AWS re:Invent: service innovations and partnerships

AWS re:Invent (191202-06): see https://press.aboutamazon.com/press-releases

Apart from a number of compute and storage innovations, orders, new renewable energy projects and new fulfillment centers, here are the main novelties.

Services

• Amazon Translate adds 22 languages (total 54; 2804 pairs)
• Amazon Transcribe Medical, ML-based: allows physicians to dictate clinical notes and speech into accurate text in real time
• AWS DeepComposer: AI music composer
• Amazon Braket: quantum computing services
• AWS Wavelength: to build applications that serve end-users with single-digit millisecond latencies over 5G
• AWS Outposts: managed & configurable compute and storage racks (and databases, analytics, ML) built with AWS-designed hardware that allow customers to run compute and storage on-premise (in hybrid cloud), brings native AWS services, infrastructure and operating models to virtually any datacenter, co-location space or on-premises facility
• AWS Local Zone in LA for single-digit latency; first customers: Netflix, FuseFX, Luma Pictures

Partnerships

• With Formula One Group (Formula 1) for Computational Fluid Dynamics (CFD) project to simulate the aerodynamics of cars while racing, for 2021 car design.
• With Fox to enable a new cloud-based media production and delivery platform, a single platform will be used to deliver both traditional broadcast and D2C streaming services.
• With Verizon, Vodafone Business, SKT, KDDI: to use AWS Wavelength for 5G edge computing.
• With Novartis on digital transformation: reimagine core pharmaceutical manufacturing, supply chain and delivery operations, create Insight Centers that provide real-time visibility across its network of manufacturing operations & distribution centers.
• With Slalom to build joint AWS | Slalom Launch Centers (Launch Centers): help customers migrate to cloud & modernize IT; first 3 centers in Seattle, Chicago, Atlanta.
• With National Football League (NFL) to advance player health and safety using cloud and AI.

Google I/O 2019: highlights

General

• Focus on privacy.

AI

• Launches AI Impact Challenge ($25M)
• Demos Project Euphonia (understand the speech-impaired)
• Improves Google Assistant (10x faster, to be added to Waze)
• Expands Duplex to web (assistant for making restaurant or hairdresser reservations)
• Improves Lens & adds to Google Maps

Android

• Passes 2.5b active devices
• Launches Android Q (beta #3; incl Project Mainline: deliver important code changes to specific internal OS components directly from Google Play)
• Plans parental controls
• Adds Live Caption for real-time subtitles
• Works with Qualcomm on API improvement for 5G

Android TV

• Enables one-click subscribing
• Reaches 140 pay-TV operator integrations, 60% of smart TV manufacturers uses Android TV, total 1k content providers & 5k apps.

Devices

• Launches Pixel 3a (5.6 inch, $400) & 3a XL (6 inch, $480), Nest Hub Max (10 inch screen, video camera, $230)
• Considers foldable device
• Rebrands Home Hub to Nest Hub (drops price to $130, expands to 12 more countries)

AR

• To add AR to Google Maps (for Pixel users)
• Google Search results in 3D AR

Privacy

• Adds incognito mode to Google Maps

Search

• To add podcasts

Amazon break-down: e-commerce, web services, renewable energy, Kuiper Systems

Amazon really has only two platforms: e-commerce and web services (with some links between them, such as Prime).

On each, it is continually expanding, including wholesale services.

Renewable energy could be a third, esp. when it opens for third parties, turning Amazon into an energy provider.

Kuiper Systems seems a long shot, but potentially turning Amazon into a global ISP.

Platform

E-commerce

goods

ordering

distribution centers

delivery

shipping

physical stores

Web services

AWS

Media services

3rd Party services

Voice assistant

Amazon Chime

Amazon Pay

Renewable energy

Kuiper Systems

Spotify 18Q4 growth & margin analysis

Users

• MAU growth steady at 29.4%, with seasonal upticks in Europe and RoW.
• Guidance 19Q1: 218 million (midpoint), implies growth 25.7%.
• Premium subs growth down to 35.2%.
• Guidance 19Q1: 99 million (midpoint), implies growth 31.3%.
• Ad-supprted MAU growth 27.4%.

ARPU

• Down yoy but up qoq to EUR 4.89. Family and Student plans reduce the ARPU and so does expansion into lower GDP countries.

Usage

• Hours of consumed audio up 34% to 15 billion.
• This equals 25.1 hr/MAU/month (17Q4: 24.1).

