Apple and Yahoo! – Chalk and cheese.

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Results highlight the differences between these two players.

• Investors greeted the results announcements of both companies with enthusiasm but for very different reasons.

Apple

• Apple reported Q1 15A results that beat expectations as the iPhone performed much better than the street had forecast.
• Q1 15A Revenues / EPS were $74.6bn / $3.06 nicely ahead of consensus at $67.2bn / $2.58.
• 74.5m units of iPhone shipped which was ahead of consensus at 64.9m and RFM / Counterpoint at 65.8m units.
• 21.4m iPads shipped which was adrift of consensus at around 22.5m units and RFM at 25.4m units.
• 5.5m Macs shipped which was in line with both consensus and RFM.
• A further key boost to revenues was provided by the new hardware and the larger screen 6+ as ASPs improved to $687 from $603 in the previous quarter.
• All of this added a boost to gross margins which improved to 39.9% nicely ahead of guidance at 37.5% – 38.5%.
• Guidance was typically cautious with Q2 15E revenues of $52bn – $55bn expected which was in line with consensus at $53.5bn.
• Supply and demand have only just come into balance meaning that Q2 15E will benefit from inventories returning to normal levels after being low since the iPhone 6 began shipping.
• Given the strength in Q1 15A, the market clearly expects these numbers to be beaten this quarter.
• Apple is making the right moves to defend the exclusiveness of the iPhone with Apple Pay, HealthKit and HomeKit and commentary on the call indicate that these strategies are moving in the right direction.
• That being said, I think that the short-term catalyst on the stock has now passed and I would be beginning to think of taking some profits.

Yahoo!

• Yahoo! made the right choice in deciding to spin off its investment in Alibaba to existing shareholders but once again the core business underperformed.
• Yahoo! will create a new entity to hold its $40bn investment in Alibaba, the shares of which will be distributed to shareholders in Q4 2015E.
• This is a good solution as this is a tax-free method of realising value for shareholders as well as giving them the option of when and how to cash in.
• Unfortunately, the results of the core business underperformed yet again with a disappointing set of Q4 14A results
• Q4 14A revenues and EPS were in line at $1.18bn / $0.30 compared to forecasts of $1.18bn / $0.29.
• However, guidance was again weak with Q1 15E revenues forecast at $1.02bn – $1.06bn compared to consensus at $1.09bn.
• Within these figures was $254m in revenues that came from advertising on mobile devices which was up 23% from Q3 14A.
• Yahoo! continues to overstate the size of its ecosystem claiming 575m active users but in reality I suspect the real number is somewhere around 200m.
• Google currently has around 610m Android users from which RFM estimates it was able to generate over $600m in advertising revenues in Q4 14A.
• Consequently, I think that Yahoo! continues to count unique visitors rather than users.
• While they may generate some revenues, they will not deliver anything like the value that an ecosystem user will.
• This highlights the key problem with Yahoo!.
• Its inability to execute on delivering its ecosystem assets to the mobile device in an easy and fun to use way is keeping a lid on its potential.
• Now that Alibaba is out of the way, this fact is going to become increasingly obvious and the share price is likely to suffer.
• There is a valuation case to hold Yahoo! based on the sum of its investments, but there is increasing weariness with its inability to turn around its core business.