LT Weekly: Aug 01, 2025

We are in the eye of the earnings storm, and this week we had 37 companies in our LionTree Universe report their second quarter numbers (up from last week’s 22). Unlike last week, stock reactions actually skewed negative, with 21 companies (57%) trading up in reaction to their results and 16 (43%) trading down. The best performer was eBay, which surged +18.3% post its print, and the worst performer was Coinbase, which fell -16.7%.

After Alphabet kicked off the Big Tech reports last week, this week Meta followed suit and was up +11.3% after its report (see Theme #2), followed by Amazon, which went the other direction and fell -8.3% (see Theme #3).

Also, as a follow up post Charter’s earnings report last week, Comcast reported this week and was up +2.2% (see Theme #4). We also got some reads into music with Spotify, which fell -7.9% (see Theme #5 for more on why), online travel with Booking, up +0.4% (see Theme #7), and gaming with Electronic Arts, up +5.7% (see Theme #6).

Finally, we took a quick look at Roku, down -15.1%, Apple, down -2.5%, UMG, down -0.6%, Microsoft, up +3.9%, Roblox, up +10.3%, and Reddit, up +17.5% (see Theme #8).

The table below includes select mid- and large-cap TMT and consumer companies in our LionTree stock universe that reported this week.

Meta has dominated headlines in recent weeks, particularly following CEO Mark Zuckerberg’s launch of a new Superintelligence lab, which was an initiative that included a $14bn investment for a 49% stake in data-labeling startup Scale AI and the hiring of its CEO, Alexandr Wang, along with other top AI researchers. Amid these ambitious efforts, it’s especially important to see continued strength in the core business, and, on that, Meta did not disappoint, beating Street expectations across the board in Q2.

Total revenue accelerated from +16% y/y growth in Q1 to +22% growth in Q2, and while Reality Labs’ performance came in slightly below consensus, it was easily offset by much stronger revenue in Family of Apps. Q2 op income, EPS, and FCF also beat by a significant +20%, +21%, and +35% respectively.

CapEx is always of particular interest, and Meta’s trajectory on that front remains higher. The Co raised the low end of the 2025 CapEx guidance from $64-$72bn to $66-72bn (the mid-pt is up +$30bn y/y) and currently expects “another year of similarly significant CapEx dollar growth in 2026” (i.e., will reach ~$100bn). Investors have become a lot more accepting of the higher spending given the strong returns the company is seeing in the core business.

More specifically, FOA advertising rev growth accelerated from +16% y/y in Q1 to +22% y/y in Q2 (all regions saw seq accelerations), and op margin of 53.0% was well ahead of cons 49.5%. AI is unlocking greater monetization efficiency across Meta’s ad systems. Key initiatives right now are leveraging AI to optimize the levels of ads within organic engagement and improve marketing performance. Results are already showing, with an example being their Generative Ads Recommendation System (GEM) increasing ad conversions by ~5% on Instagram and 3% on Facebook Feed and Reels in Q2.

Meta AI is also importantly gaining scale and has surpassed the 1bn+ MAUs milestone and AI glasses are building momentum as well. The % of people using the glasses for Meta AI is growing. And bringing it back to the Co’s superintelligence efforts, AI glasses are expected to be the main way Meta integrates superintelligence into day-to-day lives,

Overall, it was a strong quarter all around and as long as the Co can continue to show strong returns from its spending efforts, investors are likely to give Zuckerberg the benefit of the doubt.

See below for more on our thoughts regarding key takeaways from Meta’s results and earnings commentary.

Also digital advertising related, see Theme #8 for a quick take on Reddit’s Q2

-> Meta jumped +11.3% after its report and ended the week up +5.2%; YTD, the stock is up +28.1%  

Q2 – Top-Line Acceleration & Robust Profitability

• Q2 total revs BEAT cons by +6.0% & grew +21.6% y/y (a accel from +16% y/y in Q1)
  • Family of Apps (FoA) revs BEAT w/ ad revs ~6% better than expected and Other was +16% ahead
  • Reality Labs revs MISSED by -3%
• Q2 adj op income BEAT by a notable +19.8% (margin of 53% easily beat cons 49.5%) w/ upside in both FoA & Reality Labs
• Q2 EPS of $7.14 came in well AHEAD of cons $5.88
• FCF BEAT by +35.1% despite CapEx slightly higher than expected

Q3 Revenue Outlook = Well Ahead Of Cons Though Annual Op Expenses Are Going UP

• Q3 & Q4 revenue outlook / comments
  • Q3 revenue guidance TOPPED expectations… expected to be in the range of $47.5-50.5bn (+20.1% at the mid pt vs Q2’s 21.6%) which was +6% above cons
    • FX is expected to provide a ~1% tailwind y/y
  • Expect the Q4 y/y rev growth rate to be slower than Q3 given tough comps

• 2025 & 2026 expense outlook
  • Full year 2025 expense guidance slightly narrowed to $114-$118bn from prior $113-$118bn (implies growth rate of 20-24% y/y)
  • Expect 2026 y/y expense growth to be ABOVE 2025 levels w/ infrastructure costs the largest driver (accel in depreciation expense growth and higher op costs), followed by employee compensation

CapEx Has Not Peaked…2026 Approaches ~$100bn

• Q2 CapEx came in slightly HIGHER than expected…: $16.54bn vs cons $ $16.48bn 
  • The spending was mainly due to new investments in servers, network infrastructure and data centers

• Raised the low-end of 2025 CapEx guidance to a range of $66-72bn, from prev $64-72bn (and above cons $66.26bn)
  • Represents ~$30bn increase y/y at the mid-pt

• 2026 CapEx $ growth is guided to be similar to 2025, i.e., up another ~$30bn y/y to ~$100bn
  • The biggest driver is to scale GenAI capacity & invest in core AI
  • Expect to finance a large share themselves but are looking for partners as well for data center projects
  • The infrastructure spend is for internal use, vs providing external capacity

• Mgmt continues to see “very compelling returns from our AI capacity investments in our core ads and organic engagement initiatives”

The Core Advertising Business Is Firing On All Cylinders

• Family of App ad rev grew +22% y/y (accel from +16% y/y in Q1) and beat cons by +6.1%: FOA adj op margins of 53.0% came in ahead of cons 49.5%   
  • Vertical callout – online commerce was the largest contributor to y/y growth (similar to last 3 qtrs)
  • All regions saw seq accelerations in y/y growth
    • Europe +24% y/y (vs +14% y/y in Q1)
    • RoW +23% y/y (vs +19% y/y in Q1)
    • Amer +21% y/y (vs +18% y/y in Q1)
    • APAC +18% y/y (vs +12% y/y in Q1)
  • Pricing growth slowed “modestly” from Q1 due to accelerated impression growth in Q2
    • Total impressions incr’d +11% (vs +5% in Q1), w/ growth mainly driven by APAC (similar to last 2 qtrs); Impression growth accelerated across all regions due primarily to engagement tailwinds on both Facebook and Instagram and to a lesser extent, ad load optimizations on Facebook
    • Avg price per ad incr’d +9% (vs +10% in Q1), benefiting from increased ad demand, largely driven by improved ad performance

AI Continues To Unlock Greater Monetization Efficiency Across Meta’s Ad System…But Lots Of Room For More

• First key initiative to increase monetization efficiency – optimizing the level of ads within organic engagement
  • On Threads – as of May, advertisers globally can run video and image ads to Threads users in most countries, including US
    • Ad supply remains low and Threads is not expected to be a meaningful contributor to overall impression growth in the near-term…
    • …BUT are “optimistic” about the longer-term opportunity with Threads as the community and engagement grow and monetization scales
  • On WhatsApp – rolling out ads in status and channels, along with channel subscriptions and the updates tab to help bizs reach the 1.5bn+ daily actives who visit that part of the app
    • Ads in Status will roll out gradually through this year and next, with limited supply at first
    • WhatsApp Status ads are expected to earn less than Facebook or Instagram ads due to limited targeting data and a user base in lower-monetizing markets
    • Therefore, do NOT expect ads in status to be a meaningful contributor to total impression or rev growth for the next few years

