Disclosure: I am a partner in a coworking space, SwitchCube, which will shortly be running a Groupon campaign.

Groupon reported its fourth quarter 2012 earnings today almost exactly where analysts had expected: With $638 million in revenue, up 30 percent over last year.

The problem was that analysts wanted a profit.

“Record billings growth this quarter is a clear signal that customers love Groupons,” said CEO of Groupon Andrew Mason, focusing on the positive. “We will continue to invest in growth through 2013 as we see new opportunities to give our customers what they want.”

But while analysts had expected Groupon to earn $638 million and the company did almost exactly that, they also expected Groupon to make $0.03 per share of profit. Instead, the company lost 12 cents per share, posting a loss of $12.9 million, up from 2011′s $15 million but not yet in the black.

Source: Google Finance

Groupon shares fall like a rock in after-hours trading.

And while billings were up 24 percent to $1.52 billion in the quarter, and 35 percent to $5.38 billion for the full year, operating cash flow decreased 61 percent year-over-year to $65.7 million, and free cash flow decreased 83 percent year-over-year to $25.7 million.

Last quarter was a disaster for Groupon, driving its stock down nearly 20 percent on missed revenue and poor international performance, although it had grown subscribers 37 percent year-over-year to 200 million. This quarter is looking much the same for the Chicago-based daily deals frontrunner.

The sad part if you’re a Groupon shareholder?

There’s a lot that’s going right in Groupon’s market. The company’s active customer count hit 41 million, up 22 percent. Groupon Goods, the high-flying physical goods part of the company’s business, is still growing and now at an annual run rate of $2 billion. Active deals in North America were up 300 percent to almost 37,000. Mobile is booming for Groupon, with nearly half of its transactions happening via mobile devices in January, up 44 percent from January 2012. Total Groupons sold were up 21 percent year-over-year in Q4, and 19 percent quarter-over-quarter.

And yet, there is this oddly desirable quality of successful businesses that Groupon lacks: profitability.

Source: Groupon

Groupon Q4 2012 financials

I’m no financial genius, but I’m guessing the graphic below tells the story. Groupon’s cost of revenue has increased every quarter for over a year, from 20 percent of revenue in the fourth quarter of 2011 to 32 percent in the third quarter of 2012 and a massive jump to 44 percent in this most recent quarter. While marketing costs have steadily gone down, rising cost of revenue numbers like these are not going to make investors happy.

Source: Groupon

Groupon’s cost of revenue.

Image credit: Groupon

If the PC market is shrinking, Lenovo so far appears to be immune to the trend.

The Chinese electronics company sold 14.1 million PCs last quarter, thanks largely to its continuing success in China and other emerging markets.

In fact, this is the fifteenth straight quarter where Lenovo’s PC business grew even as the greater PC market has shrunk. That feat helped Lenovo report a gross profit of $205 million on $9.4 billion in revenue. Not bad for a company that conventional wisdom says should be floundering.

Lenovo’s sparkling results stand in contrast to the resentment-soaked PC shipment numbers that Acer reported this week. While Windows 8 is working out pretty well for Lenovo, Acer can’t say the same. And it’s pretty bitter about it.

“The whole market didn’t come back to growth after the Windows 8 launch. That’s a simple way to judge if it is successful or not,” Acer president Jim Wong told Bloomberg yesterday.

So how do you explain Lenovo’s success? Pretty simply, really: Its devices don’t stink. In fact, Lenovo’s IdeaPad Yoga is the best Windows 8 device I’ve used so far. That device, along with the rest of Lenovo’s early Windows 8 PCs, shows that consumers do respond positively when companies create high-quality hardware.

Something tells me Acer is pointing its indignant finger in the wrong direction.

Only, CFO Tom Szkutak wasn’t really there to answer questions.

Is Kindle profitable?

What are attach rates on Kindle, an analyst asked, wondering if Amazon was selling covers or bags, as well as digital content to fill up the Android-based tablets. After all, if Kindles are being sold at a loss, Amazon needs to sell digital revenue to replace the missing dollars.

“We have a multi-billion-dollar ebook business,” answered Szkutak in part, parroting the already-available press release. But he did add very helpfully that Amazon is “seeing good progress … but I can’t give specific numbers …”

Later in the call, when another analyst requested data on how Kindle is impacting Amazon’s overall gross margins, Szkutak simply refused to answer.

