Evan Shapiro Reveals the Q4 Realities for Alphabet, Amazon, Apple, Microsoft, and More
Major media and entertainment companies’ quarterly earnings calls ought to pull back the curtain on what’s really happening in the industry, but they routinely bury unflattering numbers in expert spin, and the press on hand rarely asks questions tough enough to draw out the real story.
With 4Q earnings calls putting a bow on 2023, M&E industry cartographer Evan Shapiro pulls no punches in this real-time response for his Streaming Media Connect 2024 opening keynote, digging deep into the data to hold the spin doctors accountable, giving Streaming Media Connect attendees an unvarnished view of the industry that they won’t get anywhere else.
Read Part Two of our highlights from his keynote presentation below, and click here to watch the full keynote video.
In case you missed it, read Part One of our highlights from Shapiro's presentation.
Why Alphabet will have a massive 2024
Despite Wall Street's “meh” reaction to Alphabet’s Q4 earnings report, Shapiro said that, essentially, Alphabet’s diversification of its business models protects it from downturns in any one market segment. Wall Street analysts aren’t taking the necessary deeper look into the company’s true strengths and why it remains better protected against long-term economic fluctuations than other M&E conglomerates.
“Their cloud business is up almost 26%. YouTube was up almost 16%. Search is relatively flat in the entire historical continuum of Google’s search business, but their overall revenues were up almost 14%, and their operating income was up just a tremendous amount, over 50% year on year in the fourth quarter, which means a couple of different things,” he said. “One, the YouTube growth in particular portends the rebound of the overall ad economy, especially and almost exclusively for digital players. On the other hand, Alphabet was able to do something that many folks in the rest of the media ecosystem were struggling with – make sometimes very painful cuts, from an employee standpoint, and grow revenue and operating income simultaneously.”
“Google, on the other hand, because they have such an interesting and diversified revenue flywheel, really can create results on an ongoing basis that allow them to expand while reorienting huge chunks of their business,” he said. “And so they're retooling this business around new areas as they face headwinds from a regulatory and legal standpoint in advertising, search, and other platform businesses. They're expanding greatly into connected television and the cloud business, with revenues up almost 9%, but the net income was up 23% for the entire year. So, despite all of the various challenges they face regarding courts and legislatures around the world, I also think that Alphabet will have a massive year this year, especially because they are now the fourth largest NVPD in the United States.”
He emphasized the massive stature that YouTube has gained in many sectors. “Their premium subscription business just crossed a hundred million users, and they're the fastest growing operating system inside connected televisions around the world, the largest ad platform on the planet Earth, the second biggest music platform on the face of the earth, and the most important kids’ channel on the face of the earth. So, this diversification of business models and revenue sources for Alphabet protects them from downturns in any one segment, and that's why their market cap is up 54%. They're near or at an all-time high in market capitalization right now, and I think deservedly so.”
Spotify’s spotty growth spurt
While Spotify's Q4 numbers may ostensibly look good, Shapiro highlighted several factors that show the platform is not as healthy as it may seem at first glance.
“Their revenues were up, their advertising was up, and their subscription revenue was up 17%,” he said. Still, while these numbers may look good on the surface, he emphasized that this is just a year-on-year comparison. “In the face of all that revenue and user growth, this story keeps happening. Their net income was down 24%. I believe they lost half a billion dollars in 2023, worse by 24% than the year prior, despite revenues being up 13% and users being up across the entire board.”
He also said that, unlike Alphabet’s workforce cuts, Spotify’s three rounds of layoffs in 2023 did not substantially improve their growth. Their biggest issue, he believes, has been the $2 billion they sunk into their podcast sector, with very little to yet show for it.
“They did just announce that they're re-upping with Joe Rogan for a quarter of a billion dollars, which makes sense because they need their advertising business to continue growing, and they're unlocking the Rogan show across all other platforms and will rep all the advertising across everywhere the show goes…a much better business than locking him exclusively behind a paywall on Spotify and only getting the ads from that platform.”
But despite these issues for Spotify and its net income down by 24%, Shapiro noted that its market cap is up 105% year-on-year. He reiterated that while it's tempting to only look at the positive growth numbers in its various sectors, a deeper dive into the problems with their business models paints a truer picture of its overall position going into 2024.
Compared to Spotify’s stock rise, Sirius has a seriously head-scratching stock drop
Shapiro said that while Sirius signed a $100 million deal with SmartLess, which encompasses many other programs aside from the signature SmartLess podcast, 2023 was not a great year for the company, even though their stock prices rose.
“They were down in total users across Pandora and their satellite business,” he said. “However, despite the fact that their revenues were down year-on-year, their net income was up, and Sirius generated 1.2 billion in net income last year, as opposed to Spotify, who generated half a billion dollars in losses…and yet Spotify stock is up 105%, and Sirius is down 13%. This is something I don't necessarily understand. I get why there's doubts around this business, but I don't understand why there's no doubts around the other.”