• Second key initiative to increase monetization efficiency – improving marketing performance
  • Improving ad systems: Innovating in both the ads retrieval and ranking stages to serve more relevant ads to people
    • Enhancements to Andromeda model architecture in Q2 drove ~4% higher conversions on Facebook Mobile Feed and Reels
    • Improvements to Generative Ads Recommendation System (GEM) increased ad conversions by ~5% on Instagram and 3% on Facebook Feed and Reels in Q2
    • Expanded coverage of Lattice model architecture in Q2 drove a ~4% increase in ad conversions across Facebook Feed and Reels in Q2
  • Advancing ad products, including by building tools that assist in ads creation
    • Completed rollout of streamlined campaign creation flow for Advantage+ sales and app campaigns in Q2
    • Started testing AI-powered translation so that advertisers can automatically translate the caption of their ads to 10 different languages
  • Evolving ads platform to drive results that are optimized for each business’ objective
    • Completed the global rollout of our incremental attribution feature in Q2
    • Launched omnichannel ads globally in Q2 which enable advertisers to optimize for incremental sales, both in store and online with just one campaign
    • In tests, advertisers using omnichannel ads have seen a median 15% reduction in total cost per purchase compared to website-only optimization

Improved Recommendation System & Product Experience Is Driving More User Engagement…Esp W/ Video

• 3.4bn+ people use at least one app daily (similar to last qtr) and strong engagement across the board
  • DAUS continue to grow across FB, Instagram, and WhatsApp as recommendation system and product experiences improve

• Continue to see momentum w/ video engagement, in particular, driven by ongoing optimizations to ranking system to better identify the most relevant content to show
  • Instagram video time was up 20%+ y/y in Q2
  • Seeing strong traction on Facebook as well, particularly in the US, where video time spent was also up 20%+ y/y
  • “Expect to deliver additional improvements throughout the year as we further scale up our models and make recommendations more adaptive to a person’s interest within their session”

• Exploring how to extend the use of LLMs in recommendation systems across apps
  • Incorporation of LLMs are now driving a “meaningful” share of the ranking related time spent gains on Threads

• Seeing “good” progress w/ AI for ad creative w/ “meaningful” % of ad rev now coming from campaigns using one of their genAI features
  • “This is going to be especially valuable for smaller advertisers with limited budgets, while agencies will continue the important work to help larger brands apply these tools strategically”

• “A lot of potential” for AI to drive better content: Seeing early progress w/ the launch of AI video editing tools across Meta AI and their new Edits app
  • “And there’s a lot more to do here”

Meta AI Is Gaining Scale

• Focused on making Meta AI the leading personal AI
• Meta AI reached 1bn+ MAUs (vs “almost 1bn” in Q1 and 700mn in Q4)
  • “As we continue improving our models, we see engagement grow”

• Meta AI is now available in 200+ countries and territories – drivers of MetaAI queries?
  • WhatsApp remains the largest driver of queries as people message MetaAI directly regarding tasks
  • MetaAI is also helping with content discovery as FB users are asking about posts they see in a feed and to find content across the platform
    • Automatic translation and dubbing will also help w/ content discovery

Business Messaging Will Drive Another Leg Of Growth

• Believe that every biz will soon have a biz AI, just like having an e-mail address, social media account, and website

• Starting to see some product market fit in “a number of countries” where they are testing these agents
  • Integrating these business AIs into ads on Facebook and Instagram, as well as directly into e-commerce website

• Seeing “good momentum” in Business Messaging, particularly in the US, where click-to-message rev grew 40%+ y/y in Q2

Reality Labs – AI Glasses Are Building Momentum And “Continue To Think That Glasses Are Basically Going To Be The Ideal Form Factor For AI”

• Q2 Reality Labs rev was up +5% y/y (vs -6%% y/y in Q1), due to – incr’d sales of AI glasses, partially offset by lower Quest sales
• Q2 Reality Labs op loss was -$53bn, which was above cons -$4.98bn

• Ray-Ban Meta glasses sales continue to show strong growth and accelerated in Q2 w/ demand outstripping supply for popular SKUs
  • They are working to ramp supply

• Building on that success by launching new performance AI glasses w/ the Oakley Meta HSTNs, which have longer battery life, higher resolution camera, and are designed for sports

• % of people using the glasses for Meta AI is growing, and new user AI retention is increasing too, “which is a good sign for that continued use”
• Looking ahead – AI glasses are expected to be the main way they integrate superintelligence into day-to-day lives
  • “And I think in the future, if you don’t have glasses that have AI or some way to interact with AI, I think you’re […] probably be at a pretty significant cognitive disadvantage compared to other people who you’re working with or competing against”

• Quick Quest update – seeing continued increase in time spent with the Quest ecosystem and the community continues to grow steadily
  • Launched Meta Quest 3S Xbox edition last month and seeing “record” interest in cloud gaming
  • Beyond gaming, continue to see a broader set of use cases with media and web browsing contributing a significant portion of engagement
  • Will share more updates at Meta Connect happening Sept 17-18

Microsoft Azure grew revenue +34% y/y this qtr, up from +33% last to reach ~$19bn. Google Cloud grew revenue +32% y/y, up from +28% in Q1 to reach $13.6bn. Amazon’s AWS grew revenue +17.5% y/y, up from +17% in Q1 to reach $30.9bn.

Investors are questioning why AWS is not growing faster. Is the company falling behind? Amazon CEO Andy Jassy spent a lot of time on the earnings call painting a picture of its strong competitive positioning. “AWS has significantly broader functionality, stronger security, and operational performance, a much deeper experience helping enterprises modernize their infrastructure.” The Co also has much larger scale. But supply constraints continue to weigh on AWS’ top line growth. These constraints will take “several” quarters to balance out but are expected to “get better each quarter”, making this a key bogey looking ahead.

Another point of investor concern was the lower-than-expected Q3 operating income, which was also the case last quarter. Interestingly, CapEx was not as much of a focal area as has been the case in the past. While spending levels increased from $23.4bn in Q1 to $31.4bn in Q2, they are expected to remain steady sequentially for the remaining quarters of the year.

On the plus side, Amazon’s core Online business performed exceptionally well, posting accelerated growth from +6% to +10% ex-FX. Tariffs have not had much of an impact thus far, though mgmt continues to view it as a wildcard in H2.  International profitability continued its upward trajectory, with margins rising 320bps y/y, while advertising rose a strong +22% y/y, bolstered by retail and media strength.

See below for more on the above, in addition to more updates on advertising, Alexa+, Project Kuiper among other key areas.

-> Amazon shares closed the day post results down -8.3% and ended the week down -7.2%; The stock is down -2.1% YTD

Q2 Beat Esp On Online Revs & Overall Profitability But AWS Disappointed & Weaker Q3 Op Income Guidance, Again, Spooked Investors

• Q2 = Op income beat lowered expectations (by +13.9%), with inline revs…EPS was well ahead
  • Total revs BEAT: Up +12% y/y ex-FX (vs +10% ex-FX in Q1)
  • Op income BEAT: Up +30% y/y (margins reached 11.4% vs cons 10.4%) and beat cons by +13.9%
  • Adj EPS BEAT: +26.3% ahead of cons

• Q2 by segment – every segment came in higher than cons expected
  • Online stores grew +10% y/y OR +6% Y/Y ex-FX in Q1

• Q2 by region – N. Amer & Intl revs were both better than expected while AWS operating income missed cons
  • Amer – BEAT w/ higher rev and op income: Revs rose +11% y/y (vs +8% y/y in Q1) w/ 7.5% op margins
  • Intl – BEAT w/ higher rev and MUCH higher op income: Revs rose +11% y/y ex-FX (vs +8% y/y in Q1), w/ 4.1% op margins
  • AWS – MIXED w/ rev beating cons but op income missing: Revs grew +17% y/y and op margins hit 32.9%

• Worldwide paid units incr’d +12% y/y (vs +8% y/y) and WW 3P selling unit mix was 62% in Q2, 1% higher than Q2 of last year

• CapEx came in at $31.4bn in Q2

• Q3 op income GUIDANCE at the mid was -7.6% below the Street, while Q3 rev guidance was +2% above cons
  • Assumes a 130bp FX headwind to revs

AWS’s Underwhelming Revenue Growth Reflects Capacity Constraints Vs Competitive Positioning / Mgmt Remains Very Optimistic About The Oppty

• AWS Q2 underwhelmed w/ revenue growth of +17.5% y/y ex-FX, vs +17% in Q1 (& roughly in-line w/ expectations) & op income was -7% below cons (margin of 32.9% fell from 39.5% in Q1 due to SBC & depreciation)
  • Backlog of $195bn, was up +25% y/y

• Highlighted new agreements: PepsiCo, Airbnb, Peloton, NASDAQ, London Stock Exchange, Nissan Motor, GitLab, SAP, Warner Bros, Discovery, TwelveLabs, FICO, Iberia Airlines, SK Telecom and NatWest

