Facebook Gets Serious About Boosting Sharing; SAP Sees Cloud Pressure
Welcome to the April 11th edition of Seeking Alpha’s Eye on Tech newsletter.
Eye on Tech Coverage
Gartner estimates IT spending will drop 0.5% in 2016, after falling 6% in 2015.
While forex and macro issues are playing a role, Gartner’s estimate also shows the impact cloud services and smartphones are having on traditional IT markets.
Such a fast-changing landscape means investors in enterprise tech firms need to be selective. Tech ETFs arguably provide a safe haven.
NXP Semiconductors (NASDAQ:NXPI) is reportedly looking to sell its power management chip unit, and has drawn interest from Chinese firms.
A sale would help NXP lower its debt load and better focus on core opportunities in automotive, IoT, networking, and secure payments/connectivity.
There are parallels between NXP’s strategy and that of Broadcom/Avago (NASDAQ:AVGO).
Noteworthy Tech News
Facebook testing version of app that emphasizes user sharing – The Verge states Mark Zuckerberg showed off a version of Facebook’s (NASDAQ:FB) core app on Wednesday (while discussing Facebook’s revamp of its Live streaming platform), in which the “What’s on your mind?” status update box is always present, and in which tapping the box brings up a slew of sharing options (writing, sharing photos/videos, sharing live video, etc.). The list includes music, slideshow, and GIF posting options, which currently don’t exist.
Facebook’s new sharing options, found in a beta version of its core app. Source: The Verge.
Zuck’s demo occurred a day before The Information reported (citing internal Facebook data) “original” content sharing was down 21% Y/Y as of mid-2015 and about 15% Y/Y as of earlier this year. FB data also indicated only 39% of users accessing Facebook’s app in a given week posted original content.
BuzzFeed’s exploding watermelon Facebook Livestream gets over 800K viewers at its peak – The stream, in which two employees wrapped over 600 rubber bands around a watermelon until it finally burst, has also produced (as of this time) over 300K comments, 42K “reactions,” and 16K shares. You might be amused or saddened by this spectacle. Or both. But Mark Zuckerberg must have smiled at it. Just days after Facebook gave its Live streaming service a big overhaul and launched a related promo effort, a stream drew an audience large enough to pack nine Rose Bowls. It shouldn’t be long before someone tops a million viewers.
BuzzFeed, it should be noted, is one of the media firms Facebook is reportedly paying to use Live. If they keep drawing this kind of traffic (and Facebook finds a way to help them monetize it), maybe they won’t need that incentive for long.
Poynter’s Benjamin Mullin: “With two staffers, a fruit and a digital recorder, BuzzFeed was able to draw many more viewers than cable news shows at a fraction of the production cost. That’s a paltry investment for a very large payoff and speaks to the power of Facebook Live to generate “driveway moments” that capture a huge share of the conversation on social media.”
Digiday: Publishers report seeing Facebook referral traffic drop – Digiday states an unnamed traffic analytics firm saw Facebook referral traffic from its clients drop 20% from January to March. But there are some big qualifiers here: 1) Much of the traffic drop came from publishers that had adopted Instant Articles, which allows articles to be read in full within Facebook’s app; 2) Facebook (according to The Information) recently changed its news feed algorithm to show more user-created content. That could be affecting how often publisher material is seen; 3) Digiday notes data from other traffic measurement firms and publishers is mixed.
SAP misses Q1 estimates; cloud growth pressures license revenue – SAP AG’s (NYSE:SAP) Q1 performance is a reversal from Q4’s sales and EPS beat. Providing an excuse previously given by a few hundred other enterprise software firms (give or take), the company blames deal slippage (in the Americas particularly). Also, with SAP reporting in euros, forex went from being a tailwind in Q4 to a headwind in Q1. Revenue growth was 5% Y/Y as reported and 6% excluding forex. In Q4, the figures were 16% as reported and 11% excluding forex (earnings release).
