Facebook Working with HTC to Build its Own Smartphone

Rumors of a Facebook phone are bubbling up again. Facebook was supposedly working to launch its own phone around the beginning of 2012, but that didn’t materialize. Apparently, it is working with HTC now to build its own smartphone, and launch it in 2013.

It is developing a “modified operating system” for the device, possibly a heavily customized version of Android, and also continues to focus on its mobile apps for iOS and Android.

Facebook has more than 900 million monthly active users with a lot of them accessing the service via their mobile phones.

It still hasn’t been able to figure out a good way to monetize its growing mobile audience, because of which analysts and investors alike are concerned about its future revenue potential. Its stock price crashed right after it went public on concerns that it might never be able to figure out the mobile monetization puzzle, which, admittedly, is a tough nut to crack.

Facebook’s official statement says:

“Our mobile strategy is simple: We think every mobile device is better if it is deeply social. We’re working across the entire mobile industry; with operators, hardware manufacturers, OS providers, and application developers to bring powerful social experiences to more people around the world.”

Facebook has hired some Apple iPhone engineers to work on its phone hardware, and also made some talent acquisitions to work on improving its mobile apps and presumably its mobile OS.

If Facebook ties in its services deeply with its smartphone, and manages to sell a ton of devices, it might be able to generate a significant amount of revenue from mobile advertising, and also reduce its dependence on Apple’s and Google’s devices to generate mobile ad revenue.

via Bloomberg

Zynga Posts Dreary Earnings in Q2 2012; Stock Down 40%

Zynga posted its earnings for Q2 2012 today, and it has caused a major bloodbath for its share price, which is down nearly 40% since the earnings release.

Zynga reported revenue of $332 million, up 19% year-over-year, but bookings of $302 million, which have actually decreased sequentially from Q1 2012. It also lowered its earnings outlook for the next quarter, which spooked analysts even more. It posted a net loss of $22.8 million. Of its total revenue, it generated around $292 million from virtual transactions in games, and $41 million from advertising.

Mark Pincus, CEO of Zynga, said:

“The company achieved some significant milestones in the quarter including the launch of Bubble Safari, which is now the number one arcade game on Facebook, and the launch of The Ville, now the number two game behind Zynga Poker. Our advertising business continued to show strong growth with revenue up 170% year-over-year. Our games reached record audiences, achieving over 300 million monthly active users. We grew our mobile footprint five-fold in the year to 33 million daily active users making Zynga the largest mobile gaming network,” said Mark Pincus CEO and Founder, Zynga. “We also faced new short-term challenges which led to a sequential decline in bookings. Despite this, we’re optimistic about the long-term growth prospects on mobile where we have a window of opportunity to drive the same kind of social gaming revolution that we enabled on the web.”

Zynga managed to grow its user metrics significantly in Q2, though most of it was due to acquisitions, and not organic growth.

Zynga’s monthly active users increased 34% to 306 million, while its daily active users increased 23% to 72 million. It also managed to increase the number of paying users to 4.1 million in Q2, which is a good sign for its monetization potential. Average bookings per user declined 10% though, to $0.046, which means that Zynga is generating less revenue per user than it used to.

Q2 was a very eventful quarter for Zynga. It launched 6 new games, launched the Zynga with Friends network, and made progress with its online gambling initiatives. It will likely roll out its first online gambling game internationally in the first half of 2013.

It ended the quarter with roughly $1.6 billion in cash, cash equivalents, and short term and long term marketable securities.

via Zynga – SEC

Apple Continues to Dominate the Tablet Market in Q2 2012

Apple has been ruling the tablet market with the iPad since it first launched it in 2010. In a way, it created the market for tablets when everyone else had just given up by creating one of the best tablets to date — the iPad — and creating a complete ecosystem around it.

Even though the iPad is one of Apple’s most relatively inexpensive products, it is still priced higher than most new Android tablets, which have been priced at around the $200 to $400 range to beat the iPad on price, since none of them can beat it on design, features or anything else just yet.