• AWS remains capacity constrained BUT mgmt guided that it will get better each qtr
  • Power is the single biggest constraint at the moment
  • It will take “several” quarter to resolve the capacity constraints but AWS trends are expected to “get better each quarter and I’m optimistic about that”

• CapEx of $31.4bn in Q2 was up meaningfully from $23.4bn in Q1
  • Outlook – quarterly CapEx should be at a similar rate for the back half of the year

• Is AWS falling behind in GenAI? Peers are growing faster? In response to the question, mgmt cited AWS’ scale given “the second player is ~65% of the size of AWS”
  • “AWS has significantly broader functionality, stronger security, and operational performance, a much deeper experience helping enterprises modernize their infrastructure”

• Mgmt remains VERY bullish on the AWS opportunity
  • “85% to 90% of the global IT spend is still on premises… if you believe that equation is going to flip… AWS is well-positioned.”
  • “I’m optimistic about the AWS business”

Key AWS Product Updates & Launches In The Qtr

• Silicon & compute
  • Trainium2: It is now deployed at scale and serves as the backbone for Anthropic’s Claude models & Amazon Bedrock
    • Offers 30-40% better price-performance than other GPU providers
    • Work is already underway on Trainium3
  • Launched new EC2 Instances: Powered by NVIDIA Grace Blackwell Superchips, AWS’s most powerful GPU-accelerated offering

• Bedrock & AI models
  • Claude 4: Was recently added to Bedrock and is now the fastest-growing model on the platform
  • Amazon Nova: Is now the second most popular in Bedrock

• Agent development tools
  • Launched Strands: An open-source framework for building AI agents; Already received 2,500 GitHub stars & over 300k+ downloads
  • Just released AgentCore: A secure serverless runtime for deploying agents; “Customers are excited about AgentCore as it frees them up to start deploying agents more expansively”

• AI applications
  • AWS Transform: Is a new AWS agent that –
    • Reduces mainframe modernization from years to months
    • Accelerates VMware to EC2 conversions up to 80x
    • Enables migration from .NET Windows to .NET Linux, reducing licensing costs by up to 40%

• Developer tools
  • Launched Kiro: New agentic IDE for “Vibe Coding” using natural language

The Core Online Business Is Performing Better Than Expected, Though Tariffs Remain A Wildcard

• Amazon’s core Online stores business grew +10% y/y ex-FX in Q2 (vs +6% y/y ex-FX in Q1) and beat cons by a strong +4.2%

• Tariffs have not had an impact thus far…
  • “Through H1, we haven’t yet seen diminishing demand nor is price meaningfully appreciating”
  • “And we haven’t seen any kind of broad scale ASP increases. So that could change in H2”

• “…but it does remain a wildcard”: “As we said before, it’s impossible to know what will happen”
  • “We also have such diversity of sellers in our marketplace, over 2 million sellers in total with differing strategies of whether to pass on higher cost to consumers”

• Pricing, selection, and speed of delivery remain the main KPI drivers for the core online business, coupled with operational efficiency
  • Selection: Nike returned to Amazon’s retail site and the Co added brands like Away, Aveda, Marc Jacobs fragrances & brands from Saks in Amazon like Dolce&Gabbana, Etro, Stella McCartney, Rosetta Getty and La Prairie
    • Expanding their Perishables Pilot… 75% of customers who have used this service this year are first-time shoppers for perishables on Amazon
  • Pricing –
    • “Our prices continue to be low and sharp for customers”
    • Everyday Essentials growth outpaced the rest of the business globally & represented one out of every three units sold
  • Delivery speed & fulfillment –
    • Incr’d the share of orders moving through direct lanes by 40%+ y/y
    • Reduced the avg distance packages travel by 12%
    • Lowered handling touches per unit by ~15%
    • Delivered 30% more items same day or next day y/y
  • Operational efficiency –
    • Order consolidation helped drive higher units per box & improved overall cost to serve
    • Strategic inventory placement drives multiple benefits, including better in-stock availability, shorter delivery routes, and faster customer delivery times”
• Cited a successful Prime Day
  • “This year’s Prime Day was our biggest ever with record sales, number of items sold and number of prime sign-ups”
  • “Independent sellers… saw their best sales performance of any Prime Day event yet”

Updates On Other Key Businesses / Initiatives…Intl Profitability, Advertising, Alexa+, Prime Video, Project Kuiper

• Progress w/ International profitability should continue – margins rose +320bp y/y to 4.1% in Q2: Over the last 10 qtrs, incr’d margins almost 700bp
  • Established markets: A greater contribution of established countries like UK, Germany & Japan, which are already at similar margin profiles to the US, helps drive overall margins
  • Emerging markets: The eight countries launched in the last five years are at varied stages of investment & profitability, but all are showing q/q improvements
  • Outlook: The Co feels “very good” about the trajectory of international profitability

• Advertising (high margin) grew +22% y/y to $15.5bn (up from +19% y/y in Q1) w/ strong performance in retail & media and driven by sponsored products and strong traffic in stores
  • “Excited” about Amazon’s DSP
  • Annc’d a “momentous” Roku partnership in June: Gives advertisers exclusive access via Amazon DSP to ~80M US CTV households, boosting audience reach and TV ad performance

• Alexa+…“It’s still very early days, but we’re very encouraged by the experience we’re providing and you can bet we’re going to be iterating on it constantly”
  • More functionality: Alexa+ is significantly more intelligent & action-oriented than previous versions, going beyond Q&A to perform complex tasks via natural language
  • Strong early adoption: “Millions” of U.S. users have adopted Alexa+
  • Positive consumer reactions
    • “Customers really like the experience”
    • “The ratings are very high”
    • Usage is much higher than before
    • “People do a lot of shopping”
  • Engagement is strong: Ratings, usage, & call volume have all incr’d meaningfully
  • More roll-outs coming:
    • The rest of the US rollout will be in the “next couple months”
    • The international rollout more broadly will be “later in the year”
  • Monetization will include advertising and addtl subscription elements over time
    • Today, Prime members get Alexa+ for free and non-Prime members pay $19.99/mo

• Prime Video’s first NASCAR season avg’d ~ 2mn viewers per race: Attracting the youngest NASCAR audience in over a decade
• Project Kuiper:
  • Commercial beta is expected later this year or early next year, pending satellite deployment amid minor rocket provider delays
  • Signed multiple enterprise & government agreements
  • Pricing will be “very compelling” for customers

• Amazon Pharmacy: Up +50% y/y

Comcast’s results this week concluded the Connectivity sector’s earnings season (Verizon, AT&T, T-Mobile, and Charter were all last week) and gave us a first look into Media/Entertainment trends. Overall, the Co reported modest beats across headline financials, with total revenue up +2.1% y/y, adj EBITDA up +1.1% y/y, and adj EPS up +3.3% y/y. FCF was a standout, reaching $4.5bn, +22% above consensus, helped by lower-than-expected CapEx.

On the Connectivity side, broadband subscriber losses were a focus and they worsened from Q1 levels BUT were not as negative as expected and management noted signs of stabilization. Also, wireless bundling is gaining traction w/ a “record” 378k net additions in the quarter. A big focus on the call was regarding the Co’s new and simplified broadband pricing strategy, which is seeing strong early adoption, though ARPU growth is expected to moderate in the near term as customers adopt and migrate to these new plans. This was a bit of a hot button. It is also worth mentioning that Business Services grew revenue by +6% and EBITDA by nearly +5% (though it was aided by the Nitel acquisition) and mgmt is bullish on the potential from the new MVNO agreement with T-Mobile.

Content & Experiences was a key contributor to growth, particularly Theme Parks where revenue was +11% above cons, supported by the successful launch of Epic Universe in Orlando. The new park is already driving higher per capita spending and attendance across the resort. Also, Media segment performance was supported by Peacock’s +18% revenue growth and steady subscriber levels, with the upcoming NBA rights expected to drive further engagement. Advertising trends were mixed, but upfronts were strong, and the Studio segment saw solid box office results from tentpole releases, though profitability was impacted by launch costs.

See below for more on the points we viewed as most incremental from results and the call.

