Spotify earnings: The lure of a free product

Q1 revenue: $2.02 billion (+22% YoY, vs. $2.03 billion expected)
Q1 earnings: $1.09 million (up from -$141 million Q1 2019, above expectations)
Full-year guidance: The company reiterated full-year guidance, but reduced revenue forecasts from $8.84 - 9.28 billion to $8.37 - 8.81 billion.

The big number: Spotify says it now has 130 million premium subscribers, a 31% jump from a year ago and above expectations of 128.6 million. Guidance for next quarter was pretty much in line with expectations, though: Spotify said it expects 133 million to 138 million vs. the 136.5 million analysts expect.

People are talking: "Today, 19% of our Total MAUs engage with podcast content, up from 16% in Q4 2019." — Spotify told investors that its investment in podcast production seems to be paying off.

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Opportunities: Spotify thinks its free tier presents an opportunity in a downturn. CEO Daniel Ek said it allows the company to better compete against services like Apple Music, which are paid-only, at a time when consumer finances are under pressure. "60% of our paid subscribers come from our free tier," Ek said on the earnings call, so the company could see long-term benefits from that. However, the company cited a slowdown in advertising as a reason it reduced revenue expectations, although it said currency fluctuations were having a greater impact.

Threats: Churn "ticked up just a teeny bit sequentially" last quarter, Ek said, and that's a trend that could continue as the economy worsens. Still, Spotify stressed the improvement in churn rates year-on-year, and said 80% of those who said they canceled due to COVID told the company they're likely to return "once the economic situation improves."

The power struggle: Ek made it very clear that he doesn't view Apple Music as his major competitor, instead saying that Spotify's going after the billions of radio listeners that don't use any streaming service — some of whom, no longer in their cars, may now be trying Spotify for the first time. "Linear and physical will move to on demand, and that trend line will be accelerated due to this pandemic as more and more people are learning new habits," he said.

Roku earnings: COVID-19 accelerates cord-cutting

Q1 revenue: $321 million (+55% YoY, -22% QoQ, vs. $306.7M expected)
Q1 loss: $55.2M (up 515% YoY from $10.7M in Q1 2019)
Q2 guidance: Roku has withdrawn its guidance for the rest of the year.

The big number: Roku closed in on 40 million active accounts in Q1, ending March with 39.8 million accounts, and growing its user base 37% year-over-year. Account growth has been accelerating under shutdown orders, with Roku disclosing that new account creation increased by more than 70% in April alone. Company stock surged 8% Thursday before the afternoon earnings call, but those gains were being erased in after-hours trading.

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People are talking: "The pandemic is accelerating the shift to streaming by both viewers and the industry," said Roku CEO Anthony Wood during the earnings call. Consumers streamed 13.2 billion hours in Q1 of 2020, up 49% year-over-year, as streaming became everyone's favorite pastime during quarantine.

Opportunities: Roku executives argued Thursday that consumers continued to move away from traditional TV over the past couple of weeks despite being homebound, highlighting that prime-time TV viewing was down 18% year-over-year among 18- to 34-year-olds from mid-March to mid-April. Many of these viewers are opting for streaming instead, a trend that could accelerate during a prolonged economic downturn. "We believe that the pandemic is accelerating secular trends towards streaming, and that these trends are permanent," Wood said. "All those cord-cutters are not gonna re-sign up for cable."

Threats: Roku makes most of its money with advertising, and the company warned investors that it had seen "higher than normal cancellations" amid a general ad market decline. However, the company said it still expected to grow its ad business in 2020, as advertisers shift dollars to digital, and, among other things, look for ways to place advertising that would otherwise have run against live sports.

The power struggle: Roku has made some baby steps over the past two years to compete more holistically against Amazon and Google, which included the launch of its own line of smart speakers. The company also reportedly developed its own router, but has yet to officially announce that device. Engagement in these non-core business areas could slow over the coming months, as Roku told investors Thursday that it took steps to reduce the growth of its expenses at the end of the past quarter, cautioning that could slow progress in "strategic investment areas."

