TXN & SNAP Q2 2020 – Pandemic drivers

Texas Instruments – The canary

• Texas Instruments reported good results as its wide range of exposure cushioned it from the short-term problems in automotive and offered an indication of how other industries are coping.
• Q2 2020 Revenues / EPS were $3.24bn / $1.48 compared to forecasts of $2.95bn / $0.88.
• EPS of $1.48 included a one-time tax-related gain of $0.33.
• Q3 2020 revenues / EPS are expected to be $3.40bn ($3.26bn – $3.54bn) / $1.24 ($1.14 – $1.34) ahead of consensus at $3.1bn / $0.99.
• Automotive was down over 40% YoY but industrial was up 2% YoY with personal electronics also up 10% YoY.
• TI is confirming the sustained work and learn from home trend but has also benefited from an inventory build as customers prepare for unforeseen eventualities.
• While I expect the work and learn from home trend to continue for some time yet, an inventory build is likely to be temporary.
• This is because once the cushion has been built, ordering will normalise and also because falling end demand from the recession will necessitate lower absolute levels of inventory which are measured in terms of days of demand.
• This sentiment was echoed by TSMC which saw a continuation of the trends it highlighted in Q1 2020.
• TI’s results point to excellent numbers from Microsoft, Intel and Amazon but are less encouraging for Apple (smartphone demand), NXP and so on.

Snap – The bump ends

• Snap reported good results as the increased usage of its platform and its position at the heart of social media kept revenues going but user growth has slowed which hit the shares.
• Q2 2020 revenues / net loss were $454m / LOSS$326m which was ahead of revenue forecasts of $434m / LOSS$141m.
• However, all the focus was on users which missed expectations at 238m daily active users (DaU) compared to the 239m it guided for at its Q1 2020 numbers.
• These results bode well for Facebook which actually trades closer to fundamentals having suffered from lower revenue growth for several years already.
• It looks as if the trend identified in April which is cuts to digital spending overall but with a focus on social media has continued as expected.
• This means that in revenue terms, Facebook is likely to outperform Google when it comes to revenue despite the boycott which I suspect may be more noise than substance.
• The problem with Snap is that the shares have almost returned to their IPO level seen in 2017 but there is still no real sign of profitability.
• Back in 2017, if the company had said that it would still be loss-making in 2020, I suspect that it might have had some difficulty in selling its shares.
• This combined with the fact that Facebook and TikTok represent significant competitive threats leaves me uninterested in pursuing this rally.