The Profit Is In Anothe...

Citing poor sales of the Nintendo 3DS and “the stronger yen against the euro was also another reason,” Nintendo posted its first-ever loss – $534.6 million on revenue of $8 billion. This is down from $12.6 billion in revenue last year with $960 million in profit. But, as they say, it’s dangerous to invest alone. Here, take this: the company is predicting a profit of $429 million next year. Nintendo bet big on the 3DS and the forthcoming Wii U , a superior console designed for clever multi-player gaming. Although the Wii is the best-selling console in the world, it’s clear that demand has slowed with the launch of Kinect from Microsoft and the PlayStation Move. We’re expecting to her much more about the Wii U launch this summer at E3 and, provided they can get a product out the door by the holiday, expect these numbers to rise skyward. It’s a little sad to see Mario stumble like this, but here’s hoping he regroups.

Apple’s Mothra Quarter ...

Two quarters ago, Apple unleashed Godzilla. It was a quarter so spectacular that the only appropriate way to describe it was in pure expletive form . $46 billion in revenue. $13 billion in profit. 37 million iPhones sold. 15 million iPads sold. A gross margin of 44 percent. These weren’t just good numbers, they were obscene. That’s what made yesterday’s earnings release insane: Apple almost managed to match those numbers last quarter. While pound-for-pound, Apple’s Q1 is the clear winner, I actually think Apple’s Q2 was more impressive. It was Apple’s Mothra. In Q1, Apple was coming off a quarter than some considered “disappointing”. It was their first “ miss ” in forever. I put those terms in quotes because that’s where they belong. Those who actually knew what they were talking about with regard to Apple, knew that Q4 2011 was a fluke that happened for a few reasons — namely the launch of a new iPhone in Q1 rather than Q4 (in terms of Apple’s fiscal calendar, which is different from the ones human beings use). So it wasn’t hard to predict that Q1 was going to be big. Hell, Apple itself even hinted at it . Of course, no one knew the quarter would end up being that good , but plenty of us were thinking big. But last quarter was more complicated. First of all, it was the quarter after the holiday quarter, which typically sees a good sized drop as buying slows. Second, because of an oddity in Apple’s fiscal calendar, Apple’s Q1 was actually a week longer than their quarters typically are. That means a week less of sales in Q2 compared to Q1. Third, the iPhone 4S was no longer brand new, so the pent-up demand was probably going to dissipate. Fourth, a new iPad was expected, but it wasn’t expected to be on sale until the end of the quarter, creating a sales void leading up to the launch. Fifth, there were no new Macs released in the quarter. All of this seemed to be setting Apple up for a fairly significant drop quarter-to-quarter. Nope. Instead, what happened was that iPhone sales remained insane. 35 million for the quarter. While the phone grew its command of the smartphone market in the U.S. percentage-wise, the absolute sales numbers were down (again post-holiday and post-launch). But it was a different story in China. Because the phone was introduced in Q2 in that country, sales went through the roof. And it nearly offset the drop-off in the post-holiday and post-launch U.S. market. Since the iPhone is Apple’s most important product revenue (and profit)-wise, this bolstered the overall numbers — especially with regard to profit (more on that in a bit). Much was made yesterday about the iPad’s “miss” in terms of sales. Because Apple “only” sold 11.8 million of them, plenty of folks were disappointed. Those folks are idiots. The new iPad only went on sale in the last two weeks of the quarter. But everyone knew it was coming. As a result, buying of the old iPad slowed in anticipation. This isn’t rocket science. Further, Apple had trouble meeting demand for the new iPad in those two weeks on the books. If they can get the inventory up to speed, it will be this quarter which will be the big one for iPad. You release a new product, people buy more of them when they’re available. That’s generally how it works. But again, this iPad dip did little to slow Apple’s quarter because of the iPhone sales. And more broadly, Apple’s overall business in China is booming. As Kim-Mai pointed out yesterday,