Why Amazon remains a stalwart
Despite some fluctuations in Amazon’s various sectors over the last two years, Shapiro said that it remains a business to keep on board with, especially considering the ascent of its advertising arm.
“Their ad business is now the fastest growing on the face of the earth,” he said. “It will be about $40 billion this year. Most of that is retail media, but just this month, they started opening their advertising business to their entire video ecosystem, including Prime. They were always doing ads on Freevee, but now it's a much larger television operation, which comes on the heels of turning Black Friday/Thursday Night Football into a shopping ad-palooza, which was really impressive and changed the way the ad business is going to head over the next number of years.”
Shapiro broke down the numbers for Amazon’s other segments and what they mean for its overall stance for 2024. “E-commerce bounced back in a big way. Their AWS business is slowing from a growth curve historical standpoint, but they were such an early mover here that they're not really being punished by that crucially. They've morphed from a products business into a services business, and due to a huge infrastructure, including an ad tech that is second to very few on Earth, their overall revenues were up.”
He noted that these improvements are all the more impressive, considering they lost $3 billion in 2022. “This is a company that I think is going to have an amazing 2024, despite some regulatory issues that they too will face over the course of the year. I think they're at their all-time market valuation, which is really incredible.” However, he observed that they have now fallen behind Nvidia in total market capitalization.
The implications of Apple’s core transition from products to services
Shapiro said that Apple’s improvement in the services category is its saving grace compared to its drop in product revenue.
“They had a pretty good fourth quarter,” he said. “Net income is up 13%, and revenue is up 2%, which may seem small for Apple, but relative to their recent performance, not a terrible story. Their services revenue is up dramatically in the fourth quarter, driven by an almost indescribable array of products across gaming television and news, and there are massive revenues from taxes in the App Store. However, their product sales are flat. All other products other than the iPhone are down. They are going down year-on-year, and iPhone sales have slowed dramatically.”
He also spoke of another threat to Apple’s revenue: their losing battle in app taxes. “Epic and other third-party app developers are going to take their payment system outside of the App Store, both in the App Store and in Google Play,” he said.
“And then when you look at the full year, you can see services are the only really good story here,” he said. “Their product sales were down 5.7%. Their overall revenues are down 2.8%, and their net income is down 2.8%. This is not the story that Tim Cook has been telling for some time, and it is very explanatory for their current strategy, which is to go all in on services, to invest heavily in the app ecosystem, but heavily in both advertising and several other areas in the services sector. It will be an interesting and transitional year for Apple, yet they're still not being punished from an overall market capitalization standpoint. They're down from the year to date but are up historically for their overall valuation. They're no longer the most valuable company on the face of the earth, and it will be interesting. For the first time since I've been tracking them through my various ecosystems, they have become a company in transition.”
Why Microsoft’s Activision acquisition is their biggest challenge for 2024
Shapiro said that Microsoft is now the most valuable company in the world, but the biggest challenge they face is the weight of their Activision acquisition. However, like Alphabet, Shapiro observed that Microsoft’s diversified revenue puts them in a strong position, especially considering the good numbers in their various divisions.
“Currently, their net income is up dramatically,” he said. “Their More Computing business, which includes gaming, and their productivity and Office suite of subscription services is up pretty dramatically, and they have a fast-growing cloud business.”
Still, he noted some areas that are floundering. “Their Windows businesses and devices are down dramatically. Office and LinkedIn slowed to a certain extent. Their revenues are up but not at the trajectory used to for Microsoft, and their net income was actually down year-on-year. So it's interesting to look at this company, which is now at an all-time high market valuation, and say, ‘Hey, they have some work to do,’ but that's actually true.”
Their Activision acquisition may be rocky for now, but it may also pay off as long as it is handled well. “The Activision transition is going to be massive and painful,” he said. "They just laid off 1900 folks at that division, and that's just the start of the pain there. Activision was in a real troubled position before they started getting acquired by Microsoft, [with their] toxic work environment and threats of many lawsuits.”
Since Microsoft remains in third place in gaming, behind Nintendo and Sony, Shapiro said that the Activision integration must help them improve their position in that sector for the acquisition to be worthwhile. “That said, I do love the diversification of this revenue flywheel, and I think this is a company that's incredibly well run, so if they can get past that integration, I think they're going to be in really good shape.”
Read Part Three of our highlights from Evan Shapiro's Streaming Media Connect Q4 keynote presentation.
Watch full sessions from the February Streaming Media Connect here.
We'll be back in person for Streaming Media NYC on May 20-22, 2024, with Evan Shapiro hosting and presenting his closing keynote, "Next Is Now: The State Of The Streaming Media Industry." Click here to see the full program and to register.
All infographics courtesy of ESHAP.
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