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