What’s up with Amazon Prime?

How is Amazon Prime doing, asked another analyst, seeking substantive information about Amazon’s “free” two-day shipping program, which costs $79 a year and also allows access to streaming movies and TV shows.

“The percentage of Prime customers has gone up,” Szkutak responded, vaguely. “We’ve launched a number of new services on the music side … the business is making good progress, but it’s still very early.”

How much does Amazon make from advertising?

Amazon seems to have buried Amazon Web Services revenue in a “Supplemental Revenue – Other” category, which includes Advertising Services and Co-branded Credit Cards … all of which makes perfect sense, of course. Credit cards and the cloud, side by side at last!

So an analyst asked how much Amazon made from advertising — an interesting question, because some product pages on Amazon’s site carry third-party advertising.

“Amazon Web Services revenue is growing very fast,” Szkutak replied, obliquely. “Some marketing services … is part of that revenue category.”

It would also be interesting to know precisely how fast AWS is growing, but unfortunately Amazon has obscured that number by including co-branded credit cards in the same revenue category. This couldn’t be intentional, could it?

What’s up with LivingSocial?

Amazon has been slowly reducing its investment in LivingSocial, another analyst mentioned. Would that continue, and what are Amazon’s plans with regard to daily deals?

“There’s not a lot I can specifically talk about as it relates to LivingSocial,” Szkutak unsurprisingly said. “But local is an interesting opportunity … a long-term opportunity,” he mentioned. Then in a weak moment of helpful clarification, he added that “we think about it over a long-term horizon.”

Really?

I mean, I’m aware that companies want to release only the information that puts them in the best possible light. And I’m aware that companies don’t want to release information that will be of competitive value rival firms. But as a public company, it’d be nice to see a little more openness from the largest online retailer in the Americas.

And guess what: if you’re an Amazon investor, it’s kind of critical to know how much the company is sinking into providing Kindle devices at or below cost, and how it intends to recoup the cash. It’s material to how you view the stock, and how you value it.

Note to self: skip the next Amazon earnings call.

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• Sales: up 22 percent to $21.27 billion in the fourth quarter of 2012, the company reported, or 23 percent higher if difference in foreign exchange rates are excluded.
• Net income: down 45% to only $97 million, or $0.21 per share, compared with $177 million in 2011.
• Versus the predictions: Wall Street predicted earnings of 27 cents a share, down from 38 cents per share in the fourth quarter of 2011, and total revenue of $22 to $23 billion. Sales were expected to jump up from the third quarter, of course, due to the holiday shopping season.

“We’re now seeing the transition we’ve been expecting,” Jeff Bezos, founder and CEO of Amazon.com, said in a statement. “After 5 years, eBooks is a multi-billion dollar category for us and growing fast – up approximately 70% last year. In contrast, our physical book sales experienced the lowest December growth rate in our 17 years as a book seller, up just 5%. We’re excited and very grateful to our customers for their response to Kindle and our ever expanding ecosystem and selection.”

• Kindle Fire HD: It was the most popular item: top selling, most wished-for, and most-gifted. “At year-end, Kindle Fire HD, Kindle Fire, Kindle Paperwhite and Kindle held the top four spots on the Amazon worldwide best seller charts since launch,” Amazon said in a statement.
• Kindle authors: 23 Kindle Direct Publishing authors have sold at least 250,000 digital copies copies sold mark in 2012.
• Kindle books: More than 500 KDP Select books have reached the top 100 Kindle best seller lists globally.
• Amazon’s digital library: Now includes 23 million movies, TV shows, songs, books, games, and apps — up four million items from 2011.
• Amazon Prime Instant Video: licensing agreements with movie studios now give Amazon 36,000 movies and TV show episodes to show.

The past few quarters have not been stellar for Amazon (Q3 2012: $274 million net loss;  Q2 2012: $7 million income) but investors seem to like these results, as the company’s stock is up 6 percent in after-hours trading.

Source: Amazon

Amazon net sales, Q4 2011 to Q4 2012

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July 9-10, 2013
San Francisco, CA

Early Bird Tickets on Sale

Verizon reported its fourth quarter 2012 results this morning, and while the company lost $1.93 billion, it grew by a record 2.1 million subscribers. And it sold a whack-load of iPhones — over six million, in fact.