Uber earnings: The high cost of multitasking in a pandemic

Q1 revenue: $3.54 billion (+14% YoY, vs. $3.5 billion expected)
Q1 loss: $2.9 billion (Up 190% YoY from loss of $1 billion in Q1 2019)
Guidance: Uber withdrew its full-year guidance in mid-April, just months after CEO Dara Khosrowshahi told investors that the company was poised to hit profitability by Q4 2020. He's now aiming to shave $1 billion off spending this year.

The big number: Gross bookings for Uber's two main businesses — ride-hailing and food delivery — grew to a combined $15.8 billion in the first quarter, up 8% year-over-year despite a major slowdown in rides during the COVID-19 crisis. Whether these two parts of the whole can continue to work in equilibrium, versus one dragging the other down, will be key to Uber's long-term prospects. The company's stock was up after hours on the earnings news, after rising more than 11% on news of an investment deal with Lime scooters.

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People are talking: "We're taking a hard look at our overall cost structure and our other bets to ensure our core business of rides and eats emerges stronger than ever," Khosrowshahi said on Thursday's earnings call. "Reaching profitability remains a strategic priority for us. We believe the disruption caused by COVID-19 will impact our timeline by a matter of quarters and not years."

Opportunities: With the ride-hailing market decimated by shelter-in-place orders, Uber's hopes for short-term growth now hinge on food and grocery delivery. "The big opportunity that we thought Eats was just got bigger," Khosrowshahi said. Uber Eats revenue was up 54% year-over-year, and the company is accelerating efforts to add products from grocery and convenience stores to its delivery options. Khosrowshahi emphasized the company's global scale and recent acquisition of Latin America grocery delivery startup Cornershop. In a thinly veiled jab at rival Lyft, he said Uber's diversification is now its biggest asset: "We believe we have a structural advantage. Rides-only players were substantially impacted." The Lime deal backed up this posturing, with Uber announcing it was leading a $170 million funding round while merging its Jump bike rental and scooter business into the electric scooter company.

Threats: Uber's ability to get back on track financially will depend on the depth of ride-hailing's decline amid social distancing. In a bid to slow the bleeding, Uber cut 3,700 jobs this week and announced a spending freeze on expansion projects in Dallas, Chicago and Mexico City. Still, Khosrowshahi predicted that "pre-COVID usage will build back steadily" after seeing early data from reopened markets like Hong Kong, Texas and Georgia, where rides have rebounded to 40% to 70% of pre-crisis levels. In the meantime, Khosrowshahi said the company is "working through" plans for both drivers and riders to wear protective equipment like masks, and is continuing long-term R&D work on automation with its Advanced Technologies Group.

The power struggle: Can Uber keep doing it all? And who will actually do the varied legwork required on the ground? Like Lyft and other gig companies, Uber is in the middle of a contentious regulatory battle over pay and employment benefits for contract workers — a fight poised to come to a head with a $90 million California ballot effort to roll back new protections under state law AB 5. There's also the question of how far Uber Eats will go to compete with grocery-focused gig economy companies like Instacart, potentially pitting the political allies directly against one another in a tumultuous business climate.

Square earnings: Brick-and-mortar struggles

Q1 revenue: $1.38 billion (+44% YoY vs. $1.3 billion expected)
Q1 loss: $106 million (-178% YoY, below expectations)
Q2 guidance: None provided at this time.

The big number: Square's $106 million loss came as a shock to Wall Street, as the company's exposure to COVID-19 hit its balance sheet faster than expected. It did, however, note it was seeing strong growth in January and February before a slowdown in March.

People are talking: "I do believe that the speed at which we were able to move, and the volume we were able to move with the PPP program for our sellers vs. the rest of the financial institutions, will be a net positive for us in terms of a goodwill halo," Square CEO Jack Dorsey said on a call with analysts.

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Opportunities: Looking at the total dollar amount processed by Square's system from the last two weeks of March through the end of April, seller gross payment volume (GPV) was down 39% vs. the same period last year. However, Square said it had fallen to as low as -45% by the middle of last month, before regaining some ground in the last two weeks of April. Additionally, Cash App gross profits grew 115% over the same period last year.

