Technology

Google’s loss to Epic will likely have little impact in the near-term

Published

5 months ago

December 12, 2023

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The logo of Google Play is seen on a screen.

Alexander Pohl | NurPhoto | Getty Images

A federal jury decided on Monday that Google’s app store has benefited from anticompetitive behavior, but it could take a long time before the company faces any potential changes to the Google Play store, and those changes are unlikely to hurt revenue significantly. That said, the ruling could give more ammunition to other antitrust cases against the company, even though those cases will likely take years to reach a resolution.

Epic Games originally sued Google in 2020, alleging it uses its dominant position as the developer of Android to strike deals with handset makers and collect excess fees from consumers. Google collects between 15% and 30% for all digital purchases made through its storefront. Epic tried to bypass those fees by charging users directly for purchases in the popular game Fortnite; Google then booted the game out of its store, spurring the lawsuit.

After a four-week trial in a northern California federal court Monday, a jury unanimously found that Google had acquired and maintained monopoly power in the Android app distribution market, as well as the in-app billing market for digital goods and services transactions. Epic filed a similar suit against Apple but lost in federal appeals court in April.

In an interview with CNBC, Epic CEO Tim Sweeney attributed the win to revelations during the trial that Google had allegedly deleted or failed to keep records such as chats about its secretive deals with app makers. He also noted that it had been a jury trial, while the Apple case was decided by a judge.

The decision comes as Google faces two separate Justice Department suits in Virginia and Washington, D.C., related to allegedly anticompetitive behavior.

Judge James Donato of the United States District Court for the Northern District of California will decide on remedies in the next phase in the coming months. Google could be forced to change its Play Store rules, which is what Epic asked for as opposed to monetary relief.

What’s at stake?

The company doesn’t break out Google Play revenue separately, but it is included in its “Google Services” segment, which brought in $67.99 billion in the third quarter of 2023 — an increase from $61.38 billion the year prior. It earns money from consumer in-app purchases and subscriptions.

A Wells Fargo analyst note Tuesday estimates Google will book $38.5 billion in Google Play Store billings in 2023. That’s about 13% of the company’s total expected revenue of $305.7 billion for the year, according to estimates from LSEG (formerly Refinitiv).

Epic’s victory could force Google to change its app store billing model, so it could no longer force app makers to use Google’s billing system as a condition for distribution through the Play Store.

It could also force Google to make changes to its Android commission, where it charges a 15% to 30% fee on digital goods and services purchased within apps.

The court could force Google give other app stores more exposure on its Android ecosystem, which has the largest share of the smartphone operating system market worldwide. The Google Play Store comes preinstalled on most Android devices, but users can install alternate stores manually. The court could require Google to allow other app stores equal footing on third-party devices, prevent Google from restricting distribution of those app stores, or take other measures to make sure consumers had alternatives.

In addition, the information that came to light during the trial could give third parties more negotiating leverage, argued KeyBanc analysts in a note late Monday night.

During the trial, Epic Games called a Google executive who testified that Google gave Spotify a special rate on Google Play subscription purchases — only 4%, versus 15% for others.

Epic Games CEO Tim Sweeney told CNBC Tuesday “I think it’s going to be impossible for Google Business Development to avoid giving everybody the Spotify deal at this point, and we’ll see, I hope, I hope journalists give that a good amount of scrutiny.”

Other financial information also came out during the trial. For instance, Pichai revealed that Google pays Apple 36% of Safari search revenue under the terms of a default search agreement that is core to the Justice Department’s separate antitrust claims. Epic’s attorney then alleged that Google pays Samsung, Android’s largest hardware partner, less than half of what it pays to Apple. Pichai replied that while he didn’t know for certain, it was possible.

A long journey ahead

It will be a while before any potential changes come to pass.

Google denied any wrongdoing and says it will appeal the verdict, so it could be tied up in appeals court for years.

“The trial made clear that we compete fiercely with Apple and its App Store, as well as app stores on Android devices and gaming consoles,” wrote Wilson White, VP, Government Affairs & Public Policy in a statement. “We will continue to defend the Android business model and remain deeply committed to our users, partners, and the broader Android ecosystem.”