-> The stock was up +2.3% on the day of earnings but ended the week down -3.4%; The stock is still down -13.4% YTD

Headline Financials BEAT Expectation, W/ Higher Margins &, More Significantly, FCF As The Standouts

• Headline financials BEAT consensus
  • Total revs, adj EBITDA, and adj EPS beat cons by +1.7%, +2.8%, and +7.8%, respectively: Adj EBITDA margins of 33.9% topped cons 33.6%
    • Total revs grew +2.1% y/y, adj EBITDA grew +1.1% y/y, & adj EPS grew +3.3% y/y
  • FCF at $4.50bn was also +22% above Street projections w/ CapEx spend -10% lower than expected
  • Shareholder returns = $2.9bn through $1.2bn in dividend payments & $1.7bn in share repurchase

• Content & Experiences drove more of the upside given better trends in Theme Parks & in Media profitability
  • Connectivity & Platform – slightly BEAT: Rev growth of +1.2% & adj EBITDA growth of +1.4% (margins 41.8%)
  • Content & Experiences – More materially BEAT esp on profitability: Rev growth of +5.6% and adj. EBITDA growth of +3.6% beat consensus expectations
    • Theme Parks was the biggest source of revenue upside
    • Media profitability was much better than anticipated (offsetting weaker Studio EBITDA)

Broadband Subscriber Trends Are Showing Some Signs Of Stabilization & W-Less Bundles Are Working

• Broadband subs loss of -226k in Q2 was not as bad as expected and mgmt. is seeing some signs of stabilization (Q1 was a loss of-199k)
  • Q2 drivers: Competitive environment & negative seasonality
    • “The competitive environment remains intense… fixed wireless remains very active… fiber competitors continue to build more passing”
  • Seeing some stabilization: “We’re also seeing stabilization in voluntary churn and overall connect activity in broadband”
    • Mgmt cited that it did not see the same spike in non-pay churn that Charter saw: “We’ve seen a slight uptick [in non-pay disconnects] at this point… but not material”

• Wireless posted the “best quarterly results on record”…+378k vs cons +345k as bundling w/ broadband is gaining traction
  • Mgmt sees a lot of room to grow wireless penetration from the current 14% of domestic residential broadband customers
• “Convergence revenue sustained healthy growth… up 3.7% in the quarter.”

Simplifying Customer Touch Points & Focusing On Seven Key Elements Of Its New Broadband Pricing Strategy…Seeing Strong Early Adoption Of New Offerings

• Focused on simplifying every touchpoint with customers…whether through their website, phone support, chat, or mobile app
  • “We are incredibly focused on reducing friction across all of our channels… and making every customer interaction an excellent and personalized experience”
  • Improving the digital buy flow by removing steps led to a 20%+ increase in conversion rates

• The Co details its 7-pronged pricing strategy to turn around the broadband business
  • A shift from local offers to national pricing
  • Simplification to four main broadband speed tiers
  • Unlimited data & advanced gateways included in all plans
  • Lower everyday prices
  • One-year & five-year price guarantees with no contracts
    • ~50% of eligible new customer connects chose the 5-yr price guarantee in Q2
  • One free Xfinity Mobile line for all customers (new and existing)
  • The launch of a premium unlimited mobile plan

• Seeing strong early adoption of new offerings, including gig+ speeds & premium mobile bundles
  • Saw a 20% increase in the share of new connects choosing premium gig-plus speed

The New Pricing Plans Will Impact Broadband ARPU Growth Over The “Next Couple Of Quarters”

• Domestic resi broadband ARPU grew +3.5% y/y, following +3.3% y/y growth in Q1…driven by –
  • The 20% increase in new customers choosing gig+ speed tiers, which carry higher pricing
  • The introduction of long-term price guarantees(1- and 5-year), which some customers are opting into at a premium for stability

• Expect ARPU growth “to moderate” over the next couple of quarters on the back of the new pricing structure at the end of Q2

• BUT “if you fast forward a year or two years out, we’ve got a substantial portion of our base migrated… we still expect a healthy ARPU growth in this timeframe, but moderated a little bit from where we are right now”

T-Mobile Partnership Will Bolster Business Services Performance

• Business Services revs inc’d +6% & EBITDA grew nearly +5%
  • The Nitel acq added a few hundred bp to rev growth & ~100bp to EBITDA growth
  • Outlook: Expect a similar benefit over the next few qtrs until the deal is lapped next year
• The segment is material – Business Services is ~25% of total connectivity business
  • Continue to see “solid” growth in SMB (despite incr’d competitive intensity) & “even stronger growth” in enterprise…mid-mkt is a key focus
  • In SMB, seeing higher adoption of their suite of advanced services, incl cybersecurity and Comcast Business Mobile

• Mgmt was bullish on the new MVNO agreement w/ T-Mobile (in partnership with Charter) with respect to expanding their mobile product offer to business customers
  • …but “continue to value our strong partnership with Verizon”

Epic Universe Opening Is Off To A Strong Start & Was Highlight Of The Qtr  

• Q2 Theme Parks – BEAT by +10.8%: Up +18.9% y/y (vs down -5% y/y in Q1)
  • Driven by the successful opening of Epic Universe on May 22

• Q2 Theme Parks adj EBITDA – BEAT by +3.2%: Up +4.1% y/y (vs down -32% y/y in Q1)
  • Due to soft opening costs at the new park

• Successfully opened Epic Universe in Orlando in May – “trending in line with our expectations and well on its way to transforming Universal Orlando into a true weeklong destination”
  • “Pleased” w/ early results –
    • Already driving higher per cap spending and attendance across the entirety of Universal Orlando Resort with “strong” food and merchandise sales
    • Seeing minimal impact on attendance at Universal Studios Florida and Islands of Adventure
  • Near-term focus is on expanding ride throughput to reduce early attendance constraints
  • Looking ahead – expect Epic to continue to scale over the course of the yr, w/ higher attendance and per caps, as well as “significantly improved” operating leverage

• Quick updates on other parks –
  • International Parks performance remains “strong”
  • Continue to experience pressure in Hollywood and think it will be “a couple more qtrs” until they lap that

• Universal Horror Unleashed opens in Las Vegas next month, and a second year-round horror experience in Chicago is in development, “tapping into one of the country’s top tourist markets”
• Universal Kids 2026 is moving towards a 2026 opening
• Continuing the planning process for new park outside of London slated to open in 2031 

Media Segment Tops Expectations / NBA Rights Poised to Drive Next Leg Of Growth At Peacock

• Q2 total Media rev – BEAT by +0.8%: Grew +1.8% y/y, vs +1% y/y in Q1
  • Domestic ad rev fell -7.2%, primarily due to lower rev at our networks, partially offset by an increase in rev at Peacock
  • Domestic distribution rev grew +1.7%, primarily due to higher revenue at Peacock, partially offset by lower rev at their networks
  • International networks rev grew +14.9%, primarily due to an increase in rev associated with the distribution of sports networks and the positive impact of FX

• Q2 total Media adj EBITDA – BEAT by +12.3%: Up +9.3% y/y in Q2, vs +22% y/y in Q1
  • Growth primarily driven by y/y improvement at Peacock

• Q2 Peacock rev growth reaccelerated / Subscribers stayed steady   
  • Peacock rev incr’d +18% y/y to $1.2bn, which is an accel from +16% y/y in Q1 and in-line w/ +18% y/y in Q4
  • Peacock subs remained seq steady at 41mn, “despite a seasonally light sports qtr, driven in part b y the success of Love Island USA”

• Love Island USA was the top streaming reality series for the entirety of its Season 7 run
  • Appeared exclusively on Peacock
  • Attracted a “significant” number of first-time subscribers and two-thirds of those new paying customers went on to engage with addtl content, driving a lift in overall consumption across the platform

• Impact of recent $3 price increase for Peacock + “strong” upfront results will help position them in Q4 as they launch the NBA and take on higher sports programming expenses
  • Particularly in the first year of the NBA contract when they absorb the full impact of adding these new rights

• Addition of NBA coverage this fall will strengthen Peacock position as it “continues to differentiate itself with one of the most robust live sports offerings of any streamer”
  • Will give them a full yr of sports programming
  • In 2026, Peacock will stream more live sports hours than any other streaming entertainment svs

Very Positive On Advertising Post Strong Upfronts Performance

• Q2 total ad rev fell -7% y/y (in-line w/ Q1), due to the volume and timing of sports and tough political comparisons
  • Declined low-single digits excluding these item

• Had a “record-breaking” upfront: Driven by an “extraordinary” mix of live events, sports and entertainment across NBC and Peacock
  • Saw “record” total sales and largest sports commitments to-date
  • Peacock was a “standout”, up 20%+ y/y and representing over one-third of NBCU’s total volume
  • Upfront results reflect “unparalleled” 2026 lineup of tentpole events, including –
    • Milan Cortina Olympics
    • Super Bowl LX
    • NBA All-Star game in February
    • FIFA World Cup on Telemundo in June
    • Elections and BravoCon in November
    • Along with a “robust” slate of entertainment and sports content throughout the year

