silicon valley stories: How big tech makes money

Friday, February 7, 2020

How Big Tech Makes Money

This is the followup to the earlier version of the post which describes 2018 revenues and profits https://siliconvalleystories.blogspot.com/2019/08/how-big-tech-makes-money.html

Apple (Revenue in 2019: $267.7 billion, $55 billion)

iPhone - $55.9 billion
Mac - $7.56 billion
iPad - $5.9 billion
Wearables - $10 billion
Services(Apple TV, AppleCare, ApplePay) - $12.7 billion (up from $7.3 billion in Q4 2018)

Active installed user base 1.5 billion
Commentary : You can see that apple revenue is pretty much constant from 2018, however the stock is up because apple has consistently reduced the outstanding shares by buybacks which increases earnings pre shares. Also Services and Wearables revenue is blowout and increasing as Apple pivots itself into a services play from a phone maker.

Amazon (Revenue in 2019: $280.5 billion)

Q4 2019 GMV - $87.4 billion, operating income - $3.8 billion, net income - $3.2 billion
Investing in Amazon provides significant international exposure. NA sales : $53.6 billion, international sales : $23.8 billion
AWS 2019 revenue : 35 billion
AWS Q4 2019 revenue : $9.9 billion Q4 2019 profits : $2.6 billion
Commentary : AWS makes up most of the profits for amazon and accounts for 11% of the revenue. The retail business is a thin margin business and AWS remains the cash cow. Amazon and Apple have similar 2019 revenues, but Apple is way more profitable as a business. Amazon's AWS made in Q4 as much as Google's cloud made in whole of 2019 demonstrating its lead in the cloud. Amazon also declared 150 million prime subscribers which gives them a $16.5 billion recurring revenue bundle.

Microsoft (Revenue in 2019: $126 billion, $39 billion)

Q4 2019 revenue : $36.9 billion growing at 14%, net income : $11.6 billion growing at 38%

Productivity and Business Processes was $11.8 billion and increased 17%(includes Linkedin, Office 365 commercial, Office 365 consumer, Dynamic 365)
Intelligent Cloud was $11.9 billion and increased 27% (Server products and Azure)

Server products and cloud services revenue increased 30% (up 32% in constant currency) driven by Azure revenue growth of 62%

Personal Computing was $13.2 billion and increased 2%(Windows, XBox, Search, Surface)

Commentary : Azure continues to be be bright spot for Microsoft and that continues to drive the revenue growth. Microsoft has Office 365 which is its recurring revenue bundle like Prime and it is using its sales team to drive Azure growth.

Google (Revenue in 2019 : $160 billion, Net income : $34 billion)

Commentary : Cloud reached around a 10 billion annual run rate. Youtube generated 15 billion ads revenue. Google is making more revenue than microsoft but is a thinner margin business. However, Google's revenue is growing at 20% pace for the last few years, whereas Microsoft is around 15% growth rate. Youtube ads grew at 36% YoY. Google cloud is growing revenue at 50% YoY, however, the base in much smaller than AWS. To put things into perspective, AWS made in Q4 what Google Cloud made in 2019.

Facebook makes most of its money from ads (98.5%)
Q4 revenue - 21 billion, Net income - 7.3 billion
Facebook DAU - 1.66 billion
Facebook family of products MAU - 2.89 billion
Commentary : Facebook family MAU is 2.89 billion compared to Apple's 1.5 billion devices.

Overall Commentary

Apple and Amazon have the highest revenue. Apple's total revenue is not changing much YoY, Amazon is still growing revenue at >20% clip YoY
Apple makes the largest amount of net income every year. Apple returns largest cash back to the shareholders
Google total revenue is now greater than Microsoft with Search alone generating close to 100 billion in 2019. Microsoft is a higher margin business than Google
Facebook continues to boast highest percentage growth in revenue numbers at 27%