Threats: Despite data indicating the "early signs of stabilization" in its seller ecosystem, Square's exposure in the sectors hit hardest by the pandemic, like food and beverage services, casts a shadow over the company's near-term future. Even as GPV dips hit businesses of every size, Square touted its multi-channel payments offerings as a way for customers to combat pandemic-imposed restrictions, using digital channels to find new customers until they can set back up in stores.

The power struggle: With a large part of its business coming from brick-and-mortar retail, Square will now need to lean more heavily on those e-commerce products until the U.S. — and its traditional revenue streams — opens back up. The question remains whether its other sources of revenue will be able to pick up the slack in the meantime.

Lyft earnings: A COVID-19 referendum on ride-hailing

Q1 revenue: $955.7 million (+23% YoY, -6% QoQ vs. $898 million expected)
Q1 loss: $398.1 million (down 65% YoY from $1.138 billion Q1 2019, up 12% QoQ)
Guidance: Lyft withdrew its full-year guidance in late April and said on an earnings call Wednesday that it is focused on slashing spending by up to $300 million this year.

The big number: While the number of rides on Lyft's platform plummeted 75% in April compared to last year, the average revenue the company collected from each rider grew to $45.06, up 19% from the same time last year. Despite the pain from coronavirus, investors liked what they saw, driving the stock up more than 15% in after-hours trading. But will the tolerance for spending more on rides last in a down economy and socially distant society?

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People are talking: "Rides last week were still down more than 70% year-on-year," Lyft CEO Logan Green told investors on Wednesday's earnings call. "Even as shelter-in-place orders and travel restrictions are modified or lifted, we anticipate that continued social distancing, altered consumer behavior and expected corporate cost-cutting will be significant headwinds for Lyft."

Opportunities: To survive the pandemic, Lyft and gig companies like it must navigate an escalating labor war while encouraging consumer demand for cheap on-demand services. Green told investors his company will be able to withstand plummeting ridership because of a strong balance sheet and an "inherently resilient" financial model, in which about two-thirds of costs are variable. If and when people return to ride-hailing, executives said the company will be positioned to capture laid-off workers seeking new income — although a lot is riding on whether Lyft, Uber, Instacart, DoorDash and Postmates can convince California voters to back their $90 million ballot effort to circumvent state law AB 5, which would require gig companies to compensate workers as employees.

Threats: One existential issue is what happens if courts or California voters push back on Lyft and similar companies' plans to codify low-cost, benefit-light gig work as a permanent part of the economy. Another question for the business is how deep the cuts will go in the meantime, and what will be left afterward. Just this week, Lyft slashed 17% of its workforce, furloughed nearly 300 additional employees and announced 10% to 30% pay cuts. "Every other expense line is being scrutinized," Green said, which the company expects will trim about $300 million off projected 2020 spending.

The power struggle: Watch how many drivers get back on the road in the coming weeks. As it stands, Lyft has paused onboarding of new drivers and started a wait list for applicants, executives said Wednesday. But if ridership recovers and Lyft sees anywhere near the demand for new work that gig economy peers like Instacart have seen, the company could win more political leverage in a perilous moment for unemployment. Lyft and its allies already got one tacit endorsement from on high, when lawmakers and President Trump allowed gig workers to be written into an emergency federal relief package, even though the companies hadn't paid into unemployment insurance funds and incited backlash for offering workers few protections from the virus.

T-Mobile earnings: Phoning it in

Q1 revenue: $11.1 billion (+0.3% YoY, vs. $11.4 billion expected)
Q1 earnings: $951 million (+5% YoY, above expectations)
Guidance: "The company is not in position to issue full-year guidance."

The big number: T-Mobile is doing more with less. Even with the costs of its merger with Sprint on the books during the quarter, net income was up about 5% over the same period last year, while revenue was only up about 0.3%.

People are talking: While most people in the U.S. have been stuck at home, T-Mobile's network has generally held up well. "While the COVID-19 pandemic has adversely impacted, and will continue to adversely impact, T-Mobile's business and operating results, the company continues to work to ensure the health and safety of its employees, the ongoing reliability of its network, which continues to perform strongly and function with minimal interruptions, and the ability to serve and connect our customers," the company said in a release.