900 Million Monthly Use...

Maybe more isn’t necessarily better? Yesterday Facebook, who is rapidly approaching its IPO in May (actual date has not been confirmed but the rumor mill is churning on mid-month) reported that reached nice revenue numbers but managed to see its profits slip 125 from the previous quarter. The New York Times reports Still, its revenue exceeded $1 billion for the second consecutive quarter, something the company is likely to emphasize when it begins its presentations to potential investors in the coming weeks. The latest financial figures, disclosed in an amended prospectus filed with the Securities and Exchange Commission, may raise questions about whether Facebook will be able to command a high stock value when it goes public, a number built largely on the promise of continued growth. I am not a Wall Street analyst and I did not stay at a Holiday Inn Express last night but this is not the kind of news you want to parade in front of potential investors if you are Facebook. Granted, there is plenty to look forward to for Facebook as they finally start to treat mobile with its proper respect but you still have to wonder a bit. As for getting more users for the service? At what point might they actually have most of the available folks on the planet using the service so the growth of users overall becomes nominal and not a very good measure of the company’s success? Growth, especially for investors, will have to be about revenue and profits. Unless those users of Facebook are going to open their wallets the sheer volume of people rings as hollow as a Like or a Follow or whatever quantity based metric you want to throw out there. Advertisers are only going to be interested if Facebook marketing performs. Volume of people on the service becomes the new TV-like measurement for the Internet. It’s the new eyeballs metric. Unless those “eyeballs” are taking action and converting then it all means nothing. Will Facebook’s large audience simply end up being only for big brands to do big branding plays since the cost of reaching that entire group would be too much for 99.9% of the businesses on the planet? On the plus side, Facebook is positioned to take advantage of a lot revenue opportunities but it is starting to get a kind of Google feel to it. Between mobile changes, privacy matters, patent purchases, political maneuvering and more extra-curricular activities you start to feel that Facebook wants to be all things to all people and that is what ultimately led to Google throwing on the brakes and cutting more than adding as of late. Like I said, I am not an analyst that is up to my neck in stats etc. I am an observer who sees patterns that can make one wonder a bit, that’s all. Do I hope the Facebook IPO is a flop? No. Do I want it to be a wild success? Really impacts me little. All I want is a service that is making clear moves for the future that can be used to further businesses through effective marketing to strongly identified target markets. Whether Facebook has 1 or 2 billion users is pretty irrelevant to most since not everyone is a potential customer and there is only so much time in a day. How do you view “news” about Facebook that is more about who will get rich from their IPO than it is about impact to you and your work? Is it worth your time? Let us know in the comments.

Facebook’s Amended S-1:...

Facebook has just filed a fourth amendment to its S-1 to IPO that notes that it now has 500 million mobile users, 901 million monthly active users, and that it paid 23 million shares at $30.89 a share plus $300 million cash for Instagram for a total of $1,010,470,000. Facebook also made $1.058 billion in revenue in the first quarter of 2012, up 44.7% from Q1 2012 but down 6.5% from Q4 2011. So if Facebook maintains its current revenue rate, it would make $4.69 on each of its 901 million users each year. Read on for more on the performance of Facebook’s ad business, and to see our embed of the full amended S-1 . Of the total $1.058 billion in Q1 2012 revenue, Facebook had an operating income of $381 million, and net income of $205 million. Advertising made up $872 million of the revenue, while payments and other fees accounted for $186 million. Payments are becoming a larger part of Facebook’s business, with advertising accounting for 82% of business at the end of Q1 2012 compared to 87% at the end of Q1 2011. However, Zynga is becoming less important to Facebook, as the percentage of its revenue derived from that single game developer decreased to 15% from 19% a year ago , as Kim-Mai Cutler details. Overall, revenue numbers are down from the $1.131 billion in total revenue, $943 million in advertising, and $188 million in payments from the holiday quarter of Q4 2011. The numbers are still way up from the $637 million in ads, $94 million in payments, and total of $731 million total revenue it made in Q1 2011. However, revenue growth rates are slowing, as Facebook increased revenue 88% from 2010 to 2011, but just 44.7% from Q1 2011 to Q1 2012. Despite Mark Zuckerberg noting about the Instagram acquisition that “We don’t plan on doing many more of these, if any at all”, the amended S-1 notes that a lack of similar companies to acquire could actually be a risk: “Our ability to acquire and integrate larger or more complex companies, products, or technologies in a successful manner is unproven. In the future, we may not be able to find other suitable acquisition candidates, and we may not be able to complete acquisitions on favorable terms, if at all.” Facebook will pay Instagram a $200 million termination fee if government authorities prevent the acquisition from being completed. Other information Facebook now lists include that it will IPO on the NASDAQ, collects 300 million photo uploads a day, hosts 125 billion total friendships (up from 100 billion on Dec 31, 2011), and sees 3.2 billion likes and comments per day (up from 2.7 billion on Dec 31, 2011). It now has 526 million daily active users, up from 483 million at the end of 2011. Its mobile interfaces gained 12 million monthly active users just since March when Facebook listed 488 million monthly users of its mobile products, and now has over 500 million. However, mobile growth is slowing, as it was up 33% from the end of Q1 2011 to the end of Q1 2012, whereas it was up 39% in 2011. 83 million monthly active users accessed Facebook solely from mobile in the month ending March 31, 2012, up a big 43% from the 58 million sole mobile users in the month ending December 31, 2011. It also listed today’s $550 million cash purchase of 650 patents from Microsoft , which had recently bought them from AOL. While it seems Facebook has built a strong enough fortress now that it has over 1400 patents , the amended S-1 still notes that “in the future we may acquire additional patents or patent portfolios, which could require significant cash expenditures.” Facebook’s momentum wasn’t enough to push revenues above the especially high holiday quarter when brands make huge ad buys and users are flush with money and gift cards to spend on virtual goods. Still, the 44% year on year growth for Q1 2012 should assure investors that the social network’s not done growing its business even as it starts to runs out of users to sign up that are of age and don’t live in countries like China where Facebook is banned.. With 901 million users and 7.009 billion Earthlings, now one in 7.7 people in the world have a Facebook account. Here’s the full amended S-1 from April 23, 2012: View this document on Scribd

