As Q2 Earnings Approaches, the Street Stays Bullish on Facebook's Mobile Prospects

Facebook's S-1 filing in early 2012 came with a rude awakening we're all quite familiar with by now: The world is going mobile, and Facebook's ad business needed to adapt fast in order to keep up with it.

Now, as Facebook prepares to report its second-quarter earnings this afternoon, something has shifted: Wall Street is actually optimistic about Facebook's mobile monetization prospects.

The Street's consensus calls for earnings per share of 14 cents on revenue of $1.62 billion, an estimate up from the EPS of 12 cents on revenue of $1.18 billion reported during Q2 of last year.

"While quarterly results at FB will likely remain volatile, we remain bullish on the direction and growth trajectory of the company," Sterne Agee analyst Arvind Bhatia wrote in a research note this week.

The biggest boon for some? The trending surge in Facebook's mobile revenue figures seen in recent quarters.

Mobile revenue accounted for nearly 30 percent of Facebook's ad business in the first quarter of this year, which was already a jump up from 23 percent in the fourth quarter of 2012. That's expected by some analysts to grow, albeit slightly, to a daily run rate of nearly $5 million on mobile ads alone.

Facebook has made it clear that at least one of its more recent ad products - mobile app installation ads - has been quite successful in driving growth, and J.P. Morgan's Doug Anmuth expects that to continue.

"We remain bullish as we believe ad dollars are increasingly shifting to online, mobile, and social and we expect Facebook to capture a growing portion of ad budgets going forward," Anmuth wrote in a research note.

The big unknowns are the usuals that we'll be looking for. Will the company break out any metrics beyond its usual stats on daily and monthly active users? That may be something to watch for, given Facebook's increasing competition for mindshare from other mobile-based sites like Snapchat, WhatsApp and International competitors like Line and KakaoTalk.

Perhaps Facebook will detail some engagement-based stats that could rebut the chatter that the social giant is losing its cool with younger audiences.

Another wild card: The oft-speculated eventual appearance of auto-play video ads in the News Feed. Bhatia and Anmuth both expect the ads to debut in the latter half of the year, a potential multibillion-dollar revenue-driving opportunity for the company. "We see online video advertising as a key incremental growth driver for FB in 2014," Bhatia wrote.

And lastly, the payments question still remains. Driven largely by social games on the platform, Facebook's payments business has changed much over the past two years, again a result of the sweeping shift to mobile. Zynga, which once reigned supreme as Facebook's largest gaming partner, has taken a drastic hit as users have moved away from playing games on the desktop to more casual gaming on the phone and tablet.

As a result, Facebook's payments revenue cut has flattened. The past year has seen Facebook try to distance itself from being too connected to Zynga, giving way to the rise of other smaller, more mobile-focused gaming outfits like King and, to a lesser extent, Wooga.

Analysts expect flat sequential revenue in the payments business, though a slight uptick in year-over-year growth.

I'll be covering the print as it hits the wire at 1 pm PT, with a liveblog of the earnings call from my colleague Peter Kafka to follow.

Facebook Beats as Mobile Revenue Jumps to 41 Percent of Ads Business

Facebook's numbers are in, and they look good across the board - especially in mobile.

The social giant posted its second-quarter earnings on Wednesday afternoon, reporting earnings per share of 13 cents on revenue of $1.81 billion. That beats analysts' expectations of an EPS of 14 cents on revenue of $1.62 billion.

But the biggest point of interest here is in the breakdown of Facebook's revenue numbers. Mobile revenue, the most closely watched part of Facebook's business, accounts for 41 percent of Facebook's total revenue. That's a leap from accounting for nearly 30 percent just last quarter.

"One of the things this quarter says to us is that News Feed ads work," Facebook CFO David Ebersman told AllThingsD in an interview. "They're really creating compelling returns for our advertisers."

Facebook has faced intense criticism from investors over the past year and a half, as Wall Street voiced concerns that the company couldn't adeptly handle the massive shift from desktop to mobile use. Most of Facebook's advertising products were optimized for desktop users for as long as the company has been around, and only over the past year has it tried to shift toward a "mobile first" environment.

The company, however, has made some inroads with new mobile advertising products - in particular with its mobile app installation ads aimed at application developers.

"They're growing very rapidly," Ebersman said of the ad product. "And we're enthusiastic because the app ecosystem is such a fast-growing and dynamic area - developers need effective ways to help people discover what they have built."

As far as overall user growth, Facebook is still increasing in both new users and engagement. Facebook's daily active users increased to 699 million, a jump of 27 percent year over year. And monthly active users swelled to 1.15 billion, a 21 percent increase year on year.

But again, the biggest number of note here is the mobile MAU number. Monthly active users on mobile jumped to 819 million, an increase of 51 percent year over year. Talk about a shift from desktop to mobile.

