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Big Tech earnings showed digital ad revenue came roaring back

Big Tech’s third-quarter earnings showed that digital ad revenue came roaring back in recent months….

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Facebook CEO Mark Zuckerberg makes his keynote speech during Facebook Inc’s annual F8 developers conference in San Jose, California, U.S., April 30, 2019.

Stephen Lam | Reuters

Big Tech’s third-quarter earnings showed digital ad revenue came roaring back in recent months, and suggested some of the digital ad trends tied to the explosion of e-commerce could be here to stay.

Alphabet, Facebook, Twitter and Amazon, which reported earnings Thursday after-hours, along with peers Snap and Pinterest, which reported earlier, showed strong digital advertising growth in the quarter as brand advertising started to rebound and sports made a return.

And though digital advertising has been on the rise for years, events of this year appear to be accelerating existing trends like e-commerce growth, as consumers get comfortable buying online out of necessity. And advertisers are following them online.

“In a world where we debate what structural changes will COVID bring… we believe one answer is clear: advertisers’ eagerness to spend/experiment on digital advertising has inflected,” Morgan Stanley analysts wrote in a Friday note. “The platforms with leading reach and ad offerings are set to capitalize and drive that shift into ’21 and beyond.”

Research firm MoffettNathanson added that the recovery in digital advertising is “so rapid and voluminous that many of the leading digital platforms are now exceeding the ad growth they posted” before the pandemic in the fourth quarter of 2019.

“In essence, history will likely show that the impact of COVID-19 and the attendant negative economic shocks depressed spending for only five months,” MoffetNathanson analysts wrote Friday. “We also strongly believe that history will show that 2020 will be seen as an inflection point for the industry as secular shifts in e-commerce, small to medium-sized business formation and declines in linear TV viewing accelerate the growth in digital ad spending.”

Here’s what happened in the ad businesses of Google, Facebook, Twitter and Amazon this quarter and what they mean for the digital ad market.

Facebook

Facebook saw ad revenue in the quarter up 22% compared to a year ago, adding another million active advertisers in the quarter to reach 10 million. Morgan Stanley analysts said the broader trend of advertisers moving dollars online, along with Facebook’s reach and the efficacy of its ads, is why the business is “likely growing faster now than it was in January/February.”

As brand advertising continues to pick up and e-commerce accelerates for the holidays, that will likely mean continued acceleration for Facebook, Barclays analysts noted.

Some are hesitant around the potential reversal of the trends spurred by Covid-19. Needham analysts said Friday that Facebook benefited from higher usage per day amid global lockdowns, which results in more ad units Facebook can sell. That elevated usage may not continue as businesses like movie theatres and restaurants open.

But, as JPMorgan analysts pointed out, the Street may interpret Facebook’s comments about the uncertainties of 2021 as more cautionary.

“Investor concerns around the cautious tone for 2021 seem overdone given the easy comps [through] 2Q and FB’s history of such commentary,” Barclays analysts added Friday.

Google

Google saw a strong advertising quarter. Its “search and other” category rebounded to 6% growth. YouTube ad revenue showed 32% growth as direct-response strength was joined by a return of brand advertising spend.

Credit Suisse analysts said Google was able to capitalize on the movement of more ad dollars online.

“As the pandemic accelerates the secular shift to online, Google has been looking to onboard merchants of all sizes with a series of products including Google My Business and free listings on Google Shopping – this along with tools to help start advertising in 15 minutes should help to convert these businesses to paying advertisers,” Credit Suisse analysts said.

Though the pandemic has hurt some traditional channels of advertising, Wedbush analysts said the shift to online disproportionately benefits Alphabet.

“We expect this shift to continue at least until there is a widely available vaccine, and even then, it is likely that many consumers who discovered online grocery shopping and online restaurant delivery will be converted to more frequent purchasers ahead,” they wrote. “In the near term, we anticipate increased consumer spending in ecommerce channels to continue to drive product and brand advertising increasingly online.”

Twitter

Though Twitter’s ad revenue was up 15% in the quarter, driven by the return of sports and delayed events and product launches, many analysts saw the company as one of the weaker recovery stories in advertising.

The company, which has a stronger brand advertising business, said it will delay updates to its direct-response ad product next year. That means Twitter won’t yet be able to take advantage of a segment of the ad market that has remained stronger during the pandemic.

“The rising online ad market tide is likely to be a meaningful tailwind to TWTR in 4Q and ’21,” Morgan Stanley analysts wrote. “But in our view, TWTR needs to improve execution (and utilize its new ad infrastructure) to drive sustained stronger user retention and higher monetization.”

RBC analysts said they expected to see 22% year-over-year ad revenue growth in Q4. And it’s yet another example of the way advertisers are thinking differently about digital.

“Overall we view 3Q results as a positive indicator on strength of digital advertising market as offline businesses refocus on Online activity,” BofA Securities analysts wrote Friday.

