responsible for dragging down profits in Q3 16A and is likely to do so again in Q4 16E.
• Q4 16E Revenues / EBIT are forecast to be $42.0bn – $45.5bn / $0bn – $1.25bn compared to forecasts at $44.6bn / $1.8bn.
• Amazon Web Services (AWS) continues to be very strong (echoing Microsoft’s FQ1 17A results) but its scale is beginning to tell as growth has slowed to 55% and is likely to continue decelerating going forward.
• Amazon is back to its bad habits of spending everything that it makes which has dashed hopes that this tendency was at last becoming something of the past.
• Amazon’s valuation continues to reflect a level of profitability that it is very far away from achieving and until there is some stability in earnings, I still do not want to be involved.

Twitter Q3 16A

• Twitter reported good Q3 16A results and cut 9% of its workforce as it laid out a plan to become profitable in the absence of finding a buyer.
• Q3 16A revenues /adj-EBIT were $616m / $81.3m compared to consensus at $605.2m / $68.1m.
• On the headlines, these look like good profits but in reality, Twitter is still loss making as adjusted EBIT (above) in no way reflects all the costs that are being put through this business.
• This is why Twitter has announced a cost reduction program where 9% of positions will be cut globally as well as the closure of Vine, the video platform it bought for $30m in 2012 which has suffered a significant loss of users and engagement.
• This program is hoped to bring Twitter to real profitability during 2017.
• Twitter remains excellent at what it does but that niche has been so well monetised that there is no real growth left.
• Hence, Twitter is trying to expand its appeal into video so that it can attract more traffic to its site for monetisation.
• The jury remains out on this strategy, leaving the company somewhat in limbo with an expensive valuation to boot.
• I continue to believe that there will only be further acquisition interest in Twitter should things continue to go wrong prompting a share price decline to below $10.
• I still see downside and remain un-enthused.