"We've made good progress growing our community, deepening engagement and delivering strong financial results, especially on mobile," CEO Mark Zuckerberg said in a canned statement. "The work we've done to make mobile the best Facebook experience is showing good results and provides us with a solid foundation for the future."

Facebook's stock is up nearly 20 percent in after hours trading, hovering around $31 per share.

Tune in to my colleague Peter Kafka's live coverage of the earnings call here.

Facebook Says It Has Figured Out Mobile. Wall Street Says It Believes Facebook.

You can't say Wall Street has agreed to forgive and forget its past issues with Facebook. But it's getting closer: After a very strong Q2 earnings report, investors pushed shares up 17 percent in aftermarket trading.

Facebook is now trading at about $31 a share, nearly as high as it has been all year. That still doesn't bring it back to the $38 price from its 2012 IPO, but it's definitely progress.

Big picture: Facebook seems to have answered, at least for now, questions about its ability to handle the shift to mobile: Its users are headed there, and it is showing them ads there, and both usage and ad dollars are up.

Facebook also took pains to explain that it is still totally cool with the kids. Which sounds a bit strained when they say it, but until people can show statistics proving otherwise, investors may cut them some slack.

And Facebook COO Sheryl Sandberg also made a point of mentioning all the usage Facebook sees during prime time TV viewing hours. Translation: Hey Twitter - we can pitch social TV to advertisers, too.

Earlier:
It's more fun to come on an earnings call when Wall Street is psyched about your numbers, right?

At least that's the theory. Let's see how Mark Zuckerberg and Sheryl Sandberg do following a strong quarter, which has investors bidding up their stock more than 14 percent in after-hours trading.

Let's listen in. Actually, I'll listen: You guys watch me type a liveblog.

5:04 pm: Greetings. Listening to Mark Zuckerberg, reading with enthusiasm.

Points out that results today come from big investments a few years ago. Promises patience for more long-term payouts.

Did you know there are 5 billion people who aren't on Facebook? Facebook is coming for you, people who are very likely not reading this liveblog!

Facebook advertising isn't just making money for Facebook, it is somehow improving the world's overall economy.

Ratio of daily active users to monthly active users is increasing - that is, as more people come on to Facebook, more people spend more time on Facebook.

By the way, don't believe those "Facebook engagement decreasing" reports: Market share steady or increasing.

Now, about those teenagers you keep hearing about: They're still totally using Facebook! Here Zuck uses a phrase that I don't feel totally comfortable retyping. So.

Instagram: Still totally growing!

Instagram video growing fast. Facebook Graph Search and Facebook Home, not so much, but that's totally cool, says Zuck. Think long-term!

5:10 pm: Zuck still pumped, and now he's talking about ads, which is not a thing he would have been pumped to talk about a few years ago. Maybe even one year ago.

Shoutouts to all the Facebookers! "You're all helping to connect the world and push it forward."

5:11 pm: Now, Sheryl Sandberg, who is less forcefully excited. But reciting impressive numbers regardless.

Also talking up app ads, local ads.

And hey, don't look now but FB is up 20 percent since this afternoon's numbers.

Now taking time to talk up all the TV-watching, and TV-talking, that happens on Facebook. In other words: In case you didn't catch this earlier, Twitter, we are totally coming after the social TV business you've been building. Heads up!

(Apologies, missed a couple minutes here while multitasking.)

5:17 pm: And now CFO David Ebersman.

Usage numbers are great. 699 million average daily users in June. Total time spent: 20 billion minutes each day.

(More apologies. Was busy asking Facebook beat reporter Mike Isaac why he was Tweeting about the call while I covered the live blog for him.)

(Bunch of statistics you do not want to read about in a liveblog. If you are looking for that stuff, by the way, it's all over here.)

We're still going to pour a lot of money into capex, Ebersman says. So get used to it. (Google had to explain this to investors for a while, too.)

News Feed ads will be main ad growth engine for rest of the year. But note that they started up a year ago, which means Q3 and Q4 comps will be a little tougher. Okay, analysts? (Guide that number down a bit!)

Also, expenses are going to grow at a faster clip then revenue this year. (Got that, analysts?)

5:25 pm: And now, ladies and gents, here's Q&A, with Mike Isaac!

3:25 pm: Mike Isaac here, taking over for Peter on the questions from analysts.

3:26 pm: A question from Doug Anmuth on ads.

Basically, is your big ad growth a lot more ads in the feed, or better ad products?

3:26 pm: Sandberg: Both! All!

Also, we've got a big increase in demand from marketers.

3:27 pm: Mobile app install ads question - Sandberg says they're small but growing.

"It's basically an entirely new market ... we're growing quickly and helping to grow the market."

I asked about mobile app install ads, too, in a chat with Ebersman earlier. They're sorta mum on its success specifically, but I hear that developers like them.

