This is our first comment on Tesla, so let's start with the highlights. This is the first time Tesla has booked a net profit, under honest-to-goodness GAAP standards, since Q1 2013. That's a win. What's even better is the free cash flow -- and it looks legit. Later in the statement, Tesla details that it generated $424 million in cashflow. Minus $248 million capex, that leaves $176 million as real cash profit. Kudos.
Reporters posting on Yahoo! Finance are calling today's news a "smashing" win for Twitter. But seriously? 8% revenue growth at a relatively young tech company seems more like a slap with a wet noddle, than a smashing of anything. And just 1% revenue growth in the flagship US market? This is really pretty sad.
This is the first comment, so I'll begin with the basics. Apple may have "beat" on earnings this quarter (by two pennies). Still, sales are down 9% year over year, and earnings are off by 15%. Notably, this is the third quarter in a row in which Apple has posted year-over-year declines in both revenues and earnings. The word "trend" springs to mind.
Intel's revenues and earnings are pretty easy to find out, but the company almost goes out of its way to avoid giving you a free cash flow figure. To find it, you need to start here with the $3.8B in cash from operations, then scroll way down and dig into the "selected cash flow information" table, wherein is buried the fact that Intel spent $2.3B on property, plant and equipment.
Result: Free cash flow for the quarter was $1.5B, down about 12% year over year from last year's Q2's $1.7B. That's not as bad as the GAAP profits decline -- but it's bad enough.
Analysts are pleased as punch with Microsoft's revenue and earnings "beat," and make no mistake -- the news was good. Profits for fiscal 2016 leapt 38% in comparison with fiscal 2015 numbers. If you ask me, though, it's the free cash flow number that impresses most. MSFT generated $25 billion in cash for the fiscal year, up only 5% year over year, but a good 49% more "cash profit" than the GAAP would suggest..
I'm not a fan of Netflix stock. Never have been, probably never will be. But even so, can I just point out here that, amid all the doom and gloom, Netflix *grew* its streaming revenues 33%, *grew* its streaming profits 39%, and *grew* this segment's profit margin by 90 basis points? Raising prices might scare away some customers -- but those who remain, pay a lot more.
Of course, what Ms. Mayer doesn't want (or need) to point out here is that Yahoo's "2016 plan" is to sell the company's core business for the best price possible. That requires a bit of spinning to do, and it will help if she can argue that the business is growing and profitable. An accounting change helped Mayer claim the former, with revenues ticking up slightly in Q2 -- but nothing could help her to claim the company is making money. GAAP losses ballooned.
One small glimmer of hope here for Yahoo and whomever buys it: After burning through $3.1 billion in negative free cash flow a year ago, Yahoo! has turned around, and turned in a positive FCF quarter, generating $289.4 million in positive cash profit. That stands in stark contrast to this quarter's reported GAAP loss -- and suggests Yahoo! might not be in quite as dire straits as it seems.
This is curious, and worth highlighting. Sales, gross margins, net income, and earnings per share are all down year over year -- but even so, this is just one quarter's work in a company that has been operating for more than a century. To keep investors' eyes on the long-term picture, IBM lifts up its trailing-12-month results, and in particular, the free cash flow number that shows the stock to be selling for barely 10x FCF.
It looks like spin, but it's not. It's perspective. (Hint: IBM didn't start doing this just yesterday. The Q3 report had similar TTM data in the highlights).
There's so much to choose from this quarter! But let me focus on this: Int'l streaming revs grew 82% last quarter, almost four times faster than US streaming growth. And yet, all those new international revenues did zilch for profitability, actually subtracting $80 million from profit. Meanwhile, NFLX stock is up 38% over the past year.
Hello? Logic? I think your connection just got interrupted.
Citi suffered a 27% decline in profits on just an 11% decline in revenues last quarter -- but believe it or not, Citi's healthier than these numbers suggest. It was the only one of Wall Street's six remaining "Big Banks" whose living will passed muster with the Fed last week. Also, if you look down a couple paragraphs, you'll notice that Citi has shrunk its "bad bank" division (Citi Holdings) sufficiently that it no longer sees a need to break out those results separately.
TL;DR? Citi's getting healthier.
I wish we could link highlights at various points in the document, but oh, well... Let me refresh your memory: A few paragraphs above, Ms. Mayer wrote: "Tumblr further strengthened the way that users communicate and connect over the things they love through threaded instant Messaging available across iOS and Android apps, and on the Web."