Analysts noted Tuesday they expect a multi-year process before any changes would likely come to pass. “Google’s epic loss is much ado about nothing,” wrote Needham analysts.

Worst case scenario, Needham analysts argued, was that “Google loses all appeals and must add competitors, though it’s unclear consumers would move,” they stipulated. “Also, Google could charge new competitors to the Play store a revenue share of 15%+ so that the new competitors would have to charge consumers higher fees that includes Google’s ‘overhead’ charge.”

However, the verdict does have the potential to arm separate antitrust action against the search giant — ones that are closer to the heart of the company’s core revenue streams. Some analysts have noted that the loss for Google could influence an ongoing similar case brought by the Department of Justice.

Investors are awaiting more details of potential remedies to react strongly one way or another. Alphabet’s stock barely moved upon news of the verdict, and closed down less than 1% on Tuesday.

CNBC Tech Reporter Kif Leswing contributed to this report.

Technology

Amazon beats on top and bottom lines, driven by growth in cloud and digital ads

Published

11 hours ago

April 30, 2024

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Amazon beats on top and bottom lines, driven by growth in cloud and digital ads

Amazon reported better-than-expected earnings and revenue for the first quarter, driven by growth in advertising and cloud computing. The stock ticked higher in extended trading.

Here’s how the company did:

Earnings per share: 98 cents vs. 83 cents expected by LSEG
Revenue: $143.3 billion vs. $142.5 billion expected by LSEG

Wall Street is also looking at these key numbers:

Amazon Web Services: $25 billion vs. $24.5 billion in revenue, according to StreetAccount
Advertising: $11.8 billion vs. 11.7 billion in revenue, according to StreetAccount

Operating income soared more than 200% in the period to $15.3 billion, far outpacing revenue growth, the latest sign that the company’s cost-cutting measures and focus on efficiency is bolstering its bottom line. AWS accounted for 62% of total operating profit. Net income also more than tripled to $10.4 billion, or 98 cents a share, from $3.17 billion, or 31 cents a share, a year ago.

Sales increased 13% from $127.4 billion a year earlier.

Amazon expects a continued jump in profitability for the second quarter but at a more measured pace. The company said operating income will be $10 billion to $14 billion, up from $7.7 billion a year earlier.

Revenue in the current quarter will be $144 billion to $149 billion, Amazon said, representing growth of 7% to 11%. Analysts were expecting growth of 12% to $150.1 billion, according to LSEG.

Sales at AWS accelerated 17% in the first quarter to $25 billion, topping Wall Street’s forecast for sales growth of 12% to $24.5 billion. For the past year, growth in AWS has slowed, as businesses trimmed their cloud spend. But Amazon executives have said they’re seeing cost optimizations taper off, and they’ve indicated that demand for generative artificial intelligence can be a boon for its cloud business.

Amazon’s earnings growth has been driven in part by widespread cost-cutting, tweaks to its fulfillment operations, and the stabilizing of cloud spending. CEO Andy Jassy has become more disciplined in the company’s spending, while growing profitable services like advertising, cloud computing, Prime memberships and its third-party marketplace.

The company has laid off more than 27,000 employees since late 2022, with the cuts bleeding into 2024. During the first quarter, Amazon let go hundreds of staffers in its health and AWS businesses.

Amazon’s advertising unit saw sales surge 24%, just ahead of consensus estimates. It’s the first report since Amazon started running ads in Prime Video, a move analysts predict could generate significant revenue over time.

The company’s ad business, which grew faster than retail or cloud computing, has become an increasingly important profit driver for Amazon and has emerged as a main player in online advertising.

That market overall started growing again after a brutal 2022, when brands reeled in spending to cope with inflation and rising interest rates. Meta, Snap and Google parent Alphabet all reported first-quarter results last week and showed better-than-expected revenue growth, which was primarily driven by improvements across their ad businesses.

Revenue from third-party seller services, which includes commissions collected by Amazon, fulfillment, shipping fees and other charges, continued to surge. Sales in the unit grew 16% year over year to $34.5 billion.