3:28 pm: Oh, if you've noticed, my time stamp is wonky. That's because I'm sitting in an airport in Aspen, Colorado, liveblogging from the terminal as my flight has been delayed. Ho hum.

3:29 pm: A question on monetizing Instagram! Please tell us you have something in mind for that pretty photo-sharing app.

3:29 pm: Zuckerberg on Instagram: Non-answer.

Yes, we want to build a business. "Probably through advertising." But right now they're focused on just letting the thing grow like crazy.

True. It's up above 130 MAUs. Pretty crazy.

3:30 pm: Sandberg on growth in ad spend: Yes! Soon!

"I'm a believer that over time, this is where people are spending their time, and any marketer who wants to reach people is going to spend here."

Fingers crossed, Sheryl.

3:31 pm: Growth is still strong across regions outside of the U.S., Sandberg said.

Particular focus on Asia, seeing increasing adoption in APAC and the rest of the world.

3:33 pm: Sandberg says Facebook exchange is actually a small part of the company's business. They're expanding their on-the-ground sales force, too.

3:34 pm: Ebersman chimes in on how much the company is spending.

No end in sight to the amount Facebook is spending to invest in the business.

But he cites being "disciplined" and "focused" in their spending.

In other words, it's not all kegs and sushi bars for the campus. Lots of smart spending, he says.

3:36 pm: Sandberg: Facebook loves brands. Brands love Facebook.

The end.

3:37 pm: More TV talk in this call. Quite a direct shot over the bow at Twitter, the social company that has long promoted its "second-screen-ness" and complementary nature to television.

3:38 pm: Ebersman again on spending: Hardware costs probably going to go down, but product development is a variable.

5:39 pm: Hello again! It's Peter Kafka! I'm very excited!

Some talk about lumps and inflections re: mobile.

There was "more feed eligible demand" this quarter, says Ebersman. Yet, price didn't drop as they sold more ads.

5:43 pm: New question: Five percent of News Feed is now ads. Is that the "right" number and how does that vary across geography? Also a multipart question I didn't get.

Ebersman: Re: Five percent, it was 0 percent a year ago. We're happy with it. Varies by geography, and also by person (which maybe explains why I don't see that many ads in my feed compared to some complainers).

5:45 pm: Q: When are you going to get around to rolling out video ads? Also, what's going on in Europe?

Sandberg: We totally have video ads - you can embed a video in your post. "We're exploring how we can expand that" but if you think I'm going to talk about a product we haven't announced, then I would like to sell you a premium Bebo membership.

5:46 pm: Q: Hey Mark, how do you get partners to participate more actively in your platform? (And not worry you'll dump them in a year?)

Zuckerberg: We've been charging developers for distribution, and they like it. That's a shift.

5:48 pm: Big picture question for Zuck. How has life/perspective changed since you wrote founder's letter in your S-1 (14 months ago?)

Zuck: We hit the 1 billion people mark, which used to be a rallying cry. Now we have bigger ambitions. But now, meh. "The real goal is to connect everyone in the world, and map out everything there is." But! We weren't happy with mobile 18 months ago, so we had to do a lot of work on it. Coming into 2013, we started to see that we were in better shape.

So: Sort of a big picture answer. But maybe not really?

3:50 pm: Isaac here again!

Sorry about the timestamp.

3:50 pm: I swear we aren't time traveling.

3:50 pm: Question: Really guys, what ad units made you guys kill this quarter so hard?

3:51 pm: Sandberg: Direct response marketers are big contributors to growth. E-commerce doubled! They use all sorts of our ad products.

Lots of growth in mobile app install ads. Small market, but we offer a product that no one else has.

Yep, that ad unit is shining.

3:53 pm: Again, a question on growth.

Really, how?

3:54 pm: Direct response marketers are bumping up their ad budgets because they're getting good returns, Sandberg says.

Okay then.

3:55 pm: Ooh! A sort of sideways question on hiring and perhaps a way to talk about the ZuckerPAC, Fwd.us.

3:55 pm: Mark takes the hiring question.

Hiring great people is hard. But "our country doesn't produce the volume of engineeers that our companies want to hire." So basically that's why he's doing this Fwd thing.

3:56 pm: Sandberg highlights General Electric's Instagram campaigns.

They aren't paid ads, but rather fancy photos of GE-related products and such.

In other words, brands are willing to experiment.

3:57 pm: A custom audiences question - Sandberg said they've doubled the number of marketers using that particular product over the period of two quarters. Lots of big brands doing it.

3:58 pm: Sandberg plays up "PMDs" - or third-party ad sellers - and wants brands to buy through multiple sales channels.

3:59 pm: Last question is a softball. Why do consumers like your stuff?

3:59 pm: Zuckerberg says Instagram is easy, everyone loves photos and capturing moments.