But here, several paragraphs later, that "strengthened" business contributed to a $4.5 billion goodwill writedown. Cognitive dissonance. anyone?
The big story in tech earnings reports these past few weeks -- or rather the past three *months* they were reporting on -- has been how a strong dollar has hurt sales and profits not just among U.S. manufacturers, but techs as well. All techs are not created equal, however. Case in point: Facing the same headwinds GOOG faced, MSFT saw its revenues shrink 10% and its profis shrivel 15%. GOOG took a hit to revs, losing six percentage points of growth to forex -- but revenues still grew. Granted, profits grew less (only 5)%. But they, too, grew.
Sales down 10% year over year? Profits down 15%? Those are some pretty scary numbers up above, which explains why Mr. Softy spends so much time talking about foreign exchange rates this quarter. At the same time, though, free cash flow surged 25% year over year. My read: Microsoft is healthier than the headlines suggest.
USA Today is getting a lot of attention for a disingenuous headline today about "no growth" at Apple, but that's not precisely true. Q1 saw sales actually eke out a 2% gain, gross margins grow, and profits per share rise 7%. The real worry -- what USA Today was really talking about -- was guidance. Apple has a reputation for lowballing guidance, but even so, a prediction of $53B max revenue in Q2 would be down 9% from Q2 2015 levels -- and 5% below analyst guidance. No wonder folks are selling!
Warranty expense was $9.3 million. If this was distributed among 28,000 cars (Tesla had delivered approximately 31,000 by the end of that quarter, but many of those came in late June and thus probably wouldn't have yet needed warranty work), it would come to $332 per car for the quarter which is $1328 per car per year which-- over a four year warranty period-- would be $5300 in repairs per car. Yet Tesla appeared to be accruing a "normalized reserve" of only approximately $2800 per car (adding $17.93 million to the reserve while delivering 6457 cars, with that $17.93 million figure excluding a one-time addition of $2 million more to pay for titanium undershields. Thus, Tesla could be "under-reserving" by as much as $2500 to $5200 per car.
Netflix's international strategy is its winner's curse. While new members are growing at an impressive rate, Netflix is spending its way to get those members.
Its total international members subscribers have grown by 60% --12.68m members in Q1 14 vs. 20.88m members in Q1 2015 -- but its contribution loss has increased by 85% -- loss of $35m in Q1 2014 to a loss of $65m in Q1 2015.
Just by doing the back of the napkin calculations, Netflix is losing $3.66 per new international member. (8.2m new members from Q1 2014 to Q1 2015 and a loss of $30m in the same period. The calculation: $30m loss/8.2m members= $3.66 loss per member.)
Netflix needs to reconsider its International strategy.
Intel continues to face challenges as consumer demand for notebooks, PC's and tablets continues to decline. However, its other business segments in data centers, IoT and Cloud Computing contributed enough to keep Intel's year to year revenue flat.
It remains to be seen if growth in these three segments can become the drivers in Intel's future revenues.
Citigroup has made great strides in reigning in its operating expenses, especially legal expenses. By lowering operating expenses down by 18% when compared to the prior year's period, Citigroup has handled a hurdle that impacted the bank as recently as the 4Q 2014 when that quarter's legal costs caused an 86% drop in revenue.
This is a key in Netflix's business: It's availability to get into just about every market. Right now, Netflix's lonly notable omission is the China market.
Its near global presence gives Netflix potential for sustained continued growth in its membership and its finances.
Here's something to keep an eye on: the growing cash at hand. Intel's business looks promising as it has doubled its cash from the previous quarter and grew it over six times at the same period last year.
Citi has improved its business by focusing on expenses. Citi's year to year expenses have gone down by 21%. That has lead to its much improved net revenue this 4Q 2015.
As IBM is transitioning its business towards the "Strategic Imperatives", IBM is also divesting many of its legacy businesses
IBM has been divesting legacy parts of its business for the last couple of years. (e.g. The divestment of its Microelectronics business, as noted here.) The faster IBM can divest itself of under-performing legacy business segments, the better for IBM to focus on the profitable "Strategic Imperatives" parts of its business.
Yahoo! starts off its highlights by disclosing that its Board of Directors have formed a strategic review committee to consider strategic alternatives. What this paragraph means is that Yahoo! is exploring ways to divest parts or its whole as a target. It bears covering these developments closely to see if and what kinds of divestiture activity results.