Growth

• Revenue growth 30.2% to EUR 1.495 billion (guidance: EUR 1.45 billion).
• Split 29.7% for Premium subs and 34.6% for Ad-supported subs.
• Guidance 19Q1 revenue EUR 1.45 billion (mid-point) implies 27.3% growth.
• Guidance 2019 revenue EUR 6.575 billion (mid-point) implies 25.0% growth.

Margins

• Gross margin 26.7% (favourably impacted by non-recurring effects, otherwise 25.8%, which still includes the Google Home promotion in Q4: free Home Mini for new Family plans in the US). Guidance was 25.0%.
• Gross margin is strong in Top 5 markets, weaker elsewhere.
• Split 27.3% for Premium subs and 22.1% for Ad-supported subs.
• Guidance 19Q1 implies 23.5% (18Q1: 24.8%).
• Guidance 2019 implies 23.5%
• EBITDA margin second quarter in a row at positive level (6.8%).
• Operating margin first-time ever positive (6.3%). Positive impact from lower share price (reduces stock option and RSU costs), otherwise still higher than the guided (-0.7%).
• Guidance 19Q1 implies -5.9% (18Q1: -3.6%).
• Guidance 2019 implies -4.3%
• Second positive net result (EUR 442 million), impacted by Tencent Music IPO.

Cash flow

• Liquidity has been rising for many quarters, now at EUR 1.81 billion.

Twitter Q4 growth & margin analysis

Users

• Moving away from MAU to mDAU (monetisable), a metric that shows growth.
• US 27 million, International 99 million.

ARPU

• ARPU (from ad revenue) USD 0.822 (+26.3%).
• Growth double digit now for 4 quarters.

Growth

• Total revenue +24.2% (+26% currency neutral). Four quarters in a row of 20+ percent growth.
• On a TTM basis, an acceleration to +24.5%.
• US +24.4%, International +24.0%.
• Advertising +22.8%, also 4 quarteres of 20+ percent, but down from 18Q3
• US +24.3%
• International +21.2%
• Data licensing +34.6%. Accelerating now for 4 quarters.
• US +25.4%
• International +59.9%

Margins

• Gross margin 70.5%, highest since 14Q1.
• EBITDA (income from operations) margin 22.8% at record high and 6 quarters of positive margin.
• EBIT margin 10.6%, second positive quarter (also: 17Q4).
• Profit before tax: 5 positive quarters now.
• Net profit: same.

Cash flow

• Raised $1.15b from convertible in 18Q2.
• Liquidity has been rising for many quarters and now stands at $6.24 billion.

Guidance

• Strategic focus on: Health, Conversation, Revenue products (to grow sales teams for large & medium advertisers), Platform investments.
• Revenue 19Q1 at  midpoint a low +12.1%.
• Operating margin at midpoint a low 2.7%.

Amazon 18Q4 growth & margin analysis

In general, diversification supports growth and margins. Specifically: AWS, Prime, hardware, advertising. What's next?

Growth 18Q4

Take-aways: advertising driving a new round of growth. Physical stores (Whole Foods Market and Amazon stores) down on price reductions, footprint expansion seems inevitable.

• Overall +19.7%. Lowest level since 15Q1. Currency neutral +21%, lowest since 14Q4.
• Products +17.3%, Services +52.4%. Revenue contributions 61.8% and 38.2%.
• N-America +18.3%, International +15.5% (currency neutral +19%), AWS +45.3% (currency neutral +46%).
• Online stores +12.5% (currency neutral +14%), Physical stores -2.7%, 3rd Party sellers +27.2% (currency neutral +28%), Subscription services (Prime etc.) +24.6% (currency neutral +26%), AWS (see above), Other (advertising etc.) +95.3% (currency neutral +97%).

Growth 2018

Take-aways: highest growth in US and RoW.

• US +32.9%, Germany +17.3%, UK +27.7%, Japan +16.1%, RoW +42.9%.
• Growth acceleration in UK probably on growth of Prime.
• RoW growth down from previous years. Still high on e-commerce expansion and AWS.
• US contribution up to 68.8%, Germany down to 8.5%, UK down to 6.2%, Japan down to 5.9%, RoW up to 10.5%.

Margins

Take-aways: international still negative. AWS by far most profitable. In absolute terms, AWS contributes almost the same as N-America.