4:00 pm: His comments on Facebook "Home" are interesting.

Look at it over the long term. Sort of like a seed that Facebook is planting.

"Expect these to become market-leading products."

4:00 pm: Just look at how naturally they fit into the flow of peoples' daily lives to get an idea of how long it will take to get popular, Zuckerberg says.

4:01 pm: And we're done!

Kafka and Isaac - out.

Has Apple Hit a Wall in China?

When Apple reported earnings for its second fiscal quarter back in April, CEO Tim Cook touted the period as the company's "best quarter ever in Greater China," and celebrated the eight percent growth it had seen in the region. Three months later, Apple's trajectory in China has taken a decidedly different turn, and Cook's upbeat proclamations about the company's future in the country have morphed into stalwart reassurances.

In Apple's latest quarter, revenue from Greater China - which includes Hong Kong and Taiwan - fell 14 percent year over year to $4.6 billion. That's a 43 percent decline from the previous quarter, the one Cook touted as Apple's best ever.

What happened?

That's not entirely clear. Attempting to explain the decline during an earnings call with analysts this week, Cook said that the drop Apple reported in Greater China appears worse than it is because the company better managed its channel inventory. "Our sell-through in China was only down four percent from the year-ago quarter, when you normalize for channel inventory," he said. He also noted that sell-through in mainland China for the period actually rose five percent year over year. Unfortunately, sell-through in Hong Kong fell by about 20 percent, weighing down sales for the entire region. Why? Said Cook, "It's not totally clear exactly what occurred."

That may be so, but the argument could be made that Apple's recent performance in Greater China would have been much improved by two things: A distribution deal with China Mobile, China's largest carrier, and a lower-priced iPhone that will appeal to the less-wealthy side of its massive subscriber base, which at last count numbers more than 700 million.

As BTIG analyst Walter Piecyk told AllThingsD, "Apple needs to deliver a low-priced 2.6 GHz TD-LTE phone to China Mobile, and all this unnecessary anguish can be resolved."

Perhaps, though, Apple needs to continue to up its game in Greater China in other ways, as well - expanding its retail-store footprint and dramatically increasing iPhone availability in the region. Which is exactly what Cook said the company is doing.

"We're going to double the number of retail stores in China for the next two years," Cook said. "We're continuing to lift iPhone point of sales and iPad sales, both of which are currently lower than where we would want them or need them today. But we're doing that very cautiously with what we want to do with great quality. And so I continue to believe that in the arc of time here, China is a huge opportunity for Apple."

Apple opened 437 new retail stores, made 20 acquisitions in 2014 and teases ‘wonderful plans’ for Beats

Apple’s flow of information doesn’t end with the announcement of their Q4 2014 earnings, as the Cupertino-based company continues to outline other impressive areas of growth.

During the conference call that took place immediately following the public release of their Q4 2014 earnings, it was revealed that Apple managed to open more than 400 new Apple Stores around the globe. 437, to be specific. More than that, though, the company also outlined how their growth is strengthened with acquisitions from varying niche markets. It was revealed during the company’s Q3 2014 earnings call that the company had acquired 29 different companies since fiscal 2013, and now Apple has opened up on their most recent numbers:

20 acquisitions in 2014, with 7 of them taking place within the September quarter alone.

Many of the companies that Apple officially acquired are well known by now, including the largest of the bunch: Beats Electronics. Others, though, include LuxVue, Swell, Spotsetter and BookLamp. What the impact these acquisitions will make on Apple and its products remains to be seen, but with each new company brought into the fold, the technology they bring in is obviously meant to improve several areas.

Finally, Apple’s CEO Tim Cook also teased “wonderful things” for Beats, but wouldn’t go into any details at the time. It has been rumored heavily as of late that Beats will go through a major rebranding effort in 2015, which could include a drop in monthly subscription pricing to $5 per month.

On Monday, October 20, Apple revealed that the company had a Q4 2014 revenue of $42.1 billion, with 39 million iPhones sold by the end of it. Additionally, Apple also revealed that iTunes posted $4.6 billion in revenue for the same time period, with a cumulative app download total of over 85 billion.

Apple sold a record-breaking 5.5 million Macs in Q4 2014

Apple has already revealed the total number of iPhones, iPods, iPads and Macs that the company sold by the end of the fourth quarter in 2014, but during the conference call revealed more specifics about the record-breaking quarter.

Apple revealed during their conference call immediately following the official results for their Q4 2014 that the Mac lineup has sold a total of 5.5 million within the fourth quarter of 2014. The results prompted Apple’s CEO, Tim Cook, to call them “stunning,” and that the “Back to school season voted, and Mac won.” The 5.5 million Macs in the fiscal fourth quarter of 2014 marks the highest number of Macs sold in a quarter by Apple to date.