2 Tentpole Releases Were Highlights Of Studio Segment / Hit In Q2 Profitability From Releases Will Be Offset In Q3

• Q2 Studios rev – BEAT by +2.2%: Up +8.0% y/y (vs +3% y/y in Q1)
  • Reflects the successful opening of How to Train Your Dragon

• Q2 Studios adj EBITDA – MISSED by -22.2%: Down -31% y/y (vs +22% y/y in Q1)
  • Impacted by costs of launching two tentpole releases back-to-back: How to Train Your Dragon and Jurassic World Rebirth

• How to Train Your Dragon has grossed $600mn+ in worldwide box office YTD, driving the franchise past the $2bn mark
  • Saw a “strong” performance from the successful theatrical launch of the movie on June 13^th

• Jurassic World Rebirth has surpassed $700mn+ at the worldwide box office
  • Opened on July 2^nd and is the seventh installment of the $6bn franchise

• Impact to Q2 and Q3 financials of the two releases –
  • Investments to launch two tentpole releases back-to-back impacted Q2 results and profitability
  • Therefore, benefit of Jurassic’s theatrical performance will land in Q3

• Several releases coming in Q3, including –
  • The Bad Guys 2
  • Nobody 2
  • Downton Abbey: The Grand Finale
  • HIM
  • Gabby’s Dollhouse: The Movie

Spotify has been one of the best performing stocks in our LionTree Universe YTD but Q2 was the second tough qtr in row, as FX headwinds and front-end loading investments like marketing and R&D weighed on results (operating income missed consensus by a hefty -16%), and Q3 will be more of the same (Q3 revenue and op income guidance missed consensus by -6% & -13%, respectively). It is not turning out to be the year of “accelerating execution” that mgmt had initially outlined but with that said, the long-term fundamentals for Spotify remain intact, underpinned by the strong user growth (both total MAUs & Premium subs exceeded expectations in Q3) coupled with strong engagement and several legs of upside opportunity as one looks ahead. And as a vote of confidence, mgmt. doubled its buyback authorization (though was not specific about a time frame).

However, one clear work-in-progress is Spotify’s advertising business where Q2 revenue missed consensus by -4.5%, growing +5% y/y ex-FX. Peeling back the onion, excluding the near-term impact from strategic initiatives, the segment would have grown low double-digits y/y ex-FX. Also on the plus side, ad-supported margins expanded from 15.3% in Q1 to 18.3% in Q2 (and easily beat cons 16.1%) due to an improved contribution from podcast and music. The Co remains firmly committed to turning the ad business around but acknowledged its mis-execution. “We’re moving too slowly, and improvements are taking longer to show up” BUT mgmt is “confident in the ambitions we’ve laid out and we’re moving fast to fix it.” The Co rebuilt its tech stack and made some recent mgmt changes. The focus now is on driving adoption (grew advertisers 40%+ y/y in Q2), launching “even more” new tools for advertisers, and improving the performance of all their inventory to fully monetize their new billable channels.

Other key highlights or interesting updates from results include: 1) strong growth in video consumption (has grown 20x faster than audio-only consumption since 2024); 2) details about how GenAI is reshaping the user experience and product development; 3) more work to do w/ partners regarding the SuperTier; 4) the EPIC court case opening the door for a la carte transactional opportunities; and 5) the Co believes the business can reach penetration of 10-15% of the world’s population, up from 3% today.

See below for more details on what we thought was most interesting from Spotify’s earnings and results and see Theme #8 for a quick take on Universal Music Group’s results as well.

-> Spotify shares fell as much as -13.9% in reaction to earnings (closed down -11.6%) but the stock is still up a huge +40.2% YTD and has materially outperformed the labels (WMG down -7.7% and UMG down -2.7% YTD)

Spotify’s Q2 Reflects A Big Miss On Op Margins, Coupled W/ A Modest Revenue Miss

• Q2 total revenue missed cons by -1.6% but grew +10% y/y (or +15% y/y FXN), from Q1’s +15% y/y (reported and FXN)

• Q2 operating income missed cons by -15.6% due to temporary pressure, particularly from social charges stemming from share price appreciation
• Q2 gross margin was in-line w/ cons and finished at 31.5%: Mrgns expanded by +230bp y/y, driven by strong premium revenue growth, which outpaced costs from music and audiobooks but was offset by the Spotify Partnership Program
•  FCF came in strong at €700mn, up +43% y/y

Q3 Guidance Also Disappointed As FX-Headwinds & Higher Investment Levels Weighed On Near Term Performance / But Spotify Stays Confident On Long-Term Execution & Doubles Its Buyback Authorization

• Q3 rev outlook MISSED cons by -6.0%: Includes an FX headwind of €200m
• Q3 op income outlook MISSED cons by -13.3%: Impacted by elevated operating expenses due to timing factors
• Q3 gross margin outlook MISSED cons (31.1% vs cons 31.6%)
  • BUT reaffirmed full-year gross margin expansion, despite near-term variability and a 40bps regulatory charge baked into Q3 guidance

• Raised buyback authorization to $2bn from $1bn
  • To be used opportunistically…no set timeframe

Subscriber Growth Momentum Remains A Key Positive

• Total MAUs of 696mn BEAT consensus by +1% (and grew +11% y/y), with growth across both Premium & Ad-Supported segments
  • All regions saw y/y growth, with RoW, Latam, & Europe leading

• Q3 total MAUs guidance of 710mn, was a modest +0.6% beat vs cons: Implies ~14mn net new MAU in the qtr

Premium Subs Beat Offsets ARPU Pressure In Premium Segment

• Q2 Premium revenue grew +12% y/y (or +16% y/y FXN), missing consensus by -1.1%, given lower ARPU (FX hit) offset higher subs growth
• Q2 Premium subscribers reached 276m, beating estimates by 1.0% up 12% y/y… supported by a “strong global promotional campaign intake”
  • Better outlook – Q3 Premium subs guidance of 281mn topped consensus by +0.7% and implies ~5mn net new subs in the qtr

• Q2 Premium ARPU fell to €4.57, missing cons of €4.65 (-1.7%) but up +3% y/y CC: Despite the ARPU decline, ARPU performance was boosted by price increase benefits, though this was partially offset by changes in product and market mix

Advertising Is Underperforming But “It’s An Execution Issue, Not A Strategic Flaw”  

• Q2 ad-supported rev came in below expectations (strategic initiatives dragged down growth): Fell -1% y/y (or +5% y/y ex-FX, which was consistent w/ Q1) and missed cons by -4.5% BUT ex near-term impacts from strategic initiatives had LDD ex-FX growth
  • Music and podcast advertising was driven by growth in impressions sold, partially offset by softness in pricing and optimization of podcasting inventory in their Owned & Licensed portfolio
  • Automated sales channels were the largest contributors to overall ad growth

• Q2 ad-supported ARPU also missed: €0.35 vs cons €0.36

• BUT Q2 ad-supported margins expanded from 15.3% in Q1 to 18.3% in Q2, ahead of cons 16.1%
  • Gains driven by improved contribution from podcast and music

• Q2 ad-supported MAUs at 433mn BEAT cons 429mn

• “We’re moving too slowly, and improvements are taking longer to show up” BUT “confident in the ambitions we’ve laid out and we’re moving fast to fix it”
  • “Recalibrating” b/c “we have to move faster to accelerate its contributions to our financials”

• Have grown monthly active advertisers by 40%+ y/y and will continue to build on this growth in H2:25

• “2025 is very much a transition year on to a new tech stack” – with “heavy lifting” in their ad tech “largely complete”, focus is now on –
  • Driving adoption
  • Launching “even more” new tools for advertisers
  • Improving the performance of all their inventory to fully monetize their new billable channels

• “Seeing some promising signs” in their programmatic biz
  • Expected to “set up nicely for 2026”

Optimizing Long-Term With Short-Term Investments – Still Have “Enormous” Runway Ahead

• Sizeable oppty still ahead –
  • 3% of the world’s population subscribes to Spotify and “it’s not implausible” to get to 10% or 15%
  • Have 45% market share and 65% of all music streams are on Spotify

• NOT operating in a “steady state” environment: The business environment is fluid, with “lot of puts and calls that are happening”