“In the fourth quarter, we activated 9.8 million smartphones, which was by far our highest total ever,” Verizon’s chief financial officer Fran Shammo said in today’s earnings call. “About 65 percent of these smartphones were 4G LTE, and in terms of Apple iPhones, we activated about 6.2 million in the quarter.”

Those are big numbers, but the even bigger implication is what this means for Apple’s iPhone market share in the key U.S. market. iPhone 5 pushed Apple to its highest market share ever soon after being launched, and the momentum continued in the final months of the year as Apple claimed more than 50 percent of the smartphone market for the first time ever.

Source: Verizon

Verizon devices/4G LTE coverage

Now Verizon’s iPhone numbers show an even bigger share for Apple, at 63 percent. In just two days, AT&T will reveal its numbers, which will help form a very clear picture of iPhone/Android market share.

Shammo added that Android phones made up a majority of the remaining 3.6 million smartphones Verizon sold, which will surprise no one. Over 95 percent of them were 4G LTE.

With all those iPhone and Android sales, Verizon now has a 58% smartphone penetration rate: Almost six in 10 of its customers are smartphone users. That compares to something in the neighborhood of 40 percent a year ago and is pretty much in lockstep with the U.S. market as a whole, which tipped over 50 percent smartphone penetration early last year.

Image credit: John Koetsier

That’s up 18 percent year-over-year for the fourth quarter, and it’s up 21 percent for the full 2012 earnings.

“We had a great finish to an excellent year, with fourth quarter results exceeding our expectations,” eBay president and CEO John Donahoe said in a statement. “eBay Marketplaces in particular had a terrific fourth quarter, with growth in the U.S. accelerating three points, outpacing ecommerce.”

Source: Google Finance

eBay stock today

Key payments division PayPal, which has been a critical revenue driver for eBay in previous quarters, continues to do well, with payment volume up 24 percent … which, given PayPal’s fairly linear revenue structure, means that earnings were also up 24 percent.

PayPal clients sent nearly $24 billion to each other in 2012 — 250 percent more than in 2011 — and PayPal reported adding two million accounts a month in the fourth quarter, which the company says is PayPal’s fastest growth ever.

PayPal’s growth is important for eBay, as mobile payments is an increasingly growing market. PayPal put mobile commerce first explicitly in July of 2012, when mobile boss Hill Ferguson was elevated to VP of global product and saw a huge jump in mobile payments this past Thanksgiving. The company also teamed up with NCR to attack Square just a few days ago.

eBay as a whole generated $2.6 billion of cash flow in excess of expenses in the past year and is now sitting on a nice little nest egg of $11.5 billion in cash, cash equivalents, and non-equity investments. Not exactly Apple-sized, but certainly nothing to sniff at.

And for 2013?

eBay expects to earn $16-16.5 billion and make between $2.23 and $2.29 per share. The company’s stock is up $0.40 on the day.

photo credit: Ryan Fanshaw Photography via photopin cc

HP barely squeaked by analyst expectations in its fourth quarter earnings, but the bigger news today is that the company was forced to take a $8.8 billion charge over accounting irregularities with its enterprise software outfit Autonomy.

Yes, that’s after HP paid $11.1 billion for UK-based Autonomy last year, and it’s on top of the $8 billion goodwill write off the company announced back in August. Altogether, HP announced almost $17 billion worth of charges this year over companies purchased by past CEOs.

The company said the Autonomy charge was over “serious accounting improprieties” — and I’m sure this isn’t the last we’ve heard of this story. It could have been worse, if HP was completely unaware of the accounting issues, or if it tried to bury the story, investors would have even less faith in the software giant.

Update: In a later statement on the Autonomy situation, HP said that it launched an internal investigation after a senior-level member of Autonomy’s management team came forward and noted that there had been “a series of questionable accounting and business practices at Autonomy prior to the acquisition by HP.”

And for the kicker, the accounting issues may have led to HP paying a lot more for Autonomy than it was actually worth. From HP’s statement: “As a result of that investigation, HP now believes that Autonomy was substantially overvalued at the time of its acquisition due to the misstatement of Autonomy’s financial performance, including its revenue, core growth rate and gross margins, and the misrepresentation of its business mix.”

