Friday Four Play: The “Apple A Day” Edition
Apple (Nasdaq: AAPL) core!
Baltimore.
Who’s your friend? Not the EU, that’s for certain.
European regulators hit Apple with its first antitrust suit in the EU. The charge stems from a 2019 complaint by Spotify (NYSE: SPOT) that Apple abused its position in music streaming via restrictive App Store rules.
The charges carry a maximum penalty of 10% of Apple’s “overall annual turnover.” And, if it’s found guilty, Apple could face a multibillion-dollar fine. Ouch.
The head of EU competition and digital policy, Margrethe Vestager (I’m not even going to try to pronounce that name) released the following statement:
pple is having none of it, however, and claims the folks at Spotify want “all the benefits of the App Store but don’t think they should have to pay anything for that. The Commission’s argument on Spotify’s behalf is the opposite of fair competition.”
If all of this sounds familiar, that’s because it is. Fortnite gamemaker Epic Games is currently embroiled in a similar lawsuit against Apple in the U.S.
Now, many people — including a few Great Ones out there — are defending Apple’s position. Apple built the App Store, and it should be able to charge what it wants and set what rules it wants. Epic and Spotify agreed to those rules, so they should have to follow them.
Typically, I would tend to agree with this. In a truly free and competitive marketplace, the consumer will decide who wins and who loses. That’s capitalism, right?
But what if the game was rigged? What if you didn’t have access to any other store? Because of Apple’s walled garden, the only way to install apps outside of the App Store is to jailbreak your phone. Not only does this violate Apple’s terms of service, it could also “brick” your phone if Apple gets pissy.
Why should a customer have to risk the very products they already paid for in order to use those products how they want? That’s not capitalism. That’s appitalism … err… essentially a monopoly for 1.65 billion iOS device users worldwide.
So far, Apple has avoided this issue by citing security concerns. But I don’t think the EU is going to buy that argument like the U.S. courts will. That means a very big fine could be on the horizon for Apple.
But fines shmines … right? Apple sits on billions in cash. A multibillion-dollar EU antitrust fine is nothing for Tim Apple. No, what would really hurt is if Apple’s forced to allow Spotify et. al. to advertise cheaper payment options … or if it’s forced to allow other app stores to operate on iPhones and Apple devices. That’s billions more in lost revenue. And it’s why Apple will fight the EU tooth-and-nail.
In short, today’s announcement means little for investors. But AAPL bulls should keep a close eye on this EU case, as it could have serious consequences for Apple’s walled garden business model.
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And now for something completely different, here’s your Friday Four Play:
No. 1: “Relatively Average”
If there’s one thing a company absolutely cannot do on Wall Street these days, it’s be average.
And “relatively average?” That’s the kiss of death to companies that thrive on social interactions.
But that’s just what Analyst Michael Nathanson called Twitter’s (NYSE: TWTR) quarterly report. Despite beating earnings, revenue and subscriber growth projections, Twitter apparently didn’t live up to Wall Street’s hype over ad revenue growth.
Most of us would see Twitter’s 22% jump in ad revenue as a positive for the company’s future. But not Nathanson. He pointed out that revenue only grew 5% in the same quarter last year and that the comparison to this year should’ve been much better. After all, both Google and Facebook reported much frothier growth for the same period.
Wedbush Analyst Ygal Arounian echoed Nathanson’s concerns, noting that “Twitter’s digital advertising peers all saw significant beats on revenue with guidance ahead of 2Q expectations, meaning Twitter, so far, has participated somewhat less in the digital advertising market rebound.”
Just so we’re clear: Twitter’s revenue rose 28% to $1.04 billion, while earnings swung from an $8.4 billion loss last year to $68 million in the first quarter. Daily active users jumped 20%, with Twitter adding 7 million last quarter.
As for guidance? Twitter sees current-quarter revenue of $980 million to $1.08 billion, surrounding Wall Street’s midpoint of $1.05 billion.
Relatively average, huh? I’ll take that over last year’s ridiculous hype storm and two companies (Google and Facebook) facing serious antitrust actions any day. But that’s just, like, my opinion, man.
No. 2: Make It Rain, Forest
Jump back, what’s that sound? Earnings come full blast’n top down. Revenue, burning down the avenue. Model investor, zero discipline.
Amazon! Amazo-on! Amazon! Amazo-on oh oh ah oh! Woo!
After Amazon’s (Nasdaq: AMZN) blockbuster quarterly report, who else could I break out with but Diamond Dave? A little “Panama” heading into the weekend.
By the way, this is a perfect song to blare from your car stereo when picking your kids up from school. Just saying…
Anyway, earnings reports don’t get much better than what Amazon graced the Street with last night. Just look at these numbers!
- Earnings per share: $15.79, up from $5.01 last year and far above the $9.54 Wall Street expected.
- Revenue: $108.5 billion, up 44% year over year and more than $4 billion ahead of the consensus.