Amazon remains a standout among mega-cap internet companies in that it’s yet to implement a quarterly dividend, even as cash and equivalents jumped to $73.9 billion in the quarter from $54.3 billion a year earlier. Meta announced its first dividend in February at 50 cents a share, and Alphabet followed, telling investors last week that it will start paying a dividend of 20 cents a share. Those companies also announced plans to buy back tens of billions of dollars in stock.

This story is developing. Check back for updates.

Technology

Super Micro pushes up full-year revenue forecast as it points to strong AI demand

Published

12 hours ago

April 30, 2024

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Super Micro pushes up full-year revenue forecast as it points to strong AI demand

Lisa Su, chair and CEO of Advanced Micro Devices, left, and Charles Liang, CEO of Super Micro Computer, speak at the AMD Advancing AI event in San Jose, California, on Dec. 6, 2023.

David Paul Morris | Bloomberg | Getty Images

Super Micro shares slipped 8% in extended trading on Tuesday after the server maker reported slightly less revenue than expected for its fiscal third quarter, even as it gave optimistic revenue guidance.

Here’s how the company did in comparison with LSEG consensus:

Earnings per share: $6.65 adjusted, vs. $5.78 expected
Revenue: $3.85 billion, vs. $3.95 billion expected

The company’s revenue jumped 200% year over year in the quarter, which ended on March 31, according to a statement. That compared with a 103% increase in the previous quarter. Net income came out to $402.5 million, or $6.56 per share, compared with $85.8 million, or $1.53 per share, in the year-ago quarter.

CEO Charles Liang said in the statement that Super Micro is bumping up its fiscal 2024 revenue guidance to $14.7 billion to $15.1 billion from $14.3 billion to $14.7 billion. Analysts surveyed by LSEG had expected $14.60 billion.

Notwithstanding the after-hours move, Super Micro stock is up 205% so far this year, while the S&P 500 stock index has gained 6%.

The company goes up against with legacy IT equipment providers such as Hewlett Packard Enterprise. But last year, investors were keen to bet that Super Micro could become a key provider of servers containing Nvidia graphics processing units for working with artificial intelligence models, pushing up the stock 246%. Liang said in the statement that he expects Super Micro to keep taking market share.

In March, Super Micro took the place of Whirlpool in the S&P 500.

Executives will discuss the results with analysts on a conference call starting at 5 p.m. ET.

This is breaking news. Please check back for updates.

WATCH: A quiet meme stock rally? Reddit, GameStop and Super Micro surge

Technology

Pinterest shares soar 16% on earnings beat, strong revenue growth

Published

12 hours ago

April 30, 2024

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Pinterest shares soar 16% on earnings beat, strong revenue growth

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Shares of Pinterest popped 16% in extended trading Tuesday after the company reported first-quarter results that beat analysts’ estimates and showed its fastest revenue growth since 2021.

Here’s how the company did, compared to LSEG analyst expectations:

Earnings per share: 20 cents adjusted vs. 13 cents expected
Revenue: $740 million vs. $700 million expected

Revenue for the quarter jumped 23% from $602.6 million a year earlier. Pinterest’s net loss for the first quarter narrowed to $24.8 million, or a 4 cent loss per share, from $208.6 million, or a 31 cent loss per share, a year earlier.

Pinterest reported 518 global monthly active users (MAUs) for the first quarter, up 12% year over year. Wall Street was expecting MAUs 504.9 million, according to StreetAccount. Pinterest said Generation Z is its fastest-growing, largest and most engaged demographic on the platform.

The company’s average revenue per user was $1.46 for the period, while StreetAccount was expecting $1.40 per user.

In its first-quarter release, Pinterest CEO Bill Ready said the company is driving greater returns for advertisers because of its investments in AI and shoppability.

“We’re executing with tremendous clarity and focus, shipping new products and experiences that users want, and in doing so, we’re finding our best product market fit in years,” Ready said.

Digital advertising companies like Pinterest have started growing again after a brutal 2022, when brands reined in spending to cope with high levels of inflation. Meta, Snap and Google parent Alphabet all reported first-quarter results last week that exceeded analysts’ estimates for revenue.

For its second quarter, Pinterest expects to report revenue between $835 million and $850 million, which equates to growth of 18% to 20% year over year. Analysts were expecting revenue of $827 million.

Pinterest will hold its quarterly call with investors at 4:30 p.m. ET.