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May 1, 2020
Good morning! This Friday, Apple and Amazon's earnings offer insight into the ad market and China's recovery, book digitization might speed up, and Quibi's still got problems. Want Index in your inbox each morning? Subscribe here.
What Matters Today
- 7 a.m. PDT: ISM manufacturing data is released, following Markit's release at 6:45 a.m. The data is expected to show a further contraction in manufacturing activity, and ISM's sectoral breakdowns should give a sense of how tech makers fared amid that environment.
As of 4:10 a.m. PDT: Nasdaq Futures: -2.50% | Euro 600: Closed | Nikkei: -2.84% | Hang Seng: 0.28%
- Facebook is reopening some content-moderation offices.
- Microsoft halved the price of its online code editor.
- Healthcare software company Epic Systems launched a telehealth app, powered by Twilio.
- Uber is trialing an hourly driver option in Australia, designed to let people without a car run errands.
- Uber will promote Ro's free COVID-19 assessments to drivers.
- Blue Origin and SpaceX received NASA contracts to build a moon lander.
- Walmart is trialing a two-hour delivery service.
- Apple and Huawei increased their market shares in China, with Huawei shipments making up 41.4% of the market last quarter. Oppo, Vivo and Xiaomi lost share.
- Amazon cut Kindle book prices in the U.K. after VAT was removed from ebooks.
- DeepMind CEO Demis Hassabis reportedly dialed into a U.K. government COVID advisory meeting.
- Global smartphone shipments were down 11.7% year-on-year last quarter. IDC says that's the biggest YoY decline ever.
- Telegram offered to return $1.2 billion to investors and postponed its blockchain launch.
- Lyft is suspending its scooter service in Oakland, Austin and San Jose.
- Zendesk forecast slowing sales growth for the current quarter.
- Tesla cut its Chinese Model 3 price by 10% in order to keep qualifying for subsidies.
- German travel startups asked Google to postpone ad fees.
- British restaurant owners asked Deliveroo to lower commissions.
- U.K. bank RBS said it would shut down its challenger bank competitor, Bó, launched last November.
- Dribbble acquired Creative Market, a design-asset marketplace.
- Tencent bought a 5% stake in Afterpay, a buy-now-pay-later company. The stake is valued at around $252 million.
- ICANN rejected Ethos Capital's acquisition of the .org registry.
- Construction software company Procore reportedly raised $150 million at a $5 billion valuation and has postponed its IPO, which could still happen this year.
- Figma raised $50 million at a $2 billion valuation, led by Andreessen Horowitz.
- Visa and Safaricom agreed to partner on mobile payments network M-Pesa.
The devil's in the details
You've probably seen the headline figures from yesterday's big earnings reports: Both Amazon and Apple beat revenue expectations, with Apple also beating on profit. But buried within the releases are some interesting nuggets that tell us a little more about how tech's doing.
- Subscriptions remain strong. Apple's services business was up almost $2 billion from a year earlier, and the company said it expects Apple Music and TV+ demand to hold up this quarter. Similarly, Amazon's subscription revenue was up 28%, presumably thanks to a surge in Prime demand.
- That strength is particularly good news for Apple because it proves it's no longer reliant on a single product: iPhone sales made up only 49% of Apple's revenue last quarter.
- "It's very clear they've got a business now that, although it's built on the iPhone, it's got the resilience to take bumps in the road due to the services revenue," CCS Insight's Geoff Blaber said.
We also got a look at China's recovery, which seems to be going remarkably well.
- Apple's China sales were down less than $1 billion from last year, with CEO Tim Cook telling investors that things have improved in March and April. Sales are "headed in the right direction," he said.
- That bodes well for the West. Cook said Apple plans to start reopening some U.S. stores in the next two weeks, which could lead to a quick rebound in sales.
- Chinese factories seem to be holding up, too. Cook said the supply chain was "back up and running at full-throttle at the end of March," though he refrained from saying whether this fall's iPhone production will be delayed.
- Cook said the rebound was evidence that Apple doesn't need to diversify away from China. "If you look at the shock to the supply chain that took place this quarter — for it to come back up so quickly really demonstrates that it's durable and resilient," he said.
For Amazon, meanwhile, ad revenue is on the up.
- Its "other" revenue, which is primarily composed of its ad business, was up 44% year-on-year, bringing in almost $4 billion last quarter.
- CFO Brian Olsavsky said there was "some pullback from advertisers" in March, but it wasn't "as noticeable as maybe some others are seeing." That would make sense: Few ads are more directly linked to product sales than those on Amazon, so advertisers may keep spending on Amazon even as they halt marketing elsewhere.
The biggest takeaway is that everyone is scared to predict the future.
- Tim Cook offered some indication of what Apple's seeing at the moment, saying the second half of April was better than late March and early April.
- But Apple refused to give formal guidance for the current quarter, saying there's just too much uncertainty.
- That's worrying. "It just spooks people about just how bad the second quarter is going to be," Cannaccord Genuity's Mike Walkley said. And if Apple, which has one of the best views of the global economic situation of anyone, can't predict the future, what hope is there for the rest of us?
- "Advertiser budgets are retreating from any kind of long-term investment in their brands. The only campaigns that are surviving are those that contribute to cash flow today. That is where Google and Facebook are best in class." — Enders' analyst Joseph Evans told the Financial Times that the current crisis is "locking in" big tech's ad advantage.
- "In the next three to six months we might get to where we might have got in a few years." — Stephen Page, CEO of publisher Faber and Faber, thinks digitization could accelerate in the book industry.
- "We'll continue to maintain hiring momentum and up-level our talent, just like we did in 2009." — Atlassian's CEOs said they were focused on "playing offense in stormy weather."
- "Elon Musk is a national treasure." — Marc Andreessen's spokesperson didn't further clarify whether the investor agreed with Musk's comments on the lockdown being "fascist."
Launching Quibi in a pandemic might not have been a good idea
The Wall Street Journal had a great piece yesterday on the many troubles at Quibi. It's got a bunch of juicy details: Jeffrey Katzenberg thinks they underestimated the challenge of launching Quibi in a global pandemic; it's got 3 million downloads but around 1 million registered users; and it was planning on losing $550 million this year even before COVID hit. By the end of the year, it now expects to have spent $1 billion of the $1.75 billion it raised from investors, but the company's now aiming for profitability. I will be astonished if it pulls that off.