Results deluge– Meta, Apple & Amazon.

Meta pushes the open-source button.

• Excellent results, more fat trimming, a dividend, and a share buyback hid higher losses from the Metaverse and more capex allowing a fire to be lit under the shares.
• Q4 2023 revenues / EPS were $40.1bn / $5.33 where profits beat by more than revenues against consensus of $39.1bn / $4.82.
• The key to the numbers was that Q4 23 revenue grew by 25% YoY while COGS declined by 8% and marketing by 29% YoY.
• This has been made possible because Meta has bulked up for years with humans that it did not really need and is now able to shed them without cutting into the muscle of the core business.
• Given how far Twitter has gone, I suspect that there is more that Meta Platforms can do which sets the stage for profitability to be preserved even when growth slows back down again.
• These were the facts of the results, but the real story is open source which is where Meta is making its play to own the AI ecosystem of the future.
• Meta hates the fact that its current business is dependent on the whims of Apple and Google and remains determined that this will not be repeated in the platforms of the future.
• One of these is AI and the other is The Metaverse both of which Meta is developing an independent system that relies on no one.
• While The Metaverse has a long way to go, the AI ecosystem is already beginning to take form and I am certain that we will see Meta, Google et al all launching tools and a store for developers to build and sell generative AI services based on their foundation models.
• Meta is in a good position in both AI and The Metaverse but the next 2 years will be defined by social media performance.
• Here with the shares trading on 25.6x 2024 and 22.1x 2025 PER, I think I would prefer Google which I still favour in the AI ecosystem long term.

Apple FQ1 24 – Curse of China

• Apple reported good results but the increasing prospect of 20% of its revenues going up in smoke was enough to temper enthusiasm.
• FQ1 24 revenues / EPS were $119.6bn / $2.18 ahead of estimates of $118.0bn / $2.10 but the China issue simply won’t go away and is getting louder.
• This represents a good return to growth up 2% YoY especially when taking into account that by a quirk of accounting FQ1 24 was 7 days shorter than FQ1 23.
• The iOS ecosystem is going from strength to strength with 2.2bn active devices (albeit the average number of devices per user is well above 1) and is a warning to Android that it has work to do.
• Samsung’s hardware offering is particularly interesting this year with improved front glass toughness and the best of Google software, but this needs to be everywhere on Android to have a real impact.
• Apple would be not materially drawn on what is happening in China and dodged questions or answered with corporate marketing spiel indicating to me that this is an area of discomfort.
• On the one hand, if China really wants to punish the USA, it could ban Apple products and there are some very early signs of this which is rattling investors.
• On the other, a punishment of this scale would undoubtedly impact the 1m workers that assemble Apple products in China meaning that any action will have consequences for China.
• Against this slow growth backdrop, the shares are trading at 28.4x 2024 and 26.0x 2025 making them pretty unattractive in my view.

Amazon – Praying for the AI bubble to pop.

• Amazon reported good results which combined with a reacceleration of growth at AWS gave the market confidence that Amazon will not slip back into its bad habits of not making money.
• Q4 23 revenues / operating profit were $170.0bn / $13.2bn compared to estimates of $166bn / $10.5bn and the company guided well for the coming quarter.
• Here Q1 24 revenues / operating profits are expected to be $143.5bn / $10bn (midpoints) compared to consensus of $142bn / $9.1bn.
• This is in contrast to many other years where a good quarter is followed by more investment that drags the company back to break even or loss-making territory.
• AWS revenues grew by 13% YoY making it by far the laggard of the big 3, but it is still the most profitable with margins of 27% for the full year 2023.
• The problem is that if generative AI is going to become the biggest driver for the cloud going forward, then AWS is in real trouble as, in my opinion, its AI remains incredibly weak and far behind both Microsoft (OpenAI) and Google.
• A minority investment in Anthropic does not an AI strategy make.
• Its only real shot at the moment is to host the AI of others with the best performance and cost but this will mean that it will not be capturing the real value and so margins could decline.
• Hence, I suspect that secretly, Amazon is hoping that the AI bubble pops as clients begin to realise the limitations of generative AI and come back to Amazon for steady and reliable over the new and shiny things from GPT or Gemini.
• The outlook for Amazon going into 2024 remains steady but with a PER of 42.8x in 2024 and 31.7x in 2025, this is hardly one to get excited about.