FANMAG – Facebook, Amazon, Netflix, Microsoft, Apple and Google (Alphabet) are the most successful and the biggest tech companies in the U.S. They have all reported their quarter results for the period of Jan to Mar 2020, covering the COVID-19 period.
The fact is that we need them to connect us digitally with all the social distancing going on. So they have been more important than ever. Their financial results have proved their importance too, with the FANMAG growing their revenue compared to the same quarter last year.
We identify the most fascinating stats from their financial reports.
#1 – Amazon and Apple generated more revenue in 1 quarter than Singapore in an entire year
The top 3 FANMAG by revenue were Amazon, Apple and Alphabet, the triple As.
What is more amazing is that Amazon and Apple each made more revenue in the first quarter of 2020 than what the Singapore Government generated in the whole of 2019!
#2 – FANMAG grew their revenue during COVID-19 quarter compared to a year ago, with Netflix and Amazon improving by over 20%
FANMAG did well and became increasingly important during the COVID-19 period as the world has to move into the digital space after cities are in some form of lockdown.
Netflix provides entertainment to kill boredom at home. Google’s Youtube is a life saver for parents. Amazon delivers groceries and stuffs to homes to minimise the need to go out of the house. Facebook provides the social connection for people albeit digitally. Microsoft and Google’s Gsuite facilitate remote working. Apple benefited the least considering that people have fewer trips out to patronise Apple stores.
#3 – Microsoft has the highest net profit margin and Apple has the highest net profits (Apple made more profits in 1Q2020 than DBS revenue in the whole of 2019)
It is obvious that those companies who are mainly in software businesses enjoy higher gross and net profit margins. This is because the cost of developing the software is largely fixed while distribution can scale widely such that thereafter an incremental sale can bring in substantial profits. In this respect, Microsoft, Facebook and Alphabet have upwards of 50% gross profit margin.
Apple sells a lot of hardware and there are associated material and labour costs to produce them. The bill goes back to them even when they outsourced the production. Netflix spends a lot of money to commission films and buy the exclusive rights to distribute them. Amazon has the lowest net profit margin at 3% and this is expected because the cost of the goods sold via Amazon take up a big proportion of the revenue earned. Amazon has also said the costs have increased during COVID-19.
Most amazingly, Apple can reap so much profits and having a 19% net profit margin of a hardware business (and some softwares) is exceptional. This shows that they have the branding power to charge high prices and consumers would still buy them. Samsung has just 9% net profit margin in comparison. Apple’s $11.2 billion net profit in the last quarter was higher than DBS’s $11 billion revenue for 2019.
#4 – FANMAG have reservoirs of cash ($126 billion), with Alphabet, Microsoft and Facebook having half of their assets in liquid assets ($358 billion)
Tech companies are expected to be light on assets since most of their assets are their drive, intellect and creativity to produce innovative products and services. Such talents are not capitalised in the balance sheet but merely expenses in the income statement.
But I was taken aback that they have quite substantial cash. Most of them have at least 10% of their assets in cash with the exception of Alphabet and Microsoft.
The companies have even more cash-like assets if we consider marketable securities. These are likely fixed income products that are not volatile in nature. This is to yield higher interest on their idle cash and yet deployable should the opportunities arise.
Alphabet, Microsoft and Facebook have 44% to 50% in such liquid assets (cash + marketable securities)! They can make a lot of acquisitions and if done right, can continue to secure their influence in their respective markets.
#5 – FANMAG are cash generating machines and Apple is the King of All
The cash reservoir of FANMAG was built up by their cash generating businesses. Apple alone, generated more free cash flow ($40 billion) than the rest of the FANMAG combined ($23 billion).
Only Amazon is having a negative free cash flow in this quarter but it looks like a seasonal thing since the same quarter last year suffered a negative free cash flow too. But their full year free cash flow has always been positive so I do not think there’s an issue.
#6 – Amazon, Apple, and Alphabet each has a killer product that generates far more revenue
Amazon’s e-commerce dominance in North America shows in its segment results. Its revenue from North America is more than the International market and Amazon Web Services (AWS) combined.
Apple’s iPhone sales is higher than the sales of Mac, iPad, Wearables and Services combined. It is also noteworthy that the wearables have surpassed the sales of Mac or iPad.
Alphabet generates most revenue from Google Search than the sales from everything else combined!
Conclusion
US Big Tech has done very well in the last decade. Unlike the dotcom era in the late 90s to early 00s, FANMAG have real profits and cash flow to show today. They are dominating many aspects of our lives and have changed the way businesses are done. We cannot live without them anymore and they have continue to perform during COVID-19.