It is also up more than 1 million year-over-year, and the total means a 21% growth from the same quarter in 2013. The total sales equals $6.6 billion. As a final note, Apple revealed that the company had sold 19 million Macs throughout the total quarter of 2014, and that sales were particularly strong for the MacBook Pro lineup, as well as the MacBook Air.

Earlier on Monday, October 20, Apple revealed that the company had earned a revenue of $42.1 billion for the fiscal fourth quarter of 2014, and that iTunes had netted $4.6 billion in sales within the same time frame. Apple also revealed that they had opened more than 400 new Apple Stores around the globe, had made 20 new acquisitions throughout their year, and that there are big plans in the works for Beats.

On October 16, Apple launched their 27-inch iMac with Retina 5K display, with a starting price tag of $2,499.99.

HTC Posts Quarterly Net Loss

HTC Corp. posted its first quarterly net loss since listing in 2002, as an expensive effort to revive its brand through its high-end HTC One smartphone has so far failed to boost sales.

As with former smartphone market leaders like Nokia Corp. and BlackBerry Ltd., HTC has found it difficult to hold its ground against fast-growing Samsung Electronics Co. and low-cost Chinese rivals. The Taiwanese smartphone maker previously warned it was expecting a loss for the third quarter due to high manufacturing and marketing costs for the HTC One while sales shrank.

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Will Amazon's Unit Growth Bottom Out in Q2?

There's not a whole lot that Wall Street dislikes right now about Amazon, which is heading into its second-quarter earnings report today after markets close. Investors have pushed the online retailer's stock price to record heights in recent weeks - more than $309 a share, and a market cap of $140 billion at one point - before backing off slightly to see Amazon close out Wednesday's after-hours trading at about $300 a share.

Despite the good vibes, there are problem areas. The company's year-over-year growth of units sold has been decelerating, for example, which could be worrisome if it continues.

J.P. Morgan's Doug Anmuth wrote in a research note that he is expecting some stabilization in the decelerating trend, but noted that, "we ... believe sub-30% would be concerning to investors." The launch of the Kindle in some giant new markets, such as India and China, could put the trend of deceleration to an end in the second half of the year.

Wall Street will also be keeping a close eye on the company's international business, especially after eBay cited macroeconomic softness in Korea and parts of Europe when it reported earnings last week.

Investors will also likely look for some commentary on the same-day and next-day AmazonFresh grocery delivery business, which, after five-plus years of experimentation solely in Seattle, recently started serving the Los Angeles area. If Amazon can figure out how to at least break even on that resource-intensive business, it will likely then load up the delivery vehicles with higher-margin, higher-cost products.

But it will be a costly build-out, and could impact margins negatively in the short term. Similarly, fulfillment-center expansion and price cuts on AWS offerings could also drag down margins.

Amazon is forecasting revenue of $14.5 billion to $16.2 billion, with analysts expecting the company to register earnings per share of four cents to six cents on $15.7 billion in revenue.

Amazon's Q2 Is a Miss

JOE KLAMAR/AFP/GettyImages

First quick look at Amazon's earnings numbers, and it's a miss.

The online retail giant posted a loss, at an EPS of minus two cents on revenue of $15.7 billion.

Though Amazon's net sales rose 22 percent compared to the year-ago quarter, it's a disappointing miss against analysts' expectations that the company would post earnings per share of four cents to six cents on $15.74 billion in revenue.

"This past quarter, our top 10 selling items worldwide were all digital products - Kindles, Kindle Fire HDs, accessories and digital content," CEO Jeff Bezos said in a canned statement. (Of course, with no actual sales numbers on the amount of Kindle products sold - as always.)

Not a ton of color in this release as to why Amazon missed, nor are there any notes on AmazonFresh, the company's experimental grocery delivery service. Hopefully, CFO Tom Szkutak will address these points on the conference call with analysts coming up shortly.

Shares of Amazon were trading off around two percent on the news, at around $297 per share.

With New CEO Mattrick At Helm, Zynga Reports Loss of $16M And Revenue Decline Of 31%

Zynga's revenues for the second quarter of 2013 declined 31% year-over-year to $231 million in the midst of a challenging transition that saw former CEO Mark Pincus hand over the reins to Don Mattrick.

The company had a net loss of $16 million compared to last year's net loss of $22.8 million during the same quarter (which also had $95.5 million of stock-based compensation expenses). If you account for that then, the company's net loss was $6.1 million compared to last year's net loss of $4.6 million based on non-generally accepted accounting principles. Zynga said when it laid off nearly 20 percent of its staff last month that it expected to see a net loss of between $39 million to $28.5 million so this is actually a slight earnings beat.

"We need to get back to basics and take a longer term view on our products and business, develop more efficient processes and tighten up execution all across the company," wrote Mattrick in the release. "We have a lot of hard work in front of us and as we reset, we expect to see more volatility in our business than we would like over the next two to four quarters."