There has been speculation that while Apple will continue to sell tons of iPads, its market share will drop significantly in the coming years, as competing Android and Windows 8 tablets start beating it in unit sales, if not profits.

However, according to some new numbers by Strategy Analytics, Apple continues to wipe the floor with its competitors, and is still dominating the tablet market, even more so in the last quarter, after the launch of the iPad 3.

Apple sold nearly 17 million iPad units in Q2, up 84% year-over-year, generating more than $9 billion in revenue. The total tablet shipments in Q2 2012 were 24.9 million, which gives Apple a 68.3% market share. Android comes a distant second with 7.3 million unit sales, or a 29.3% market share, while Microsoft and others lag far behind.

In the next couple of quarters, Apple’s share may decline again, as Windows 8 tablets gain market share and Google’s Nexus 7 and other cheap Android tablets gain traction too.

However, the iPad will continue to lead the tablet market for years to come, at least when it comes to profits. If Apple launches the iPad Mini as rumored, then it may be able to easily grab even more marketshare, by not leaving a price umbrella for its competitors.

via Techcrunch

LG Q2 2012 Earnings: Revenue Drops to $11.2 Billion, Profit Jumps 46% to $138 Million

LG Electronics was yet another company which reported its earnings this week. It reported a 46% increase in its net profits year-over-year. Net profits increased to $138 million but revenues declined to $11.16 billion, down 10.6% year-over-year primarily because of declining phone sales.

LG posted a total operating profit of around $303 million, most of which came from its home entertainment division — around $187.5 million. Though division sales declined to $4.76 billion, down 5.8% year over year, margins increased due to improved supply chain management. Continued sales of LG’s Cinema 3D TVs made it the global leader in the 3D TV segment.

LG’s mobile division, on the other hand, posted a loss of around $50 million, with revenues declining 28.5% to $2 billion. The loss was primarily due to increased marketing expenses following the launch of new models. Smartphones now account for 44% of unit sales, and will only increase going forward.

LG’s home appliance division posted an operating profit of around $143 million, nearly triple last year’s profit due to a better product mix and improved cost efficiencies. Developing market growth also pushed revenues up to $2.5 billion.

Its AC and energy solutions division posted an operating profit of $61 million, up 17% over last year, with revenues declining to $1.28 billion.

Despite declining revenues, LG has been able to prop up its operating margins by focusing on profitability rather than sales.

What we are most concerned about is LG’s mobile division, which has been hammered not only by the iPhone, but also by Android devices from Samsung, HTC, Motorola, and others. Hopefully, it will make a comeback in the coming quarters.

via LG

AOL Reports Q2 2012 Earnings; Profit Nearly $1 Billion, Boosted by Patent Sale

AOL reported its earnings for Q2 2012, with a continued decline in its quarterly revenues which are now down to $531 million, a 2% decline year-over-year. While it should have posted just a marginal profit, it posted a net profit of around $970 million, which was mostly because of the sale of its patents to Microsoft for around a billion dollars. It reported a gain on disposal of assets (intellectual property) of $945.8 million, which accounted for almost all of its net profit.

It ended Q2 2012 with around $1.468 billion in cash and cash equivalents, over a billion dollars more than it ended the last quarter with.

Coming to the revenue split, it reported a healthy 5% increase in its advertising revenues, while its subscription and other revenues continued to decline.

Its domestic AOL access subscribers continued to decline to around 3 million, while its unique visitors on AOL properties increased to around 112 million and unique visitors to AOL’s ad network increased to 186 million.

Advertising will eventually account for almost all of its revenues. In the last quarter, it made around $140 million in display ad revenue, and $87 million in search ad revenue. Its third party ad network revenue added up to $111 million.