Forrester: No Android T...

On the eve of what may well be the launch of a brand new iPad from Apple comes some new analysis from Forrester Research on the current competitive landscape in tablets — or lack thereof, as the case seems to be. In short: despite the rush of tablets that have come out in the past year, many built on Google’s Android OS, Apple has managed to continue to run away with the competition, and how has 73 percent of the tablet market. No Android tablet maker, it notes, has more than a five percent share against it. There is a caveat to Forrester’s research, however. Forrester carried out its market research last September, before Amazon had started to sell its Kindle Fire tablet, and before Barnes & Noble had released its own tablet to compete against that. These devices have proven to be forces in the market, and are already having an impact on sales of another device in the food chain, e-readers. (More on that below.) Both Amazon and Barnes & Noble also use Android — albeit versions that have been customized and are no longer on Google’s upgrade track (and service track) as a result. In Forrester’s analysis, Samsung has a five percent share; Motorola four percent and Acer a three percent share. HP’s TouchPad, now discontinued, had a six percent share, but that was during that series of crazy fire sales when everyone suddenly rushed to buy one. So how would those numbers look with the $199 Kindle Fire in the mix? Unfortunately we still don’t know exactly: the last numbers that the company released were during its last quarterly results at the end of January, but even these were not concrete. Amazon said that sales of its Kindle products, including the e-readers, had grown 177 percent over the last year and that the Kindle Fire was the bestselling among them. But others have parsed those numbers and have come up with their own sales estimates. Mobile analyst Chetan Sharma tells me that he believes that Amazon sold around four million Kindle Fire tablets in 2011. That would put it behind his estimates for Samsung, at six million, for the full year. But in the holiday quarter alone (the only quarter when the Kindle Fire was actually shipping to customers), Sharma believes Amazon would have come in second place to Apple, which reported that it sold 15.43 million iPad tablets. Others have guessed that Amazon sold more like six million Kindle Fire tablets . If you trust Forrester’s guess on these things, the role that companies like Amazon will play in the tablet market will continue to grow because of two reasons: price and content. Although many Android tablets, such as Samsung’s Galaxy line or Motorola’s Xoom, have been launched with media services in an attempt to punch at the same weight as Apple, it seems that the offerings are not good enough to justify the prices, which have been on par with Apple’s iPad. Amazon has made content a focus of its tablet, too, but at a much lower price point. That’s made the whole product significantly more attractive. Quoted in Bloomberg , Forrester analyst Sarah Rotman Epps notes: “Tablets are about services. That is where Amazon has succeeded where others have failed.” E-reader effect . Amazon’s Kindle Fire might not yet be denting Apple’s share by too much, but one area where it seems to be having more of an impact is on e-readers. Some research from DigiTimes estimates that shipments of pure-play e-reading devices will be down to only two million units this quarter, compared with nine million in the same quarter a year ago. It says this is down to the “substitution” effect of people opting for products like the Kindle Fire instead. That kind of cannibalization, to be honest, seems only to spell good news for Apple, as it means that more people are looking for devices that are bigger than smartphones, yet still portable, but are loaded up with more features than an e-reader: that’s a market where Apple has consistently set the bar. It’s still a market that is wide open for change: Forrester believes that by 2016, only about one-third of U.S. adults will own an iPad, and that’s before even considering what might happen in other markets.