Still, there was a growth slowdown even in constant currency. The culprit: traditional software license revenue fell 13% Y/Y (as reported) to €610M. Quite the change from Q4’s 15% growth, and a sign cloud software adoption is now having a big impact on SAP’s license sales – arch rival Oracle’s (NYSE:ORCL) traditional license sales fell 15% Y/Y in its February quarter. Cloud subscription/support revenue remained strong, rising 33% to €680M. Cloud bookings rose 22% to €140M (Q1 is a seasonally weak quarter for bookings), and software support revenue grew 5% to €2.56B.
On the bright side, over 500 additional customers were added for the S/4HANA platform (involves running SAP’s core ERP apps on its popular Hana in-memory database), bringing the total count above 3,200. And full-year guidance for 6-8% cloud/software sales growth in CC is reiterated, as is 2016 operating profit guidance. No need to rush to cut guidance after a bad quarter when there are three left (including seasonally big Q4).
BlackBerry preps two mid-range Android phones, admits Priv costs too much – John Chen’s remarks about enterprise customers calling the Priv (currently goes for $650 unsubsidized at Wal-Mart, after starting at $700) too expensive raise a big question: Why hasn’t BlackBerry (NASDAQ:BBRY) significantly cut the Priv’s price?
Given manufacturing cost estimates for other high-end smartphones, it’s unlikely the Priv costs more than $250 or so to produce. BlackBerry could presumably sell the device for $450-500 and still reap a decent gross profit. It’s possible a big price cut will be announced soon, and/or that BlackBerry has refrained from quickly announcing one out of fear of angering initial Priv buyers.
The BlackBerry Priv, slide-out QWERTY keyboard and all.
As for the mid-range phone efforts, Samsung has begun competing more aggressively in the low-end and mid-range Android markets, and other Asian OEMs such as Xiaomi (Private:XI), Huawei, Lenovo (OTCPK:LNVGY), and Micromax (all of which have more scale than BlackBerry) also loom large. However, BlackBerry might be able to create an enterprise niche with its proprietary Android UI and privacy/security features, and (assuming one of the new phones has a keyboard) win over some lingering QWERTY enthusiasts.
The company sold just 600K phones in the February quarter, and has said it will exit phones if it can’t turn a profit on them. Chen has promised phone profits by September. Stay tuned.
Marketo jumps following report of “strategic interest” from Microsoft and SAP – There was a lot of speculation back in 2013 that SAP would bid for Marketo (NASDAQ:MKTO), a cloud marketing (advertising) automation software firm that’s currently worth $982M, in response to acquisitions of Marketo peers by Oracle and Salesforce (NYSE:CRM). Maybe SAP was just waiting for Marketo’s multiples to compress.
Microsoft (NASDAQ:MSFT) might have some use for Marketo as well. The company has been seeing strong growth for its Dynamics CRM Online cloud apps, which Marketo’s software would complement. If SAP and Microsoft bid for Marketo, whoever loses out might turn its sights on Marketo rival HubSpot (NYSE:HUBS), currently worth $1.46B and recently the subject of a less-than-flattering book from writer/ex-employee Dan Lyons.
Re/code: Google, Facebook, and Twitter looked at Yahoo, but have little interest – Come for the banker-paid lunches, stay for the chance to look at a rival’s books (while feigning M&A interest). Shortly after the WSJ reported Google (GOOG, GOOGL) is among the companies weighing bids for Yahoo (NASDAQ:YHOO), Re/code says it’s just a case of Google M&A exec Don Harrison “poking around, as his job demands, including taking meetings and trying to grok if there is any part of Yahoo that Google might like to have.”
To be fair, there are specific Yahoo assets that might appeal to Google/Facebook/Twitter (NYSE:TWTR), if they became available by themselves. For example, Google and Twitter might care to bid for Tumblr, or Google for online video ad platform BrightRoll. But the odds of any of the companies caring to digest Yahoo in full and deal with all of its current problems seem pretty low. Verizon (NYSE:VZ), on the other hand, appears to have a serious interest. The U.K.’s Daily Mail is apparently interested too.
Twitter adds two new board members; two others stepping down – Jack Dorsey has been looking to overhaul Twitter’s board, which includes several members who don’t tweet. Chairman Omid Kordestani says Twitter plans more board additions that “will bring diversity and represent the strong communities on Twitter.”