Last quarter, COO David Ko said the company was in the midst of a "pause" to re-evaluate its entire game slate and that this decision would be financially apparent in this quarter.

This quarter's revenue is projected to be even lower in the range of $175 million to $200 million, with a net loss of $43 million to $14 million.

Through the company's pivot onto iOS and Android, Zynga has had to compete against older and historically smaller rivals from the Facebook platform like King and Kabam. Both of those companies have fared well with King's Candy Crush Saga bringing it the top grossing spot and numerous Kabam titles in the top 25.

In contrast, Zynga just has its longstanding Poker franchise in the U.S. top grossing 25. Even today, nearly 70 percent of the company's monthly active users remain on the web.

The losses in Zynga's user base from not being able to hold onto its core Facebook customers are staggering. The company's level of daily active users is not much higher than half of where it was a year ago at 39 million this quarter compared to 72 million in 2012. It also saw 187 million monthly active users, down from 306 million users in the same time period a year before.

The company's launches like Draw Something 2 have also underperformed without any slots in any of the top 100 charts and Zynga's other big mobile launch, Running With Friends, remains in 45th place in the U.S. top grossing chart. Zynga had six major releases this quarter including War of the Fallen, Draw Something 2, Battlestone, Solstice Arena and Running With Friends.

But older franchises like FarmVille and FarmVille 2 continue to do well as both games have grown combined bookings by 29 percent year-over-year.

Zynga's struggles in diversifying away from Facebook and missing the pivot to mobile ultimately convinced Pincus to give up the CEO role, although he remains chairman of the board and serves as chief product officer. It's now Mattrick's 15th day on the job.

Netflix Flirts With a New Idea: “Big” Movies at Your House, the Same Day They’re in Theaters

Netflix made a splash this year by creating its own TV shows and delivering them over the Web. Now it's toying with the same idea for movies.

This summer, the company announced that it in addition to TV shows like "Orange Is the New Black," it would start spending money on modest movies - documentaries and stand-up comedy specials - which would debut on the service.

Now Netflix is floating the idea that it will foot the bill for a "big" movie, which would appear in theaters and on Netflix at the same time.

During the company's earnings call last week, content boss Ted Sarandos said the company was interested in breaking into movies, and that investors should "keep [their] mind wide open to what those films would be and what they would look like."

This weekend, Sarandos got more explicit. In a speech hosted by Film Independent, the nonprofit behind the indie film Spirit Awards, Sarandos said Netflix could start delivering new movies to its subscribers by doing the same thing it has done with its original TV shows, and becoming a first-run distributor.

"What we're trying to do for TV, the model should extend pretty nicely to movies. Meaning, why not premiere movies on Netflix, the same day they're opening in theaters? And not little movies - there's a lot of ways, and lot of people to do that [already]. Why not big movies? Why not follow the consumers' desire to watch things when they want?"

Good logic. And hard to imagine how that will work.

But presumably that's Sarandos's point - Netflix wants to show that it can do it, at least once, and put pressure on the rest of Hollywood to change.

And there's some nice symbolism here, too: Netflix started out delivering movies via DVD, which it could do without Hollywood's permission. It eventually moved into a digital TV show service, at least in part because it couldn't get the studios to let it distribute their movies over the Web. Wouldn't it be cool if Netflix could start to end run the system and deliver movies that way, too?

As Sarandos notes, it's already possible to see some art house movies at home, via distributors like Apple or Time Warner Cable, at the same time they're in theaters. (Sometimes even before they're in theaters).

But almost all major Hollywood movies follow a rigid "windowing" system, where they show up in theaters first, then on DVD and "on demand" services, then on pay TV (and sometimes Netflix), etc.

Films studios themselves have expressed interest in tweaking those windows, so movies could migrate more quickly from theaters to other venues, but theater owners, who play a big role in movie marketing, have been fiercely opposed to any changes. (See: "Tower Heist" or "Alice in Wonderland.")

And I can't see Sarandos convincing any studio with a traditional blockbuster that needs conventional theaters to change course anytime soon. If you want to see "Thor: The Dark World" on November 8, you're still going to have to visit the box office.

So perhaps Sarandos has a different definition of a "big" movie in mind. Or maybe some other clever end run around the system.

Feel free to watch his speech below (don't be scared off the by 44-minute counter on the YouTube clip; his prepared speech only goes 22 minutes, and if you need to go fast you can speed up to the 19-minute mark) and reach your own conclusions. For now, Netflix reps aren't offering any additional comment.

Apple Scores Another Beat

Back in September, Apple said it expected revenue and gross margins for its fourth quarter to fall "near the high end" of the range it had previously provided - $34 billion to $37 billion, and 36 percent to 37 percent.