On its earnings call with investors this morning, HP chief executive Meg Whitman said “the two people who should have been responsible for the problems are gone” — referring to former HP CEO Leo Apothekar and chief strategy officer Shane Robinson. She later added that HP’s internal investigation is ongoing, and it has also turned over the case to the SEC in the U.S., and the Serious Fraud Office in the United Kingdom. While a solution will likely take some time, Whitman said the company will figure out a way to make it up to investors.

On the bright side, HP’s earnings per share for Q4 were $1.14, slightly up from analyst estimates of $1.12 per share. Revenues were $30 billion for the quarter, down 7 percent from a year ago, and around $500 million less than what analysts were expecting.

Here’s HP’s official statement on the Autonomy fiasco:

HP is extremely disappointed to find that some former members of Autonomy’s management team used accounting improprieties, misrepresentations and disclosure failures to inflate the underlying financial metrics of the company, prior to Autonomy’s acquisition by HP. These efforts appear to have been a willful effort to mislead investors and potential buyers, and severely impacted HP management’s ability to fairly value Autonomy at the time of the deal. We remain 100 percent committed to Autonomy and its industry-leading technology.

Photo: Devindra Hardawar/VentureBeat

In fact it was only in early 2007 that Steve Jobs erased the Computer from Apple Computer, Inc., almost six months before unveiling the very first iPhone. But the name is almost unthinkable now, as the original raison d’être for the company has become such an afterthought that the once lust-worthy Mac Pro has not really been significantly updated for a whopping 821 days.

Ouch.

But what else can you expect when Apple’s desktop line, as of Apple’s fourth-quarter earnings release today, accounts for a lowly 3 percent of Apple’s overall sales, just barely over $1 billion of Apple’s $36 billion in sales?

Source: Apple

Mac Pro

I mean, it’s almost approaching Apple TV’s now-legendary “hobby” status.

Even the iMac, Apple’s iconic model that Tim Cook showcased at Apple’s recent product launch event — and acknowledged as the machine that really started Apple’s long, long road to recovery in 1997 — was only renewed just this week after 539 days without a significant product refresh. That’s a long time for a machine that Phil Schiller called “the best all-in-one desktop in the world.”

Now, of course, all the action is in iPhone and iPad, which together as of this quarter accounted for almost 70 percent of Apple’s revenue.

Mac portables are still hot, with 47 percent sequential growth over last quarter, and 17 percent year-over-year growth, and yet these still account for only 15 percent of Apple’s revenue. But Apple knows how strategic its notebooks are, and has significantly updated both the 15-inch and 13-inch models just this year.

Meanwhile, predictions for the next Mac Pro update are as far away as 2013. Plenty of time for that 3 percent to dwindle to even lonelier digits.

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One of the big stories in Apple’s results is slowing growth in international sales.

Forty percent of Apple sales are consummated in the United States. That may sound bad, but it’s actually good, and it’s up from the second quarter of this year, in which 36 percent of sales were home on the range, and the just-previous third quarter, in which 38 percent of Apple sales were consummated locally.

International sales strength has been a big part of Apple’s success story. Key products such as the iPad have even at times enjoyed higher market share in some Asian markets than in the U.S., and slowing sales abroad is not good news. China is definitely not the problem — Apple chief Tim Cook said in the earnings conference call that China revenue is up 26 percent year over year — but other markets are not picking up the slack.

And by other markets, I mean Europe and countries in Asia that are not China or Japan.

While Apple’s revenue in the Americas grew 43 percent, and Japan jumped 113 percent, Europe grew a relatively anemic 8 percent, to just over $8 billion. Asia Pacific — which includes China — must have had some very poor performers, since even with China’s 26 percent jump the region grew only 15 percent.

Bond author Ian Fleming’s antihero Goldfinger once said “Once is happenstance. Twice is coincidence. Three times is enemy action.”

This is the third quarter in a row of slowly growing international shifting. Sales are still up, of course, and this quarter’s $8 billion increase in revenue from the previous year’s equivalent quarter means that international sales are up as well.

But not, critically, at the same pace as domestic sales.

There is something happening in the international market that is slowing Apple sales. And it may very well be all those sub-$100 Android phones. Which means that Apple must beware of distancing itself too far, price-wise, from the competition.

That’s part of what the iPad mini can help fix, but questions abound there, too.

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