Tim Armstrong, Chairman and CEO of AOL, said:

“Today’s results represent a significant milestone for AOL as we returned to Adjusted OIBDA growth for the first time in four years. The strong results and consumer performance we announced today are clear signs our strategic and operating efforts are translating into significant financial progress.”

via AOL – SEC

Netflix Reports Q2 Earnings; $889 Million in Revenue, $6 Million in Profit

Netflix reported its earnings for the second quarter of 2012, with revenue of $889 million, up around 2% year-over-year, and a net profit of around $6 million, better than a net loss of around $4 million last year. It now has over $800 million in cash and short term instruments.

Netflix now has around 24 million domestic streaming subscribers, and is continuing to expand internationally into new markets like Canada, Latin America, UK and Ireland. It now has a total of 3.6 million international streaming subscribers, and 9.1 million DVD subscribers. DVDs continue to shrink as a part of its overall business.

Reed Hastings, Netflix CEO, mentioned this in his shareholder letter:

“In Q2, we achieved financial performance in the top half of our guidance in nearly every metric, and have returned to profitability.

66 months ago, we launched Netflix streaming in the US with limited selection. Now, we have 24 million domestic streaming members and an incredible selection of TV shows and movies. Networks that license us prior season TV shows are in several cases benefiting from record audience numbers in the current season, partly due to the availability and promotion of prior seasons on Netflix. We are growing our business, and helping to grow the entire industry.

This growth in each of our [new international] markets reflects our investment in an easy-to-use personalized selection experience, ever more compelling content, and higher quality streaming delivery. Device by device, title by title, network by network, market by market, we are constantly improving our service.

Q3 has begun strongly for us, and we expect to be profitable again in Q3.

In Q4, we will launch our next international market, which will drive us temporarily back into the red.

We have enormous challenges ahead, and no doubt will have further ups and downs as we pioneer Internet television. We are making progress in every market we serve, and see a once-in-a-generation opportunity ahead to build the world’s most popular TV show and movie service.”

via Netflix – SEC

Google Reveals How It Valued Motorola Before Acquiring It

Google surprised everyone last year when it decided to acquire Motorola last year, for around $12.4 billion. It was an unexpected move by the search giant, which would put it in direct competition with its own hardware partners as well as Apple, its arch nemesis in the mobile space.

Acquiring Motorola would also give Google the capability to produce its own hardware devices, and compete more effectively with the iPad in the smartphone and tablet markets.

At the time of the acquisition, it wasn’t exactly clear why Google acquired Motorola — whether it was for Motorola’s sizable patent portfolio which was hot property in those days as the patent wars loomed large, or for its hardware business, which would help Google “supercharge “its Android business, as Larry Page put it.

Today, Google outlined how exactly it valued Motorola when deciding to acquire it.

Of the $12.4 billion price tag, $5.5 billion was the value it attributed to Motorola’s patents and developed technology. $2.9 billion was attributable to the cash reserves of Motorola, while $2.6 billion was a goodwill expense, attributed primarily to the synergies Google expects to derive following the acquisition.

Of the balance, $730 million was assigned to existing customer relationships, while $670 million was for other net assets acquired.

Google completed the Motorola acquisition last quarter. Motorola contributed $1.25 billion to Google’s overall revenues, but depressed its margins with a $233 million operating loss.

via WSJ

Foursquare Launches Promoted Updates; Focused on Monetization

Taking a cue from Facebook’s Sponsored Posts, and Twitter’s Promoted Tweets, Foursquare has launched Promoted Updates, yet another shot by the leader in the hyperlocal-social space to monetize its user base and generate revenue.

Promoted Updates work similar to Twitter’s Promoted Tweets. They are displayed on the top of Foursquare’s Explore tab on its mobile app, and are probably pay-per-action ad units, which clearly demonstrate ROI for the advertiser.

Promoted Updates are currently available only to select advertisers as part of a pilot program. They are essentially a paid version of Local Updates, which enables merchants to reach out to users in the vicinity.

They will be targeted using the user’s location and their check-ins, tips, likes and lists. The targeting will be done using Foursquare’s Explore Engine, which will ensure that all promotions are relevant.

While Foursquare has much fewer users than Twitter or Facebook, it has the capability to directly drive sales in a much more efficient way, which makes its user base all the more monetizable.