Amazon

Amazon reported 51% year-over-year growth in its “other revenue” category, which includes advertising, as ad budgets improved from their second-quarter contraction.

“With increased online traffic, AMZN has turned that traffic into valuable real estate for advertisers, and in turn, had strong advertising performance in 3Q,” KeyBanc analysts wrote Thursday.

Analysts expected e-commerce advertising would ramp up even more heading into the holiday season in the fourth quarter, but noted that with higher competition for traffic from traditional retail, advertising costs could be higher.

And though digital advertising has been on the rise for years, events of this year appear to be accelerating existing trends like e-commerce growth, as consumers get comfortable buying online out of necessity. And advertisers are following them online.

Source: https://www.cnbc.com/2020/10/30/google-facebook-amazon-twitter-earnings-show-ad-revenue-recovery.html

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Stitch Fix shares surge as online styling service reports surprise profit

Stitch Fix shares jumped after the online shopping and styling service reported a surprise profit for its fiscal fourth quarter.

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The Stitch Fix application for download in the Apple App Store on a smartphone arranged in Hastings-on-Hudson, New York, U.S., on Saturday, June 5, 2021. Stitch Fix Inc. is scheduled to release earning on June 7.

Tiffany Hagler-Geard | Bloomberg | Getty Images

Stitch Fix shares jumped 14% in extended trading Tuesday after the online shopping and styling service reported a surprise profit for its fiscal fourth quarter.

Sales for the three-month period ended July 31 also came in higher than analysts were expecting, thanks to outsized growth in Stitch Fix’s women’s and kids’ categories. Menswear has been growing more slowly, the company said.

Consumers have been splurging on new outfits in recent months, as many head back to school and return to social gatherings. Some have also citied the need for new clothes after either gaining or losing weight during the Covid pandemic.

Here’s how Stitch Fix did compared with what Wall Street was expecting, based on a survey of analysts by Refinitiv:

  • Earnings per share: 19 cents vs. a loss of 13 cents expected
  • Revenue: $571.2 million vs. $548 million expected

Net income attributable to shareholders was $28 million, or 19 cents per share, in the latest period. A year ago, it posted a net loss of $44.5 million, or 44 cents a share. Analysts had been looking for the company to book a loss of 13 cents per share.

Revenue grew to $571.2 million from $443.4 million a year earlier. That was better than analysts’ expectations for $548 million.

Stitch Fix reported nearly 4.2 million active clients, up 18% from a year earlier. The company said net revenue per active client was $505, surpassing the $500 threshold for the first time ever. Customers have been purchasing more items to keep at home, Stitch Fix said, as they have more brands and price points to choose from.

Stitch Fix defines active clients as people who either ordered a “Fix” subscription or bought an item directly from its website in the preceding 52 weeks from the final day of the quarter.

The company also said it had its lowest ever churn rate at the end of the period, meaning its customers are sticking around.

Last month, Stitch Fix finally opened up its direct-buy option, which is now known as “Freestyle,” to the public. This allows people to shop Stitch Fix for individual items of clothing, without needing to sign up for a subscription.

CEO Elizabeth Spaulding said this should help Stitch Fix grow its addressable market in the year ahead. The company’s next initiative will be to market and raise broader awareness around the offering, she said. Stitch Fix is preparing to roll out a national advertising campaign on the debut.

Early indications are that “Freestyle” is meaningfully accretive to the company’s revenue per active client metric, Spaulding told analysts on a conference call.

“Clients have agency, flexibility and choice while also experiencing a highly personalized shopping experience,” Spaulding said.

For its fiscal first quarter, Stitch Fix said it sees sales in a range of $560 million to $575 million. That’s below analysts’ expectations for $588 million.

For the upcoming fiscal year, Stitch Fix anticipates sales rising 15% or more from the prior year. Analysts polled by Refinitiv had been looking for an 18% increase.

While the entire retail industry is working through supply chain complications, Stitch Fix said it is seeing a small impact, but nothing that will hurt the business in the fall and winter months. The company said it is less reliant on Vietnam, where manufacturing has largely come to a standstill due to ongoing pandemic lockdowns in the region.

As of Tuesday’s market close, Stitch Fix shares have fallen nearly 39% this year. The company has a market cap of $3.8 billion.

Find the full press release from Stitch Fix here.

Sales for the three-month period ended July 31 also came in higher than analysts were expecting, thanks to outsized growth in Stitch Fix’s women’s and kids’ categories. Menswear has been growing more slowly, the company said.

Source: https://www.cnbc.com/2021/09/21/stitch-fix-sfix-q4-2021-earnings.html

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© 2021 CNBC LLC. All Rights Reserved. A Division of NBCUniversal

Data is a real-time snapshot *Data is delayed at least 15 minutes. Global Business and Financial News, Stock Quotes, and Market Data and Analysis.

Market Data Terms of Use and Disclaimers

Data also provided by Reuters

Source: https://www.cnbc.com/earnings/

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