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Opportunities: T-Mobile now has over 68.5 million customers, up from 64.7 million in the same quarter last year. And with the recent merger with Sprint, that's only likely to increase with more users able to sign up in more parts of the country. "We expect to be able to rapidly build the world's best 5G network, accelerating innovation and increasing competition in the U.S. wireless, video and broadband industries," the company said.

Threats: Beyond the merger, one of T-Mobile's biggest bets in recent years has been its massive investment in creating a 5G network. The question will be whether it'll win over (or retain) subscribers with its new network — especially during a recession, given that 5G handsets tend to be more expensive than their LTE counterparts. The company is pushing ahead with its 5G rollout, even with a large swathe of the country stuck inside.

Like others, T-Mobile said it has also lifted data caps and overage charges on many of its users during the pandemic. Will that source of revenue come back in the future when the dust has settled?

The power struggle: It may feel like a lifetime, but T-Mobile and Sprint completed their merger just five weeks ago. The two companies are still in the process of integrating their businesses — and networks. T-Mobile recently launched its first 5G sites using Sprint's spectrum in Philadelphia and New York, but still has many cities (and everything in between) left to go.

T-Mobile also said in its earnings that "more than 80% of Sprint postpaid customers have handsets that are compatible with the T-Mobile network today." That means around 20% of the customers it just acquired are likely going to need to be walked through the process of getting a compatible phone in the near future.

PayPal earnings: Cashing out

Q1 revenue: $4.62 billion (12% YoY vs. $4.74 billion expected)
Q1 earnings: $400 million (-23% YoY, below expectations)
Q2 guidance: It's expecting revenue to grow by about 15% and EPS to decline by 28% to 34%

The big number: PayPal's biggest metric for success is the number of active accounts it has across all its services. The number was up by more than 20 million to 325 million in the quarter, although that was partially because it acquired the rewards company Honey during the quarter, and it's including its users in its number. Even still, its own user base grew by 10 million outside of the acquisition, a first-quarter record for the company.

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People are talking: The pandemic is global, but so is PayPal's user base. "The diversity of our platform and customer base across products and geographies positions us well during this unprecedented time," CFO John Rainey said in a statement. "Our free cash flow and strong balance sheet allow us to continue investing to serve the needs of our customers."

Opportunities: Even into April, PayPal said that it was still acquiring new users, adding an additional 7.4 million accounts in the month alone. Payment volumes and revenue were also up over 20% for the month (as compared to the period last year), presumably as more people sign up to pay for goods and services while stuck at home. Everyone's favorite emoji-friendly payments system, Venmo, processed more than $31 billion in payments in the first quarter, growing 48% over last year. If PayPal can keep that momentum going, it'll likely be in a good position moving forward.

"It is clear that PayPal's products are more important and relevant than ever before," President and CEO Dan Schulma said in a statement. "The strength of our customer value proposition combined with the acceleration of digital payments adoption significantly accelerated in April, with increased demand and engagement."

Threats: Not every part of PayPal's business is growing. The company said that PayPal and Venmo revenue were "partially offset by lower revenue from travel and events verticals and credit," presumably because no one's going anywhere. The company's operating margin fell from 12.5% in the first quarter of 2019 to 8.6% this quarter.

The power struggle: Growing while still generating income is an issue PayPal will have to contend with in the coming months. It's racking up new users, but it's still expecting earnings to fall for the second quarter of the year.

Sonos earnings: Sales down, but speaker use surging

Fiscal Q2 revenue: $175M (-17% YoY, -69% QoQ, vs. $208M expected)
Q2 loss: $52.3M (Up 129% YoY from $22.8M Q2 2019)
Q3 guidance: Sonos withdrew its FY 2020 guidance, and has historically not offered quarterly guidance.

The big number: The smart speaker maker's sales tanked during the quarter as retailers closed stores across the globe, with revenue declining 23% in March alone. The company's business stabilized in April, only trailing April 2019 revenues by 5%.

People are talking: "It's a very volatile time," Sonos CEO Patrick Spence told Protocol on Wednesday. "I don't think anybody really knows what the next few months hold." Spence said his company has been looking for ways to weather the storm, including by reducing costs through a freeze on new hires and raises. However, Spence also said the company may spend more on marketing in the coming months to position itself as a solution for people staying at home. "The world just changed," he said. "That means our marketing does need to change."