- Extras: Online sales up 41%, third-party sales up 60%, Amazon Web Services sales up 32%, ad services revenue up 73%.
Seriously, there wasn’t a single flaw in Amazon’s quarterly report. At all.
The online retailing behemoth even put current-quarter guidance at between $110 billion and $116 billion — some $8 billion ahead of Wall Street’s targets. I can barely see the road from the heat comin’ off Amazon’s financials, know what I’m sayin’?
The stock is up roughly 1% on the news, but the size of the gain isn’t as important. Today’s move puts AMZN above formerly staunch price resistance in the $3,400 to $3,500 range. In other words, AMZN is poised for a potentially sizeable breakout.
Clearly, pistons are poppin’, and there ain’t not stopping now …. Amazon!
No. 3: The Normal Nio Nonsense
Remember when everyone would “forget” their homework, and somebody steals your excuse right out from under you? “The dog ate it!” “I fell in a well!” “The chip shortage is sappin’ my vibe!”
The list goes on.
Lately, the Street has been just as lazy with its post-earnings reactions.
Like literally every other company that intersects with tech, Nio’s (NYSE: NIO) brilliance in the earnings confessional was overshadowed by the semiconductor boogeyman — chip shortages! (Distant shrieking.)
Nio, riled by the fanning flames of China’s anti-Tesla sentiment, stormed through the quarter with a rare double beat. Earnings came in at a loss of $0.23 per share, but that still beat expectations for a loss of $0.84 per share. Revenue hit $1.2 billion and also handily beat estimates for $1.1 billion. Even Nio’s vehicle deliveries came in roughly on par with expectations.
Negative Nancies on Wall Street keep driving down chip-heavy users no matter what the companies report, and it’s starting to get on my nerves. Nio beat on earnings and revenue. It (mostly) matched delivery estimates. It forecasts deliveries and revenue in range with expectations despite the shortage.
And yet, NIO sells off because of chip supply concerns?
Everyone knows there’s a chip shortage. Even my mom’s worried about it and, considering she isn’t hip to chips in the slightest, this issue’s obvious and likely overblown. Chip shortages are not a surprise anymore. Analysts who didn’t adjust their predictions accordingly are just moronic by this point.
Stoppit, Wall Street. Get some help.
No. 4: Tela Someone Else
Early on in my days as Mr. Great Stuff, I had the liberating realization that I’m just not the target audience for everything — and that’s OK!
With some things, the business model just doesn’t click in my head. Clubhouse’s live-chat party lines, AM radio-esque podcasts and Snapchat all come to mind. But I understand that all three of those services appeal to someone out there. And they’re all making money … somehow.
But Teladoc’s (NYSE: TDOC) doctor-by-phone service does not appeal to me … nor does it make much sense given the company’s latest earnings report.
Now, telemedicine was virtually made for the pandemic, and it sure helped countless facilities triage between COVID-19 crises and routine check-ups when the health care system was overloaded. That’s all fine and dandy.
But you’d think that somewhere in there — at some point in its storied history of earnings misses — Teladoc would’ve found a way to turn its soaring remote-patient numbers into profit. But nope. Nada. No can do. Teladoc simply hasn’t posted a profit since it went public six years ago.
In fact, Teladoc’s earnings loss more than tripled year over year to $1.31 per share, which unsurprisingly also missed analysts’ expectations of a $0.54 per-share loss. And that’s with revenue surging 150% year over year!
The company didn’t raise its estimates for paid membership figures for 2021 … but it didn’t lower them either. Somehow, I still think Teladoc’s overestimating the effect a reopening could have on people wanting to use its service, despite notes that telemedicine is taking off with Millennials more than other generations.
Me? I don’t want to see a doctor online. I don’t want to pay regular doctor prices to see them online either. I understand why Teladoc’s model has garnered a fair share of signups throughout the pandemic but apparently, the company can’t capitalize on those additions.
I’m just left with more questions than answers here about how Teladoc continues post pandemic — let alone how it becomes profitable. What’s the incentive to describe your toothache via text? Why not just go see your doc in person? Plus, you’d get to go outside again … you know, that scary open place with the big burning orb in the sky?
Anyway, I’m not the only one left twiddling their thumbs with the telemedicine titan — no fewer than 14 analysts dropped their price targets on TDOC since the earnings report dropped. Whomp.
With Great Ones Come Great Messages
Thanks for tuning in for another week of our romp through the market’s mania. How are y’all doing out there? Everything cool as a cucumber by you? Say, it’s been a while since you wrote in to us, hasn’t it?
We should fix that this weekend. Why not jot us a quick (or long) memo right here, right now? We’d love to hear your thoughts on virtual doctors’ appointments and Apple’s antitrust issues. Whatever you’re in the mood to rant about, we want to know what gets you all fired up!
GreatStuffToday@BanyanHill.com is where all the coolest Great Ones hang all weekend long. Join us!
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Until next time, stay Great!
Joseph Hargett
Editor, Great Stuff