NYT: Amazon may be violating new Indian e-commerce rules – The new rules relate to pricing and merchandise sourcing. Amazon (NASDAQ:AMZN) and several rivals appear to be violating them. Navigating India’s complex retail regulations can be a minefield. Just ask Wal-Mart (NYSE:WMT).
Bloomberg: QLogic exploring sale and other options – QLogic (NASDAQ:QLGC) has been contending with a secular decline for its Fibre Channel storage adapter card/switch/controller chip business, as a greater % of storage systems wind up interfacing with Ethernet and InfiniBand links. The company also has Ethernet exposure, but still depends heavily on Fibre Channel.
If it’s willing to expand beyond chips, Microsemi (NASDAQ:MSCC) could try to buy QLogic to better compete against Broadcom/Avago. Microsemi recently bought storage chipmaker PMC-Sierra, while Avago bought both PMC-Sierra rival LSI and QLogic rival Emulex before merging with Broadcom.
TSMC’s sales growth turns positive in March – TSMC’s (NYSE:TSM) revenue rose 1% Y/Y in March, after dropping 12.9% in February and 18.7% in January – another sign the chip industry’s late-2015/early-2016 inventory correction is ending. The world’s biggest chip foundry is also benefiting from ramping production of chips based on its advanced 16nm FinFET process – initial production of Apple’s (NASDAQ:AAPL) A10 CPU (due to go into the iPhone 7) could be playing a role.
Noteworthy Tech Commentary
Jeremy Liew: The fourth Facebook goldrush just got started – By “goldrush,” Liew is talking about new Facebook features that lead thousands of app developers and/or content providers to create new offerings, with some of them building giant audiences in the process. He argues Live streaming and Messenger chatbots will underpin the next one. Liew: “These goldrushes never last longer than a couple of years… But these opportunities to get to massive scale quickly don’t come along often and they create a new generation of interesting startups.”
Donny Reynolds: The Future is Without Apps – I think apps still have a big future, but as Reynolds observes, there are some interesting technologies being rolled out that can deliver an “app experience” to users without forcing them to download one in full. Specifically, Google’s App Streaming, which streams parts of an app on-demand to a web browser or the Google Search app, and Apple’s On-Demand Resources (“ODR”), in which only required resources are downloaded at first through the App Store, and everything else downloaded when needed. There are also browser-based web apps (around for ages) to consider.
SunTrust: A Yahoo acquirer could gain $2B in value by laying off 40% of the workforce – SunTrust’s Bob Peck thinks a company like Verizon could reduce Yahoo’s workforce, which is expected to be at 9K by the end of 2016, to around 5K by eliminating nearly all of Yahoo’s G&A spend and also making R&D and sales/marketing cuts. Activists have been calling for Yahoo to aggressively pare headcount for some time.
MKM: LinkedIn job postings fell in Q1 for first time in six years – MKM’s report, which is accompanied by a downgrade to Neutral, comes two months after LinkedIn (NYSE:LNKD) provided soft 2016 guidance for its Talent Solutions (jobs/recruiting) business. The company blamed international macro pressures for field sales and expectations of just single-digit growth for self-serve (online) sales, which are driven more by SMBs. Credit Suisse recently argued LinkedIn, whose site has received its share of criticism, needs to simplify its SMB Talent Solutions offerings. Is LinkedIn’s low user engagement rate having an indirect effect on job posting growth?
Peter Rojas: When do bots beat apps? When context and convenience matter most – As Microsoft (via its Bot Framework for Microsoft and third-party apps) and Facebook (through a soon-to-be-launched Messenger bot platform) bet big on automated chatbots, Rojas looks at the technology’s core value proposition. “Chatbots are a bet that we are going to be spending more and more of our time within messaging apps like WeChat, Facebook Messenger, Kik, Telegram, etc. and that it will be easier to access the services we want via a bot within those apps than to jump into another app or use the web.” Those interested in the subject should also check out the post “Chat bots, conversation and AI as an interface.”
SA contributor Bert Hochfeld: Rackspace: Time To Achieve A Successful Transition? – A look at Rackspace’s (NYSE:RAX) efforts to be a top managed services provider for third-party clouds, after its efforts to directly challenge the likes of Amazon, Microsoft, and Google in cloud infrastructure saw only modest success.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.