Tech Newsround – AMZN / TWTR / LYFT / HERE

Amazon Q2 2021 – Whoops $127bn.

• Amazon reported good results but shed $127bn (7%) in value as Q3 2021 forecasts failed to live up to voracious expectations, underlying once again the poor risk-reward balance in much of big tech.
• Q2 2021 revenues / EPS were $113.1bn / $15.12 broadly in line with expectations of $115bn / $12.28 but it was guidance that fell short.
• Here, Q3 2021 revenues / EBIT is expected to $105bn – $112bn ($108.5bn) / $2.5bn – $6bn ($4.3bn) adrift forecasts of $118.7 / $8.1bn.
• The slowdown in revenue growth was inevitable given how large the revenue base has become and the fact that people are beginning to venture out again as economies reopen.
• Hence, the outlook is for slower growth, but I don’t think that this is enough to push Amazon outside of the trading range it has held for the last 12 months.
• However, at the same time, it will prevent the shares from grinding higher.
• Amazon has been largely stuck in this range while the fundamentals grow into the valuation and as a result, its multiples have been unwinding over the last 12 months.
• This is good news for the long-term as it means that once its multiples have normalised to reflect the mature company it has become, then it becomes a far more viable candidate for investors who look for more than just a good story and high revenue growth.
• However, in the meantime, I think the shares will stay in the $3,000 to $3,700 range, making this a good trading stock.
• For fundamental investors, the risk-reward remains out of balance as good news will be barely rewarded and small slips sharply punished as in this case.
• I continue not to like it but as the valuation continues to fall, it gets closer and closer to the time when one can take a serious look at it.

Twitter Q2 2021 – Social graph.

• Twitter reported good results and is well-positioned to see only a minimal impact from Apple’s adpocalypse (see here) but it remains a niche player with an unrealistic valuation.
• Q2 2021 revenues / EPS were $1.19bn / $0.08 nicely ahead of expectations of $1.06bn / LOSS$0.13 as the shift to direct response marketing worked and the adpocalypse impacted Twitter less than feared.
• In hindsight, this is no great surprise as the social graph that Twitter has in terms of who the user follows has always provided superlative insight and allowed Twitter to monetise the limited traffic it has extremely effectively.
• I think that a large part of this renaissance is coming from video on Twitter which is encouraging users to spend more time than they have in the past increasing the opportunity for advertisements.
• This has increased Twitter’s coverage of the Digital Life Pie to 26% from 19% and gives it a greater opportunity for monetisation.
• This combined with its ongoing immunity from the adpocalypse should enable it to continue growing without too much hindrance.
• However, as the shares rallied just 5% after these numbers and with the valuation at 83.3x 2021 PER and 62.5x 2022 PER, this good news is more than priced in.
• I am staying on the sidelines.

HERE / Lyft – Landmark deal.

• HERE has signed a deal with is Lyft that is remarkable not because of the deal itself, but because Lyft is a Google investment, and as such one would have expected this deal to have been done with Google Maps.
• Lyft has decided to go with HERE as its primary search and places provider and will also use HERE’s real-time road closures data to improve the accuracy of its ETA calculations.
• Although this deal is probably quite small in terms of revenue, it provides a large boost for HERE.
• Despite its issues, Lyft is a top-tier ride-hailing provider, and this provides a big vote of confidence in HERE’s ability to provide location services that are on par with those of Google.
• Furthermore, Google has been an investor in Lyft which would lead one to expect that it would have a strong inclination to go to Google services as its first option.
• However, since the IPO of Lyft, Google has been selling down its position having reduced it by 50% in the last 10 months.
• Google now holds just 2% of Lyft and I suspect that it will soon sell down the rest given its recent sales.
• Hence, it would seem that Google has given up on its plan to use Lyft as a route to market for Waymo and is now concentrating on getting Waymo to market as quickly as possible (see here).
• Despite this, this is still a good win for HERE and this could mean that Lyft becomes a customer for its data location platform (OLP).
• Momentum for winning customers to the OLP has been pretty good through the pandemic and if it can add Lyft to that list, this would greatly increase its visibility in this already pretty competitive market.
• This is a good win for HERE and I think that the company is reasonably well positioned as the vehicle becomes more and more dependent on digital data for its performance and for services.