Today, it delivered on that promise.

Posting fourth-quarter financials after market close Monday, Apple reported earnings per share of $8.26 on revenue of $37.5 billion. That's well above the $7.92 on revenue of $36.82 billion analysts had predicted, and at the higher end of Apple's own range of guidance for the period, though it was down on a per-share basis from $8.22 billion, or $8.67 a share, a year earlier. Apple said its gross margins were 37 percent, right in line with expectations.

Apple said it sold 33.8 million iPhones for the quarter, 14.1 million iPads and 4.6 million Macs. Analysts were expecting iPhone sales of 33.4 million units, iPad sales of 13.9 million units and Mac sales of about 4.2 million units.

Apple declared a cash dividend of $3.05 per share payable on November 14, 2013, to shareholders of record as of the close of business on November 11, 2013.

"We're pleased to report a strong finish to an amazing year with record fourth-quarter revenue, including sales of almost 34 million iPhones," CEO Tim Cook said in an earnings release.

Apple's guidance for next quarter, perhaps the most closely watched data point of all today: Revenue of between $55 billion and $58 billion, and gross margins of 36.5 percent to 37 percent. Analysts had been looking for revenue of $55.53 billion.

Apple stock is trading down more than three percent after hours.

Notes from the call

• $16 billion in revenue from iTunes software and services.
• 400 million visitors to retail stores. $50 million in revenue per store.
• Completed 15 strategic acquisitions. That's one acquisition every three to four weeks.
• Greatly appreciate "suggestions" from shareholders about capital allocation. Will announce any changes to capital allocation program in the first part of 2014.
• Sold 33.8 million iPhones versus 26.9 million in the same period in the year prior. Increase of 26 percent, a new September quarter record.
• Experian says iPhone users spend 53 percent more time each day on their devices than Android users.
• Sold 14.1 million iPads this quarter versus 14 million in same quarter last year.
• Sales of Macs exceeded expectations. Down 4 percent year over year, but overall PC market was down 10 percent.
• Planning 30 new stores in fiscal 2014, two-thirds outside the United States.
• Company has $146.8 billion in cash; 76 percent of that is offshore ($111.3 billion).
• Cook on 64-bit processor in iPhone 5s and new iPads: "This is the front end of a long roadmap."
• Cook on iPhone 5c pricing: "If you look at what we've done, we're selling the iPhone 4s as our entry level offering. We sell the iPhone 5c as a mid-tier device. And then we have the iPhone 5s at the high end. Obviously some people read rumors about the 5c being an entry-level device, but that was never our intent."
• Cook says he stands by his statement that we will see exciting new products from Apple across 2014. "We believe we can use our skills to build new categories in areas where we do not participate today. We're confident in that."
• Cook on China: "We had a pretty good quarter in China, but want to do better." IPhone units were up 26 percent year over year despite constraints around iPhone 5s. For full year, Greater China generated $27 billion, up 14 percent year over year.
• Cook on the tablet market and Apple's new iPad lineup: "We continue to view the tablet market as huge. We see it as a large opportunity for us. We are not solely focused on unit share, we are focused on usage share and customer loyalty and other things that are important to us. ... We're confident we will grow strongly year over year. We're getting things off to a great start this weekend with iPad Air and later in the month we'll begin shipping the new mini. ... We did feel that we wanted to reduce the price of the iPad mini and now we're coming in at $299. ... IPad Air is the best iPad we've ever done. We believe these products are going to do really well. We think it's going to be an iPad Christmas."
• Cook on Apple's decision to offer iWork, iLife and Mavericks for free: "We wanted to make this software part of what it meant to own a Mac and an iOS device. IWork had become the best-selling productivity app on a mobile device, we wanted all of our customers to have access to it so they could have the best features. ... Other folks charge for their OS and productivity apps. We wanted to make it a part of the experience."
• Cook on iPhone 5s and iPad supplies: "The 5s ended the quarter with significant backlog, but supply is building each week. [We're] very confident in ability to keep ramping. In terms of Retina mini, we'll start shipping later in November. We know how many we can make, but we won't be able to assess demand until we ship ... it's unclear when supply and demand will be in balance there. ... We will see how we do on iPad Air as we go out this week. I think we'll have a very good weekend, but I'm not sure everyone who wants one will be able to find one."

Samsung Q2 Profits Up 47.5%, But Operating Profit At Its Mobile Division Slows

As the worldwide smartphone market slows, Samsung's second-quarter earnings showed that it is beginning to feel the pressure despite being the world's top smartphone vendor.

Samsung said its Q2 2013 operating profit increased 47.5% to $8.5 billion, in line with the company's own estimate. Operating profit at its mobile division, which accounts for two-thirds of the company's revenue and is its biggest earnings driver, rose 52% to 6.23 trillion won ($5.6 billion), but fell 3.5% from the previous quarter.