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Opportunities: Sonos introduced three new products Wednesday, including a redesigned sound bar that should reinvigorate demand. What's more, stay-at-home orders have yielded a massive surge in use of existing Sonos products. Listening hours in March were up 32% year-over-year, and increased an estimated 48% year-over-year in April. That's good news for the company's nascent services business; Sonos launched its first ad-supported streaming service in April.

Threats: It's been a challenging couple of years for the consumer electronics industry as a whole. In 2018, component shortages slowed manufacturing. Last year, the threat of tariffs kept the industry on edge. Now, COVID-19 provides the latest hit. "There's always something," Spence said. "The companies that can adjust and then persevere through this, I think it just makes you stronger as you think about the future."

The power struggle: One of the big industry transformations affecting Sonos is the shift from traditional retail to ecommerce, and COVID-19 seems to be accelerating this. The company's web sales were up 400% year-over-year in April as retail closed its doors. That momentum changes how Sonos is thinking about sales in general. In the past, many assumed that consumers would want to listen to a $500 speaker before opening up their pocketbooks. "That's questionable," Spence said. "We've seen that acceleration of people being confident in their ecommerce purchases."

Shopify earnings: Retail might have changed forever

Q1 revenue: $470 million (+47% YoY, vs. $443 million expected)
Q1 earnings: $31.4 million net loss (up from -$24.2 million Q1 2019, above expectations)
Guidance: Shopify previously withdrew its financial guidance in April.

The big number: Shopify's key metric is gross merchandise volume (GMV): the total value of everything sold on Shopify. That was up 46% year-on-year, to $17.4 billion, above the $16.9 billion analysts expected. The company told investors that GMV growth accelerated in April, too, though it warned that "it is unclear how sustainable consumer spending levels will be in this uncertain economic environment."

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People are crying: During its earnings call, Shopify played a recording of a customer service call with a farmer that uses its platform. The farmer, audibly crying, said her farm would have gone out of business without Shopify. The recording was testament to Shopify's main pitch to investors right now: That it will get through this crisis by helping struggling businesses pivot to online.

Opportunities: So far, that strategy seems to be working, especially for existing merchants. Shopify said in-store sales through its platform were down 71%, but 94% of that had been recouped from online sales. And it highlighted its new Shop app, saying that it will boost customers' long-term value to the company by helping them find local retailers.

Threats: Though overall revenue held up, recurring revenue from subscriptions saw decelerating growth. That's because merchants downgraded to cheaper plans which don't include certain features, like abandoned cart recovery — a trend that could continue as the economy gets worse.

The power struggle: Shopify said that it's seeing "a lot of net new customers coming to the platform" — including customers that have never sold online before, such as Heinz and Lindt. It's pretty clear that this pandemic has accelerated brands' moves to online shopping, and for those that want to control the retail experience, Shopify is one of their only options. Investors certainly think it will benefit: Shopify is on the cusp of becoming Canada's most valuable stock.

Gaming earnings: The pandemic is their call of duty

Revenue
- EA (Q4): $1.39 billion (+12% YoY vs. $1.19 billion expected)
- Activision/Blizzard (Q1): $1.79 billion (-2% YoY vs. $1.32 billion expected)
Earnings:
- EA (Q4): $418 million (+100% YoY, above expectations)
- Activision/Blizzard (Q1): $505 million (+13% YoY, above expectations)
Guidance:
- EA: $5.525 billion for the fiscal year
- Activision/Blizzard: $1.69 billion in revenue for next quarter

The big number: With so many people stuck at home, it seems like they've all turned to buying new games to pass the time. Both EA and Activision/Blizzard pulled in massive revenue this quarter, with EA growing 12% over the same period last year. While Activision actually shrank a bit, its $1.79 billion in revenue was still well above what analysts had been expecting for the quarter.

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People are talking: According to Activision, one of its most popular games franchises was just as much to thank for its earnings this quarter as the pandemic. "Our business exhibited accelerating momentum entering the second quarter from the dual tailwinds of strong execution in the Call of Duty franchise following last year's increased investment, and increased engagement as people turned to our interactive content as they sheltered at home," the company said in a release.