• Gross margin 38.1%. Up from 17Q4 but down from 18Q3.
• EBIT margin 5.2%.
• N-America 5.1%
• International -3.1%
• AWS 29.3%

Facebook 18Q4 growth & margin analysis

Users

Take-away: return to growth in Europe, approaching saturation in N-America.

• DAU: slight growth in N-America, return to growth in Europe. Higher growth in Asia and RoW.
• MAU: same, except stable in N-America.
• DAU/MAU ratio almost stable at 65.6%.

ARPU

Take-away: growth still high, payments making a leap in N-America.

• Advertising: highest growth in N-America, down just slightly
• Payments: big jump in N-America (+51.0%), less in Europe (+13.3%).

Growth

Take-away: growth down just slightly qoq, mobile ads still growing bigger, Oculus (and Portal) starting to become meaningful.

• Overall growth was down to 30.4%.
• By source: mobile ads up to 91.5%, desktop ads down to 6.9%, payments and other up to 1.6%.
• By geography: N-America up (49.9%), Europe up (24.5%), Asia down (16.3%), RoW down (9.3%)
• Geographic area yoy growth was down a few points from 18Q3, most of all in Europe.
• Hence yoy revenue contribution from Europe was down, but qoq it was up.
• Advertising growth (30.2%) was down from 18Q3.
• Mobile ads growth down slightly (+36.1%).
• Desktop ads growth down sharply (-17.1%).
• Mobile/desktop now 93/7.
• Geographic growth similar to overall geographic growth.
• Payments and Other Fees was up sharply (+42.0%), probably of Oculus (and Portla) sales (less on reduced desktop games).
• Sharp growth in N-America and Asia (both 54.5%). Europe much slower (+18.5%). RoW still down (-14.3%).
• Contribution to total revenue still small but up (1.6%).

Margins

Take-away: efforts directed at fake news and privacy take a toll; hardware has lower margins.

• Gross margin 83.5% (down from 87.6% last year). Probably on higher scrutiny expenses and lower margins on hardware.
• EBIT margin 46.2% (down from 56.7% last year). Mainly up from increased Marketing and Sales (14.6% of sales vs. 10.6% last year).
• Employee count at 35,587 (+1,981 qoq, +42% yoy).
• Productivity: revenue per employee $163k (down from $179k last year).

The case against Amazon: decreasing edge innovation and regulatory shortcomings

Forbes has possible remedies to curb Amazon, based on the case brought against it by Williams-Sonoma over copying furniture.

The complaint

• Abuses dominant platform
• monopoly leveraging (vertical integration) aimed at profits in ancillary business (not fending off rival e-commerce platform)
• has user data, uses search to steer to Amazon products
• advertises on Google with same keywords driving up prices and getting higher ranking
• Trademark infringement
• decreases edge innovation (rather than driving up prices)
• unfair competition (Lanham Act)

Possible remedies

• Expand IP protection; problem:
• could harm innovation
• Expand antitrust enforcement
• structural relief/separation (define core and prohibit going outside); problems:
• how to define core
• no tangible consumer injury
• takes too long
• nondiscrimination regime; problems:
• only for merchants seeking access to Amazon (unlike Williams-Sonoma)
• complaint-driven process is expensive for small merchants
• Other protection

Google hardware event: Pixel 3, Pixel Slate, Home Hub, Chromecast 3

Pixel 3

• Pixel 3 (5.5 inch, $800 with 64 GB, 900 with 128 GB) & Pixel 3 XL (6.3 inch, $900 with 64 GB, 1000 with 128 GB) in US
• Based on Android 9 Pie, Snapdragon 845, OLED, wireless charging, 4 GB RAM
• With Assistant, Lens, Call Screen (robot answering, based on Duplex), Super Res Zoom, Night Sight, Top Shot (8 photos burst, selects best with ML), Photobooth (based on Clips), Motion Auto Focus
• Pixel Stand (for charging, $80)

Google Home Hub

• Assistant Smart Display, smart speaker with 7-inch display, $150, in US, UK, Australia
• With Assistant, personal info, Home View dashboard for smart home device control, access to Google Photos, YouTube & YouTube TV

Pixel Slate

• Tablet, 8 or 16 GB RAM, from $600
• With Chrome OS
• Sparate Slate Keyboard ($200), Pixelbook Pen ($100), Folio (cover, $200)

Chromecast 3

• 1080p, 60 fps, $35, in US, Canada, UK, Australia, NZ, Denmark, Finland, NL, Norway, Sweden, Japan, Singapore