• For the first time, they are considering cost trade-off b/w head-count-driven expenses & compute-driven expenses
  • Shift in investment from people (headcount) to compute resources (i.e., AI infrastructure, tooling)
  • Engineers are now considering compute usage as a factor in new product and/or internal tool development — a new behavior at Spotify

• Remain actively focused on driving lifetime value (LTV)
  • Are not optimizing the biz around fixed or arbitrary short-term targets but rather SAC-to-LTV (Subscriber Acquisition Cost to Lifetime Value) to assess where to invest
    • e., if a $1 investment in marketing yields $5 in return, Spotify will spend despite near-term expense increases

• “Sometimes…efficiency may mean that the right thing is to actually spend more in the short term to then get it back in the long term, and you should expect us to always focus on what’s right to grow the franchise over time”

GenAI Enables More Understanding Of Consumer Behavior’s & Will Drive Enhancements To The User Experience

• On productivity and product delivery: The Co is seeing adoption across business units, similar to other companies
  • Mgmt called out being able to prototype products more quickly & see if it actually works

• GenAI is enabling a whole new valuable dataset of consumer behavior: Previous AI was like a “blunt signal”…and Spotify was “confined to user signals such as skips, plays, and saves” …now w/ genAI, users can speak conversationally to Spotify and the Co is getting a new dataset regarding all their playlists
  • Before, the signal was someone skipping a song, but now it is about WHY they skipped it (they hate the song, they like it but just don’t want to hear it then, etc)
  • Spotify will be able to understand things like what songs people like together
  • “It’s a very, very valuable dataset that we are collecting very quickly. So, this is the big change for us”

• Mgmt anticipates the user experience to change a lot and be more interactive
  • “This technology allows you to go from what is today largely predicted user experiences…to where you actually reason over the users’ listening history”
  • “The user experiences will change quite a lot in the coming years. I’m not going to tell you how. I don’t actually think that would be in the interest of the shareholders for me to reveal that right now”

Rebuilt Tech Stack Is Helping Improve User Engagement 

• Have rebuilt their tech stack for the GenAI age and to “bring personalization to a whole new level”

• User engagement with Spotify’s DJ has “nearly doubled” over the last yr
  • Improvements to DJ include –
    • Taking music requests and serving up suggestions using AI as well as insights from Spotify’s global editorial experts
    • Asking questions that require DJ to “understand the wider world” – i.e., “play me that song where Bruce Springsteen invites up that fan on stage in a music video, and DJ will understand that you are requesting Dancing in the Dark”
  • Improvements have resulted in a ~45% increase in DJ streams globally, driving “tens of millions of interactions-to-date”: “The more people interact with DJ, the better and longer their sessions get”

• Continue to expand AI Playlist to Premium listeners and leverage genAI to better understand and serve user intent: Now in 40+ new markets and “millions” of users have responded by creating playlists w/ the tool
  • Integrated AI into algorithmic playlists (see genAI section)
  • Performance improvement through preference optimization: Can now optimize experiences post-launch using user-intent data in a virtuous loop, which takes away the need for new product or feature development
    • First round of optimizations has resulted in “clear jumps in performance”: Including people listening longer to the resulting playlist or saving them more often

No Material Update On “Superfan” Tier

• Follow “very high” value standards around what and when to release a product and making progress BUT “it’s taking time”
  • In music specifically – “we’re reliant on our partners to a certain degree”

• “Superfans are everywhere… across music, podcasts and video. And we continue to just see great demand from our different superfan segments”
  • e., audiobook add-on subscription

Video Continues To Outperform And Remains “A Very Exciting Opportunity”

• Have 430k+ video podcasts on Spotify and 350mn+ users have streamed a video podcast on the platform (up +65% y/y)
• Consumption continues to trend higher, growing 20x faster than audio-only consumption since 2024

• Video isn’t “critical, it’s just very exciting” … “why wouldn’t we go for it?”
  • “Want to talk about video as an opportunity rather than a threat”

Spotify Will See Strong Benefits From The EPIC Court Decision, Including The Ability To Offer A La Carte Products

• The EPIC decision had positive effects with US conversion in the qtr
  • The ruling allows Spotify to directly communicate w/ customers about subscription status & provide an in-app call to action where it was not able to do that before
  • Subscribers were sometimes downgraded to the ad-tier and didn’t know why

• It now opens the door for SPOT to offer a la carte products, enabling a new revenue stream: “We simply think that the big media platforms of the future will be the ones that have advertising, subscription, and a la carte as methods. And for that in-app payments is a very important part”
• The Co hopes to see similar benefits in the US through the DMA & DMCC regulation

Electronic Arts (EA) kicked off video game earnings on a strong note.  Net bookings growth of +3% y/y topped consensus by almost 4% (driven by upside in both Live Services as well as Full Game sales) and operating margin reached 5.9%, more than double consensus. Among the key positives were that Global Football’s mid-single digit FQ1 net bookings growth exceeded mgmt’s internal guidance with FC Mobile posting a “record” qtr (50mn+ installs & DAU growth y/y) and FC Online net bookings growing double digits y/y. FC 26’s expected worldwide launch on Sept 26^th is a catalyst looking ahead. Also notable was that Apex Legends performed “well” with sequential growth and engagement (given past underperformance).

Regarding the outlook, investors shrugged off the lower-than-expected FQ2 guidance (net bookings -9.3% below cons) given that it was due to timing shifts, tough comps in American Football, and a late FC 26 launch and that, more importantly, mgmt reiterated its FY26 outlook. And equally paramount was early feedback pointing to a strong Battlefield 6 launch which is now officially set to be released on Oct 10^th.  GTA 6 moving out of the window created a wider open field and the player response to the initial reveal trailer released last week was very encouraging. This week, EA also showcased multi-player game play which was followed by top creators streaming the game live.

Net net, the Co is on track for the upcoming inflection in its business and quoting mgmt, the Co is “entering the most exciting release cycle in EA”s history”. Aside from Battlefield 6, the upcoming release slate includes Madden NFL 26, FC 26, NHL 26, and Skate. It should be a busy fiscal 2026 for the Co.

See more on what we found most incremental from EA’s earnings and call. Also, note that Roblox also reported this week and see Theme #8 for a Quick Take on their print.

-> EA shares rallied +5.7% on the back of results and is up +7.7% YTD; Take-Two shares are up +19.8% YTD

EA Delivers Stronger Than Expected FQ1

• FQ1 Net Bookings BEAT by +3.8%: It grew +3% y/y vs +8% y/y in FQ4
  • Live Services & Other net bookings (83% of total net bookings) – BEAT: Decl’d -1% y/y (but grew low single digits ex Apex Legends) which was a slow-down vs +0.6% in FQ4 but still exceeded cons by +1.9%
    • Strength came from EA SPORTS FC Ultimate Team, The Sims, and ongoing retention from FIFA players
  • Full Game net bookings (17% of total net bookings) – BEAT: Grew +27% y/y, exceeding cons by a strong +16.3%
    • Growth reflected ongoing momentum from Split Fiction and a resurgence in Star Wars Battlefront II and legacy FIFA title purchases during promotion

• Non-GAAP op margin of 5.9% was more than double cons’ 2.5%

And The Co Reiterated The FY26 Outlook Despite Weaker Than Expected FQ2 Guidance

• FQ2 Net Bookings guidance MISSED, coming in -3% below cons…implies a decline of -9% to -13% y/y
  • “This is a lighter quarter, but consistent with our typical release cadence”

• FQ2 guidance assumes –
  • A 4-pt headwind from the timing shift of EA SPORTS FC Deluxe Edition content, which will mostly be recognized in FQ3
  • A 8-pt headwind from American Football (see more color below)
  • A limited contribution from FC 26 as it will be launched in the final week of the qtr
  • Cont’d momentum for the non-sports portfolio incl Apex Legends & catalog titles
  • A 1pt tailwind from FX, assuming current rates hold

• FY26 guidance was largely a reiteration of EA’s prior outlook
  • And assumes no increase in prices

Global Football Was Ahead Of FQ1 Expectations While College Foodball 26 Will See More “Normalized” Demand When Launched / Apex Legends Showed Some Signs Of Improvement In The Qtr

• Global Football FQ1 net bookings grew mid-single digits y/y, ahead of internal expectations: Global Football player engagement remains “healthy”; Expect strong contributions from HD console, FC Mobile, and FC Online
  • FC Mobile posted a “record” qtr: Outperformed due to expanded geographic reach, new features, and deeper engagement
    • Strong engagement w/ 50mn+ installs & DAU growth y/y as they scale live content and grow globally across platforms
    • Integrated Apple’s MLS Season Pass into FC Mobile
  • FC Online net bookings was up double digits y/y
  • FC 26 worldwide launch on Sept 26^th is a catalyst: Early indicators are very “positive” (will contribute more starting in FQ3)

