Apple Inc. (NASDAQ:AAPL) is set to report its second-quarter fiscal 2016 results on Apr 25. Last quarter, it posted a 1.23% positive earnings surprise. The company has outperformed the Zacks Consensus Estimate in the preceding four quarters with an average positive earnings surprise of 3.67%.
Since the beginning of this year, Apple has been concerned about sluggish iPhone sales. In the first quarter, Apple barely managed to register growth in its iPhone sales.
As far as the market is concerned, some firms (like Canaccord Genuity) swear by the fact that Apple still holds the premium spot in the smartphone market, while on the other hand there are others(like TrendForce) who believe that lately Apple has lost market share to peers like Samsung and Lenovo.
We expect the to-be-reported quarter to be a modest one for the company as demand for its iPhone 6S devices will likely remain sluggish and that for the newly launched iPhone SE will hardly be reflected this time around. As Apple derives a major chunk of its revenues from iPhone (66.3% in fiscal 2015) the concerns remain. But an important thing to consider in this aspect is that even in the difficult macroeconomic scenario, the average selling price of the iPhone improved remarkably per last quarter’s statistics. In our opinion, it is a significant positive and can give a decent boost to the company’s sales.
Meanwhile, we expect some respite in the form of Apple’s enterprise offerings that it is developing in collaboration with IBM Corp. This could be an important growth driver as enterprise offerings generally have higher margins compared with consumer products. Also, some other growth drivers to watch out for are revenues from the greater Apple ecosystem and services it offers (like Apple Pay and Apple Music).
Last quarter, Apple itself had given a muted outlook for the second quarter citing headwinds in China and Hong Kong. Setting low estimates does leave quite a bit of scope for a beat.
Yahoo! Inc.’s (NASDAQ:YHOO) first-quarter adjusted numbers managed to edge past estimates with share prices up 1.05% in response.
CEO Mayer further defined the focus areas for the company: “Search, Mail and Tumblr, and four core verticals (news, sports, finance and lifestyles), in our priority markets (the U.S., Canada, the U.K., Germany, Hong Kong and Taiwan). And for our advertisers, we’re committed to our two key offerings, Gemini and BrightRoll”
To get all this done, she has to take down employee count. So last quarter saw a decline of 1,200 (headcount is down roughly 22% since last year and 42% since 2012).
Yahoo’s user base is phenomenal; it is one of the largest in the world. But the problem that remains and continues to irk investors is the inability to convert this asset to yield more revenue. This is a function of higher engagement and better targeting of ads. So it was good to note that total page use in the U.S. grew 14% from last quarter and 10% more per user on the Yahoo app (the new Yahoo app launched last quarter may have had something to do with it).
There was also some progress on Tumblr: mobile active users were up 12% sequentially and 35% year over year. The company has redesigned the dashboard, which has resulted in increased engagement on the platform. For advertisers it launched blogless ads and community targeting, both of which should help monetization.
That said, Mavens revenue remains disappointing, although not more than it has been recently, so the company may be able to bring in the $1.8 billion it’s targeting. The business grew 60.2%, 43.1%, 25.9% and 7.4% year over year in the last four quarters and generated $1.66 billion in 2015.
Mobile was a point of strength in the last quarter, growing double-digits from both the previous and year-ago quarters.
Yahoo continues to focus on search pricing, which could be part of the reason for the sharp decline in paid clicks. Mayer promises that RPS continues to increase.
Mayer promised that the management team was taking the sale plans very seriously and focused on operating results for the rest of the call.
Verizon Communications Inc.
According to a report by The Wall Street Journal, U.S. telecom behemoth Verizon Communications Inc. (NYSE:VZ) is currently the frontrunner to acquire the core assets of Yahoo! Inc. (NASDAQ:YHOO). Apart from Verizon, private equity firm TPG Capital LP and Yellow Pages owner YP LLC are the other two suitors of Yahoo’s web businesses. But Verizon appears to be best suited to merge Yahoo into its online platform.
Internet-based information service provider giant Yahoo is currently struggling with its core businesses namely mail service, online sports, financial and general news sections and its vital online advertising technology, which includes the video advertising platform, BrightRoll. In Feb 2016, Yahoo stated that it would consider “strategic alternatives” for its core businesses, including an outright sale or a spin off.
In the event of the deal materializing, we believe it will largely be beneficial for Verizon. Since the beginning of 2015, the company has been focusing on mobile video offerings, online digital advertising and web-based content business as a diversification strategy.
In Oct 2015, Verizon launched its ad-supported mobile video service Go90 targeting the younger generation. To derive maximum benefits from its mobile video platform, in Jun 2015, the company took over AOL Inc. that provides advertising technology enabling automated buying and selling of ads online.
In addition to online advertising tools, AOL provides popular online content through Huffington Post which has around 200 million unique visitors worldwide. Other websites include Tech Crunch, Engadget, Moviefone and MapQuest.
In Oct 2015, Verizon also acquired Millennial Media, a leading company that sells mobile ads across numerous websites and applications. Its advertising platform is designed to monetize applications for publishers and developers through the use of data-driven ad targeting.
The core businesses of Yahoo perfectly complement Verizon’s focus areas. Notably, Yahoo boasts a significant user base that trails only Google of Alphabet Inc. and Facebook. At present, Yahoo has more than 1 billion users for its e-mail, finance, sports and video sites, AOL has 2 million users and Verizon commands over 112 million wireless subscribers.
If the deal takes place, Yahoo’s online ad technology and popular content will be combined with AOL’s targeted ad technology and consumer data platform and integrated into Verizon’s massive subscriber base and Internet-based mobile video offering to provide a powerful data-driven targeted mobile ad platform.
Verizon is currently focusing on online content delivery, mobile video and online advertising for future growth. These businesses have the potential to generate significant revenues for the company, especially given that its legacy telecom business is presently facing serious pricing competition. According to market research company eMarketer, the global mobile ad market value is expected to reach $ $133.7 billion by 2017.
The acquisitions of AOL and Millennial Media have enabled Verizon to sell digital media services to large companies and social media firms by leveraging its massive wireless customer base. With an Internet giant like Yahoo in its kitty, Verizon can potentially gain a strong and extensive foothold in the global online content and advertising market.