The reporting period included the launch of the Galaxy S4, Samsung's flagship phone and its main rival to the iPhone. One month after the Galaxy S4 s launch, Samsung said it'd hit a record 10 million channel sales, but the Korean tech giant is under the same challenges as Apple thanks to a slowing global smartphone market and shrinking margins. Earlier this week, Apple reported weaker international sales, due in large part to a dramatic revenue plunge in China.

Samsung said that smartphone sales will continue to be slower in the third quarter.

"Entering into a typically strong season for the IT industry, we expect earnings to continue to increase," said Samsung head of investor relations Robert Yi in a statement. "However, we cannot overlook delayed economic recovery in Europe and risks from increased competition for smartphone and other set products."

HP Posts Modest FQ1 Beat With Revenue Of $28.2B, Adjusted EPS Of $0.90

Nearly a Year After IPO, Workday Appears to Be Working Out

It has been nearly a year since Workday, the cloud-based human-resources software company, first debuted on the New York Stock Exchange. On Tuesday, it will report its quarterly results after the markets close, and that makes this as good a time as any to check up on its performance.

Having opened at $47.05 on its first day of trading, Workday shares have risen by 61 percent since then, closing Friday at $75.76. Sales have been rising, too. In its quarter ended in April, sales rose by more than 60 percent versus the year-ago period. Subscription revenue, a key metric for cloud companies who charge their customers on an ongoing basis, was north of $68 million - up by more than 85 percent.

That sets up some high expectations for the current quarter and the year ahead. In a note to clients out today, analyst Brad Reback of Stifel Financial in St. Louis said Workday looks "poised to deliver another strong quarter."

Even so, on paper, it's still not making a profit. On a non-GAAP basis last quarter, Workday reported a net loss of 15 cents a share.

You can say that's okay for a relatively young company, which Workday is, but it's also typical of companies in the cloud software business. The best-known cloud company, Salesforce.com reported a net loss on both its 2012 and 2013 fiscal years, and that company's CEO, Marc Benioff, has argued that the time was right to invest aggressively in winning new customers and to expand into related lines of business, like marketing software.

Reback expects Workday to report a loss this quarter, as well. He's looking for a 17-cent-a-share loss on a non-GAAP basis, which is slightly better than the 18-cent loss predicted by the consensus view of analysts surveyed by Thomson Financial. He expects sales to come in slightly above the $100 million mark, and billings to be $125 million.

"Based on our recent channel checks and conversations with customers, we believe demand for the company's solutions remains solid and there is a healthy possibility it delivers some potential upside to our results," Reback wrote.

That said, the share price may have gone as high as it's going to for now, as most of the good news about Workday is already "priced in" to its share price. At $75.50 a share, the company is trading at a valuation of 17 times estimated sales for 2014 of about $440 million. That's a much higher multiple than other cloud companies, which trade at less than six times forward revenue.

"We believe at current levels the stock is pricing in a lot of good news and with any missteps could see a healthy pullback," Reback wrote.

Zynga Shows Investors It Has a Chance

Zynga’s fourth-quarter earnings are just rolling in, and they look good compared to the company’s already lowered expectations for the period.

Minutes after the release went out, Zynga’s stock was up nearly 5 percent to $2.88 a share. During regular trading today, Zynga’s shares were already higher based on an analyst’s upgrade.

Here’s what it reported:

The social games company said bookings for the year totaled $1.15 billion to beat the company’s forecast of $1.1 billion (bookings account for the sales from virtual goods that occur in the fourth quarter).

It also said adjusted EBITDA, which is earnings before some expenses, totaled $213.2 million for the year, which was way above its range of $152 million to $162 million. For the full year, though, it said non-GAAP earnings totaled seven cents a share, a nice beat over its forecast of two cents to three cents a share.

On a quarterly basis, Zynga beat analyst expectations, which were no doubt low for the period.

The company reported a net loss of six cents a share (or a profit of one cent a share on an adjusted basis) on revenue of $311.2 million. Analysts were expecting an adjusted loss of three cents a share on revenue of $212.1 million, according to FactSet.

Zynga’s GAAP net loss of $209.4 million in 2012 was heavily influenced by a $53.8 million restructuring charge for changes it made internationally. However, revenue was up 12 percent year over year to $1.28 billion, fueled by a 7 percent increase in online game revenue and an 84 percent increase in advertising revenue.

Over the past three quarters, Zynga has been working hard on its turnaround, so this is just another baby step along the way.

The San Francisco games company slashed expenses, including a reduction in headcount, and named an all-new executive team as AllThingsD featured in a story yesterday. We’ll be hearing at 2 pm PT from the company’s management team, including CEO Mark Pincus, along with its new COO David Ko and CFO Mark Vranesh, who replaced Dave Wehner in November.