• American Football – expect College Football 26 game sales to be a headwind in the qtr, partially offset by growth of Madden NFL 26 (as noted above, American Football is expected to have an 8-pt headwind to FQ2 net bookings)
  • College Football 26 has strong early reviews & reception but expect to see a “more normalized” demand curve: This is due to the 2025 title reintroduction being met with “a decade of pent-up demand” (50% of units were sold in the 1^st week) but mgmt expects this 26 title to follow more historical sales patterns of other sports titles
  • The next Madden NFL is launching worldwide August 14^th: This will be powered by AI and will bring adaptive QB/coaching strategies, enhanced gameplay, & deeper more authentic experiences
  • Expect American Football to return to growth in H2 of FY26
• EA Sports F1 25 grew net bookings +27% y/y
  • Are fusing real world sports action, blockbuster storytelling, & immersive gameplay
• Apex Legends performed “well” in FQ1: Saw seq growth & engagement driven by strong player retention
  • Apex Legend Showdown is launching next week w/ an all-new way to play

Battlefield 6 Will Officially Be Launched Oct 10^th… Creating A Path For A Big Inflection In The Business

• Details were provided this week on Battlefield 6 upcoming release…its Oct 10th: It is “poised to become a cornerstone of our vision for dynamic, continually expanding experiences where community engagement shapes the future of play”
  • Last week (July 24^th) the first trailer was officially revealed showing single player gameplay scenes and games setting
  • “There was incredible player response”
  • On Thursday of this week (July 31^st) the Co revealed another trailer showcasing multi-player game play and top creators have had the ability to stream the game live
  • Aug 4^th will be the pre-load date for the open beta and it will be playable on Aug 7^th (playable for 2 weeks)
  • Oct 10^th is the official release date for the game

• Skate play test has reached 1mn+ registered players as they prepare for launch

Booking Holdings delivered a strong Q2 print, with a clean sweep of beats across revenue, gross bookings, and adj EBITDA, as well as key KPIs, with room nights, rental car days, and airline ticket sales all exceeding expectations. EPS and FCF also materially outperformed.

While Q3 guidance mostly underwhelmed investors, with gross bookings ahead but revenue, room nights, and EBITDA tracking below consensus due to tougher comps and conservatism given broader geopolitical and macro uncertainties, mgmt reiterated its confidence in underlying demand trends and raised FY25 guidance ranges.

Looking into travel trends, the Co has seen lower ADRs and shorter lengths of stay in the US, with the low-end traveler exhibiting more careful behavior, but Q2 US travel trends were better than Q1. That said, Booking emphasized its global diversification as a core strength of the business, noting that travel trends out of Europe remain resilient, while Asia saw a sequential acceleration in room night growth from Q1. Asia remains a key focus area and is described as “central” to Booking’s long-term strategy.

On the product side, it was interesting to hear that mgmt characterizes the Co’s alternative accommodations biz as “reaching a level of maturity” with 8.4mn listings, which Booking estimates as ~75% of the room night volume of the category’s largest player. The company continues to see meaningful engagement with both its Genius loyalty program and Connected Trips offering, with the latter now representing a LDD share of total transactions (vs HSD in Q1). GenAI also continues to be a major area of focus that the Co is continuing to double down on.

Overall, it was good news, bad news, good news. Q2 trends were strong, though there is still a level of cautiousness on the part of investors looking ahead.

See below for more.

-> Booking shares were essentially flat in reaction to earnings but is still up +8.4% YTD, modestly outperforming the S&P 500’s 6.0%; It is more significantly outperforming Expedia (-4.4%) and Airbnb (-2.6%) YTD

Bookings Posted Strong Results Across The Board In Q2

• Q2 rev, gross bookings, and adj. EBITDA growth accelerated q/q
  • Rev was up +16% y/y or +12% y/y ex-FX (vs +8% y/y or +10% y/y ex-FX in Q1) and beat cons by +3.8%; FX favorably impacted growth rates by ~4pp, consistent with Co expectations
    • When normalizing for the y/y impacts of the Easter calendar shift, CC rev growth was ~10% in Q2
  • Gross booking grew +13% or +9% y/y ex-FX (vs +7% or +10% y/y ex-FX in Q1) and beat cons by +1.0%; FX favorably impacted growth rates by ~4pp, consistent with Co expectations
  • Adj EBITDA was up +28% y/y (vs +21% y/y in Q1) and topped cons by +8.6%

• Q2 adj. EPS of $55.40 was easily above cons $50.32
• Q2 FCF was up +32% (on top of +23% in Q1) and beat cons by a significant +51.5%

Clean Sweep Of Beats Across Q2 Room Nights, Rental Car Days, & Airline Ticket Growth 

• Q2 Gross Bookings growth – accelerated q/q and BEAT expectations: Rose +13% y/y (vs +7.2% y/y in Q1) & beat by +1.0%
  • Global avg length of stay was similar to last yr, and global booking window expanded y/y

• Q2 Room Nights growth – accelerated q/q and BEAT expectations, driven by stronger-than-expected performance in Europe and Asia: Incr’d +7.7% y/y in Q2 (vs +7.2% y/y in Q1) and beat cons by +1.6% (see region-specific comments below)
• Q2 Airline Tickets growth – decelerated q/q and BEAT expectations: Up +44.2% y/y (vs +44.8% y/y in Q1) and beat cons by +1.4%, driven by the continued growth of our flight offerings at Booking.com and Agoda
• Q2 Rental Car Days growth – accelerated q/q and BEAT expectations: Up +9.0% y/y (vs +7.7% y/y in Q1) and beat cons by +1.1%
• Q2 ADR in CC was down -1% y/y vs +1% y/y in Q1, impacted by a higher mix of room nights from Asia and a lower mix from the US
  • Excl regional mix, constant currency ADRs were ~in-line w/ Q2:24

• Q2 non-accommodation verticals continue to show growth: “While the direct financial impact from attractions is minimal today, we believe this vertical allows us to offer our travelers compelling in-destination experiences”
  • Flight tickets are up +44%
  • Attractions ticket growth “more than doubled” y/y, “although from a modest base”: Vs +92% y/y in Q1

BUT Q3 Guidance Mostly Disappointed As Challenging Comps Are Expected In Aug And Sept 

• Have seen “steady” travel demand trends globally across the biz so far in Q3 BUT recognize that comps w/ prior yr will be higher in Aug and Sept
• Also remain “mindful” that geopolitical dynamics and uncertainty in the broader macroeconomic environment could potentially impact consumer behavior, as has been seen in the Middle East most recently
  • “We’ll continue to closely monitor the travel environment for any change”

• Q3 gross booking outlook BEAT Street expectations: Projected to increase +8-10% y/y (decelerating from 13% y/y in Q2), beating cons +8.7% at the midpt
  • Expected to grow +4-6% y/y on a CC basis

• Q3 room nights growth outlook MISSED the Street’s forecasts: Expected to grow +3.5-5.5% y/y (vs +7.7% y/y in Q2), falling short of cons +5.7% at the midpt
  • Asia: “We remain optimistic about our long-term outlook for the region”

• Q3 rev growth outlook MISSED consensus estimates: Forecast to rise +7-9% y/y (vs +16% y/y in Q2), coming in below cons +8.8% at the midpt

• Q3 adj EBITDA outlook MISSED expectations: $3.9-4bn vs cons $4bn

Despite The Weaker Q3 Outlook, The Co Incr’d FY25 Guidance Ranges  

• “Recognize there is still elevated uncertainty in the macroeconomic and geopolitical environment” BUT “global travel demand trends continue to be steady so far in the third quarter”
• FY25 gross bookings and rev are forecast to grow +HSD% y/y ex-FX (vs previous +MSD-HSD%)
  • Expected to be +LDD% ex-FX  

• FY25 adj EBITDA anticipated to rise in the mid-teen %s (vs previous ~+HSD-LDD%)

• Key focus areas looking ahead include:
  • Expanding alt common
  • Enhance genius loyalty program
  • Grow Asian presence
  • Pushing forward connected trip vision
  • And develop AI capabilities

Regional Bookings Trends – Weakness In The US Continues At The Low End But It Is Slowly Improving / Asia Is A Central Part Of Long-Term Strategy 