Opportunities: Both EA and Activision seem to be making the most of this unprecedented time. "With more people staying at home, we have experienced, and are continuing to experience, heightened levels of engagement and live services net bookings growth to date," EA said in a release.

Activision said in its release that work-from-home orders haven't affected its ability to design and release games to date, and the company hasn't shifted any release dates for future games yet. Competitor Nintendo, which reports its earnings on Thursday, is likely to be in a similar boat. Its Nintendo Switch consoles are sold out across the U.S., and its most recent game, Animal Crossing: New Horizons, has become a cultural sensation.

Threats: As with every business right now, there's no knowing where this pandemic will go. People do still tend to spend on entertainment even in recessions, so there's the chance that games-makers will have little problem developing and shipping new games from home that people will want to buy. But for consumers looking for new consoles, any disruptions in supply chains could hurt game publishers if new users can't access their content. Similarly, in-store sales will likely to continue to dwindle if lockdowns continue; EA noted a roughly 3% drop in packaged sales compared to the same quarter last year. With stores closed, there's inventory going stale on shelves that gamers may no longer want when stores open back up. Who will want FIFA 20 when FIFA 21 is on the way?

The power struggle: There is the chance to get carried away here. Although it acknowledges the unknowns in the economy, rising unemployment, and slow retail sales, Activision says it believes "there is potential for overperformance if these risks do not materialize." Keeping gaming revenue up, especially for games that rely on frequent microtransactions and access to the internet, could be a challenge in a prolonged recession.

Amazon earnings: Strong sales, but costs are going up

Q1 revenue: $75.5 billion (26% YoY, -14% QoQ, vs. $73.6 billion expected)
Q1 earnings: $2.5 billion (30% YoY, -24% QoQ, below expectations)
Q2 revenue guidance: $75.0 billion and $81.0 billion, in line with expectations

The big number: Amazon will spend the entire amount of operating profit it expects to record during the second quarter — at least $4 billion — "on COVID-related expenses getting products to customers and keeping employees safe," it said in a press release.

People are talking: "I think we've learned that it's easier to get ready for a Prime Day than it is to get ready for something like this, when it all hits at once," CFO Brian Olsavsky said on the earnings call.

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Opportunities: Amazon has always been a company less concerned with profit than most of its peers, and the decision to invest all of its expected second-quarter operating profit into personal protective equipment, cleaner facilities, and higher wages for its retail army could buy it some goodwill. Demand for online retail should continue to be quite strong in the second quarter even if stay-at-home orders start to lift around the country.

And Amazon should be able to fulfil that demand: It hired 175,000 employees just in March and April. The company now employs 840,000 people, up 33% from last year.

On the cloud side, AWS continues to post impressive growth on a large number, recording $10.2 billion in revenue during the quarter, up 33%. Rivals Microsoft Azure and Google Cloud are growing faster, but estimates suggest their combined revenue tallies for the first quarter are well below AWS.

Threats: The second quarter might be the biggest test of Amazon's vaunted operational skills in its history.

"It's an odd quarter, because generally the biggest uncertainty we have is customer demand and what they'll order how much of it they'll order," Olsavsky said. "Demand has been strong, and the biggest questions we have in Q2 are more about our ability to service that demand with the products that people are ordering, in a full way."

On other fronts, advertising has been a greater focus for Amazon over the last few years, and it's going to be a rough few months for the advertising market. Amazon is less exposed to that problem than companies like Google or Facebook, but Olsavsky said the company did see a slowdown in advertising demand over the last few weeks of March, as well as "downward pricing pressure."

The power struggle: It will take a lot to displace Amazon from its perch atop the online retail market, but Amazon's ability to control the spread of the pandemic across its massive workforce — larger than the population of four U.S. states — will play as important a role in keeping its operations running as fancy AI algorithms or robotic distribution centers.

Amazon plans to spend $300 million procuring and administering COVID-19 tests for that workforce as part of the aforementioned $4 billion investment. Depending on how the pandemic fares over the course of the year, that effort could wind up costing the company $1 billion, according to reports. That means the company will continue to rely on AWS to generate the lion's share of its operating profit for the foreseeable future, which could give rivals an opportunity to reignite the cloud pricing wars of a few years back.

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