Foursquare’s Product Manager, Noah Weiss, said:

“This is the first time ever that we’re allowing businesses to pay to promote their business in Foursquare. It’s obviously a very exciting milestone for us.

Dennis (Crowley, Foursquare’s CEO) has always said that we’ll do it when we’re ready, and we’ll do it in a way that we think makes for a better experience for users. The timing now feels right … the product is in a place where it makes a lot of sense for merchants who want to drive customers into their stores and for users who are looking for inspiration about something to try out.”

via VentureBeat

Interesting Bits from Apple’s Q3 FY12 Earnings Call

Apple posted its earnings for Q3 FY12 on July 24, with quarterly revenue of $35 billion and a net profit of $8.8 billion, showing healthy growth of around 20% year-over-year. It also revealed some additional information in the press release, but most of the juicy tidbits were revealed only in the earnings call that followed.

iPhone

Apple sold nearly 26.028 million iPhone units in the last quarter which ended in June. It generated $16.425 billion in revenue from iPhone sales.

iPad

Apple sold around 17.042 million iPad units, generating $9.171 billion in segment revenue.

Mac

Mac sales added up to 4.020 million units (1.010 Mac desktops and 3.010 Mac portables), generating $4.933 billion in total revenue.

iPod, iTunes and App Store

Apple sold nearly 6.751 million iPod units, generating $1.060 billion in revenue from hardware sales. It also made nearly $2.060 billion in revenue from iTunes, App Store and iBookStore sales.

The App Store is now available in 155 countries, and offers more than 650,000 apps and games, with 225,000 apps specifically for the iPad. It has surpassed more than $5.5 billion in payments to developers, which is way more than Google can claim yet.

Other

It also made some additional revenue from peripheral sales, other hardware and software sales, and services, which added up to $1.554 billion.

All these numbers add up to $35.023 billion, Apple’s total revenue.

In the last quarter, Apple increased its cash reserves by $7.045 billion, bringing the total up to around $117.221 billion.

Geographically, while America still accounts for most of its sales, China is proving to be a huge opportunity for Apple. It generated $5.7 billion in revenue from China in Q3, with most of it coming from iPhone sales.

Going forward, we expect most of Apple’s growth to come from emerging markets in the Asia Pacific region.

Cook didn’t mention the iPad Mini or reveal any details of the next iPhone during the earnings call. Not that anyone expected him to.

Earnings call transcript via SeekingAlpha

Apple Q3 FY12 Earnings: $35 Billion in Revenue, $8.8 Billion in Net Profit

Apple has posted its earnings for the third fiscal quarter of 2012, with quarterly revenue of $35 billion and a net profit of $8.8 billion, both up nearly 20% year-over-year. It managed to improve its gross margins from 41.7% to 42.8% this quarter.

It sold 26 million iPhones this quarter, which was up 28% year-over-year, but fell short of analyst expectations which predicted 29 million iPhones unit sales. The lull in iPhone sales is because the iPhone 4S is now almost a year old, and consumers are holding out for the next iPhone which is expected to be launched in October.

It also sold 17 million iPads, which is significantly above the 15 million figure which consensus analyst estimates suggested. The iPad has been a huge hit globally, and the onslaught of cheaper tablets have failed to have much of an impact on its sales yet. That may change in the next quarter though, as we see the impact of the Nexus 7 tablet by Google.

Tim Cook, Apple’s CEO, said:

“We’re thrilled with record sales of 17 million iPads in the June quarter. We’ve also just updated the entire MacBook line, will release Mountain Lion tomorrow and will be launching iOS 6 this Fall. We are also really looking forward to the amazing new products we’ve got in the pipeline.”

The “amazing new products” could very well be the iPhone 5 and the rumored iPad Mini. We shall know soon.

Apple also declared a dividend of $2.65 per share which will be payable to shareholders on August 16, 2012.

Another interesting fact — Apple now has over $117 billion in cash, cash equivalents and short term and long term marketable securities.