R "Ray" Wang
R "Ray" Wang
Digital Giants Market Analysis: Microsoft | Apple | Tesla Q4 2020 Earnings Hint Strong Growth
The Q4 2020 big tech earnings season started with Netflix and their great numbers. Apple and Microsoft report on Tuesday their Q4 2020 and all indications seem to show good growth. Tesla's numbers are officially announced on Wednesday. Amazon announces February 2nd, 2021. Here's the current run down:
APPLE - Buy $150
Investment relationship - NO
Individual owned - YES
Family owned- YES
Company owned - NO
Services are still driving growth at Apple. With 585 million subscribers off the 1.1 billion install base of iPhones, Apple has a lot of opportunity to add services revenue. Services revenue is 67% margin and the highest profitability line item and all eyes will be on Apple One services attachment.
iPhone sales appear to have gained ground in China with Apple now cracking around 19 to 20% market share over the Chinese national players. 18 million iPhone12 phones have been sold in China.
In addition, Apple's shown market share gains over Android on Tablets.
On the hardware side, the M1 chip is game changing. Costs drop from $200 per unit to as low as $50 per unit for every Mac sale, leading to about $2.5 billion to 2.75 billion in yearly cost savings.
The mysterious announcement of Dan Riccio, Apple's hardware chief to a special project, has speculation on Apple's foray into the automobile market or extended reality.
This could be the quarter Apple hits $100B as with Amazon who reports later in the week.
Apple's got a great balance sheet with $191.8B in cash and $112.4B in debt
MICROSOFT - Buy $250
Investment relationship - NO
Individual owned - YES
Family owned- NO
Company owned - NO
Microsoft's strengths come from Office 365 and Office driving most of the revenue. However the cloud story underpins the overall momentum. Looking at the infrastructure and platform aspects of cloud, the top four players (i.e. Alibaba, Amazon, Google Cloud, and MIcrosoft Azure) are still all growing 40% YoY.
Most consensus forecasts show Azure revenue to rise 41.4% to $6.9 billion in Q2 FY 2021. While the cloud business is experiencing deceleration in growth, Azure has grown 3.5X since two years ago.
LinkedIn provides a strong base of 706 million monthly active users and traditionally grew at 20% YoY. However, the last quarter showed a stall in revenues as hiring was curtailed and recruiting and marketing ad revenues dropped.
Microsoft Teams continues to schlack Slack pretty hard as it gains ground in the enterprise and in the remote work era. Teams and the productivity and business process side of the business continues to grow in low double digits but could see a boost as digital transformation projects accelerate.
Gaming is a one time win with 30% YoY, but they are still behind with only 49M XBOX consoles over past 7 years. Nintendo has 74M and Sony has 115M PS4s sold over the past seven years.
Microsoft has a strong balance sheet with $138B in cash and $63.66B in debt
TESLA - Buy $1000
Investment relationship - NO
Individual owned - Yes
Family owned- Yes
Company owned - NO
If you value Tesla as a car company, you have it all wrong. If you see this as a digital giant, then the business models and monetization models have it valued in the $1000 range.
Tesla has shown it can scale up production and getting close to 500k units a year is a real milestone. The new Giga factories will be up in Austin and Berlin by end of 2021 or sooner. Tesla could be in the millions of units production in the next 24 months. The question is "Will they have the demand?". Most Tesla watchers believe so with forced electrification mandates across the world on automobiles.
Tesla is also gaining market share in China with that Giga factory's success despite fierce local competition from Nio. The battle is on in China for the world's largest EV market and the Model Y is leading the charge.
The bottom line - people want Tesla’s not EV’s
All eyes are on the CyberTruck. Initial stats shows that it outperforms Rivian, but the polarized design may see some loss in sales.
Tesla may be able to drop the Model 3 costs down to a $25k price point.
Your POV
Ready for a crazy 2021 for Big Tech as the reflation trade takes off? What are your hot picks for 2021?
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