• Where are people traveling?
  • Inbound travel to the US was down y/y in Q2, particularly from bookers in Canada and to a lesser extent from bookers in Europe
  • BUT saw “strong” growth in other travel corridors, including Canada to Mexico and Europe to Asia, contributing to accelerating room night growth overall

• US consumers traveling patterns are still mixed: Room nights were up +~lsd (in-line w/ Q1)
  • Observed lower ADRs and shorter length of stay and booking window in Q2
  • Domestic travel was up, but was up less than intl travel
  • Divergence in low-end vs high-end US travelers –
    • Top end of the US consumer market is “a little stronger”, spending more in the 5-star hotel category, spending more on intl travel, including Europe
    • At the lower end, more careful behavior of US consumer: “That is more where we see the pressure on the domestic travel, on the lower star rated hotels”
  • “US continues to be our slowest-growing region” but growth in Q2 improved “slightly” from Q1, “and likely outpaces the broader US accommodation industry”
    • “Another quarter where we have gained a little bit of market share in the US”
  • Long-term strategy in the US? “A lot of small initiatives that ultimately add up to us every period gaining a little bit of market share”

• Europe is “holding up quite well”: Room nights were up ~+hsd (in-line w/ Q1)
  • Europeans are booking earlier and at higher prices than a year ago
  • Also clearly continue to prioritize travel as a part of their discretionary spend over other categories

• Asia is a key focus area: Room nights were up ~+ldd (up from ~+hsd in Q1), w/ seq accel mostly coming from some of the impact seen in Q1 around the political aviation and earthquake events in Q1
  • “Reflecting the strength of our two-brand approach with Agoda and Booking.com”
  • “Success comes from localizing the user experience, expanding flights and attractions, tailoring payment methods, and ensuring travelers can engage with us in their own language”
  • Incremental color on China –
    • “Don’t really think much of China as an area we’re going to be able to compete well domestically… a decade ago […] we had higher hopes of us being able to be a major, major player there for outbound business. We are no longer in that kind of thinking”
    • BUT “we still enjoy a benefit of inbound to China because we have many Europeans or other parts of the world who want to travel to China. We have a nice business there”
  • “Asia remains central to our long-term strategy”: “Its size and economic momentum make it an attractive travel market, and our strong position there allows us to benefit from that growth”
    • Expected to see the fastest growth amongst Booking’s major mkts: Industry growth in the HSDs over the medium-term

• RoW felt some impacts from events in ME: Room nights were up ~+HSD (down from ~+ldd in Q1)
  • Saw impact in June from events in the Middle East, which impacted global growth by ~1% in June and one-third of a percentage point overall in Q2

Alternative Accommodations Business Is Starting To Mature

• Q2 alternative accommodation room nights growth cont’d to decel (but outpaces core hotel biz): Incr’d +10% y/y (vs +12% y/y in Q1 and +19% y/y in Q4) and accounted for ~37% of global room nights (in-line w/ Q1)
• Supply increased on a qtrly basis: Total alternative accommodation listings were up +8% y/y to 8.4mn (vs up +9% y/y in Q1 to 8.1mn)
  • Biz is “reaching a level of maturity”: ~75% of the largest player in the space with respect to room nights

• “Constantly working to make the alternative accommodation experience even better for both sides of the marketplace” –
  • Strengthened payment capabilities to deliver partners a “faster, simpler, and more efficient” experience
  • Further rolling out request-to-book functionality w/ prebooking messaging through an API

Connected Trips Drive Higher Loyalty as Share of Transactions Expands / Genius Tiers & Direct Mix Hold Steady

• Y/Y growth at Connected Trips is decelerating seq, but its share of total transactions is growing: Q2 Connected Trip transactions were up 30%+ y/y (vs +35% y/y in Q1 and +45% y/y in Q4), and now represent a LDD %age of Booking.com’s total transactions (vs ~HSD share in Q1)
  • See “great” loyalty in customers who purchase a Connected Trip: Travelers who booked a Connected Trip directly w/ Booking more frequently choose to book directly again w/ Booking in the future

• Continue to see more travelers move into higher Level 2 and 3 Genius tiers, which now represent 30%+ of active travelers (same as last 2 qtrs) and book a mid-50% of Booking.com’s total room nights (consistent w/ last 5 qtrs)
  • Continue to extend Genius program beyond accommodations into other travel verticals, “bringing these benefits to more elements of travel”
  • Genius travelers exhibit “meaningfully higher” direct booking rates and a higher booking frequency than Booking’s other travelers

• Sustained growth in direct & mobile booking mix
  • Similar commentary on direct bookings mix: Over the last 4 qtrs, B2C direct mix was in the mid-60% range, which was up from the low-60% range one year ago (same stats provided last qtr)
  • Similar commentary on mobile app mix: Mobile app mix of Q2 room nights was in the mid-50% range over the last four qtrs, which was up from the yr-ago low-50% range (same stats provided last qtr)
    • “Significant majority” of bookings received from mobile apps came through the direct channel

Continue To Actively Invest In Advanced AI Capabilities

• Priceline’s AI assistant Penny saw “multiple” enhancements, including expanded voice capabilities, leading to increasing engagement rates and improved conversion metrics
• KAYAK.ai continued to improve its products to be more personalized and conversational

• OpenTable’s AI Concierge draws from OpenTable’s extensive restaurant data, including menus, reviews and descriptions to offer more tailored recommendations
  • Launched earlier this month

• On the customer svs side – genAI has “notably” reduced live agent contact rates across Booking’s brands

• Continue to collaborate with AI Cos such as OpenAI, Microsoft, Amazon, and others on their agentic developments but still very early days

• Long-term goal is to recreate the “old-time human travel agent” experience using natural language search, personalization, and proprietary data
  • Wants to combine what Bookings knows about a customer (i.e., family makeup, trip type, preferences) with real-time conversation to surface the best potential trip options

Microsoft: It was a solid quarterly beat (FQ4) across all segments on both the top and bottom line and accelerated growth at Azure and AI monetization were standouts; The CapEx trajectory was also upward ($21.4bn in FQ3 to $24.2bn in FQ4 to guidance of $30bn in FQ1); Q1 rev guidance was ahead and OpEx was below

-> Microsoft shares rallied 4% on the back of results; The stock is up +25% YTD

Apple: FQ3 beat expectations on the back of stronger Services and Product revenue, though weaker Product gross margins were a drag, partially offsetting stronger Services gross margins; Wearables disappointed; On the outlook, Q3 revs were ahead ($99.37bn vs cons $97.62bn) as was adj EPS ($1.69 vs $1.65); The tariff impact in Q4 will be ~$1.1bn, up from ~$800mn in Q3) but the situation remains fluid; Apple’s AI positioning (or lack thereof) remains a hot button

-> Apple shares fell -2.5% on the back of results; The stock is down -19% YTD

Roblox: The Co posted a blow-out Q2 with net bookings +12.3% ahead of cons and adj EBITDA +50% above of the Street; DAUs and avg daily bookings per DAU were also both better than expected; Q3 bookings guidance topped estimates ($1.59-1.64bn vs cons $1.42bn) and FY 2025 bookings beat ($5.87bn vs cons $5.6bn)

-> Roblox shares rallied 10.3% on the back of results; The stock is up +42% YTD

Universal Music Group It was a mixed Q2 with a headline beat (revs and adj EBITDA topping cons by +5.3% and +3.3%, respectively) but margins were lower than expected and Subscription revenue fell short of expectations; On the positive side, ad-supported streaming revs were better than expected (but a smaller part of the business); UMG expects 8-10% subscription growth in the medium term

-> Universal Music Group shares fell -5.2% on the back of results; The stock is down -2% YTD

Reddit: It was also a blowout qtr with Q2 headline numbers significantly above expectations due to much better ARPU (+47% y/y); While users were only slightly ahead and growth decelerated, there was commentary about improving trends exiting the qtr which was a plus; Q3 guidance was also well above the Street

-> Reddit shares rallied +17.5% on the back of results; The stock is up +15.4% YTD

Roku: Q2 was stronger than expected, especially on adj EBITDA margins; Q3 guidance was slightly ahead (rev $1.2bn vs cons $1.17bn and adj EBITDA $110mn vs cons $106.9mn), while FY25 adj EBITDA guidance was raised from $350mn to $375mn; Streaming hours were also slightly better (+18% y/y); We’ll have to dig into this one further to explain the strong negative price reaction…

-> Roku shares fell -15% on the back of results; The stock is up +7.6% YTD