LT Weekly: Feb 7, 2025

There was a storm of earning prints hitting the tape this week, as 37 companies in our LionTree Universe reported fourth quarter earnings (up from last week’s 17). In a reversal from last week, stock price reactions were biased to the downside, as 21 companies (57%) traded down in reaction to results, while 16 companies (43%) traded up. GoPRO had the worst performance of the lot, falling -16.8% after its report, while Doximity was the best performer, jumping +36%.

While quarterly reports were across sub-sectors this week, arguably the most prominent were the digital advertisers. Reactions were shaky at the start of the week, as Alphabet traded down -7.3% (see Theme #2), followed by Snap, which fell a steeper -8.4%. However, Pinterest ended the week on a high note for the sub-sector, with the stock surging +19.1% (see Theme #6 for more on Snap and Pinterest).

This week also brought with it more media earnings, starting with Fox, which shared a big announcement that helped drive the stock up +5.2% (see Theme #5 for more details). That was followed by Disney, which had its stock go the other way and was down -2.4% post its print (see Theme #4). Also seeing some bifurcation in reactions was the music sub-sector, which saw Spotify jump +13.2% after its results (see Theme #7), while WMG fell -1.1% (see Theme #8).

It was also a big week for the video game companies, and while EA and Take-Two were both up +7.6% and +14.0% (see Theme #9), Roblox didn’t fare so well and fell -11.1% (see Theme #9).

On the last-mile side, Uber had a tough going, with the stock down -7.6% in reaction (see Theme #12). Expedia kicked off online travel earnings this week, with the stock leaping +17.3% in reaction (see Theme #11). Finally, rounding out the Big Tech reports was Amazon, which fell -4.1% in reaction (see Theme #3).

It has been a mixed bag thus far in Big Tech earnings, and this week was more of the same but with a more negative bias, as both Alphabet and Amazon shares sold off in reaction to earnings. The “higher than expected AI CapEx” theme continues to be front-and-center, but neither company significantly outperformed on the revenue side as a result of the prior spending step ups. Additionally, their respective Cloud revenue growth rates were lackluster versus expectations. However, we would note that both were negatively impacted by capacity/supply constraints in Q4, which should ease later this year. Alphabet and Amazon also continue to push hard regarding their own AI chips as part of that as well.

On Alphabet more specifically, while the company’s core advertising business performed better than expected (grew +11% y/y in Q4, which is up from +10% y/y in Q3) and it posted a slight acceleration in Search & YouTube revenue, that was overshadowed by weaker than expected revenue growth in Google Cloud (decelerated to +30% y/y in Q4 from 35% y/y in Q3) in part due to the aforementioned capacity constraints. Also, Alphabet’s full year guidance of $75bn was +43% above 2024’s $52.5bn level, so that was a hot button as well. Questions about what the normalized level of capital intensity should be were left unanswered.

The integration of AI into the company’s core ads business was a big focus on the conference call, and thus far it has been a driver for incremental search opportunities. That said, we should expect to see much more innovation with Search in 2025.

Overall, Big Tech company executives still see a massive AI land grab opportunity and want to fortify their positions, while investors want to more clearly understand the CapEx trajectory and want to see more tangible evidence of incremental growth from these investments.

See below for more of what we thought were the most important elements and themes from Alphabet’s results and earnings. Also, see Theme #3 for similar perspective on Amazon’s results.

Lastly, see Theme #6 for more on digital advertising from Snap and Pinterest results.

-> Alphabet shares fell -7.3% on the day and ended the week down -9.2%; YTD, Alphabet stock is down -2.1%

Better Q4 Margins Were Overshadowed By A Miss In Cloud Revenue & Q1:25 Revenue Will Be Impacted By Two Items

• Margins beat, while revenues missed: Headline revenues grew +12% y/y and +12% y/y ex-FX (vs +15% y/y and +16% y/y ex-FX in Q3), slightly missing cons by -0.2%; Op margins of 32.1% outperformed cons 31.5% and expanded by +4.6pts y/y; EPS beat by +0.9% and grew+31% y/y; FCF of $24.8bn missed by -5.3%
  • Google Services revs (+10.2% y/y) were essentially in-line, while op income (+23% y/y) was +3.8% ahead of cons (margin rose to 39% vs 35% in Q3)
    • Total Google Advertising rev rose +10.6% y/y (vs +10.4% y/y in Q3) and beat by +1.1%
    • Subscription, platform, and devices revs rose +8% y/y (vs +28% y/y in Q3) and missed by -4.7%
    • Network ad revs fell -4% y/y
  • Cloud revs rose +30% y/y (vs +35% y/y in Q3) and missed by -1.9%;5% op margins
  • Other Bets revs of $400mn was -35% below cons, but the op loss of -$1.2bn was in-line

• Outlook – Two items will impact Q1 rev
  • FX – expect a larger headwind to revenue from the strengthening US dollar vs other key currencies
  • The impact of 2024’s leap year means 1 fewer day in Q1:25 y/y

Google Cloud Faced Some Supply Issues In Q4, But The Co Is Working Hard To Bring On New Capacity

• Q4 revenues grew +30% y/y, a deceleration from +35% in Q3: GCP grew in excess of the total, and healthy Google Workspace growth was primarily driven by an increase in avg rev per seat

• Headwinds in Q4? There were tough comps from the strong deployment base from Q4 2023 but also exited the qtr with demand exceeding available capacity
  • 2025 commentary – growth rates are contingent on new capacity: They are working diligently to increase capacity w/ CapEx going up in 2025, but given that Cloud revs are correlated w/ the timing of deployment of new capacity, “we could see variability in cloud revenue growth rates depending on when new capacity comes online during 2025”

• First-time commitments more than doubled in 2024 compared to 2023 / Deals over $250mn doubled y/y
  • Highlighted new cloud customers: Mercedes-Benz, Mercado Libre, and Servier

• Q4 saw significant uptake of Trillium, the Co’s sixth-generation TPU
  • Offers +4x better training performance and +3x greater inference throughput than the previous generation
  • But still have a cont’d strong partnership with NVIDIA

• Vertex AI (their AI developer platform), saw a +5x increase in customers y/y
  • Vertex usage surged +20x in 2024, with high adoption of Gemini Flash, Gemini 2.0, Imagen 3, and VEO

• Robust growth in AI-powered databases, data analytics, and cybersecurity platforms

• Expanding portfolio of AI applications with strong customer adoption
  • Launched Google Agent Space in Q4
    • Helps enterprises synthesize data with Google-quality search
    • Enables creation of Gemini-powered agents and automates transactions for employees
  • Provided all Google Workspace business and enterprise customers access to Gemini AI capabilities to enhance productivity

CapEx Guidance Was MUCH Higher Than Expected BUT No Color On What Normalized Capital Intensity Will Be

• Q4 CapEx of $14bn was an increase from Q3’s $13bn and +7.7% higher than expectations: Continue to invest in technical infrastructure, w/ the largest component being servers, followed by data centers
• The $75bn 2025 CapEx guidance was +27% above cons and +43% above the $52.5bn spent in 2024
  • Q1:25 guidance: ~$16-18bn
  • Expect the growth rate in depreciation to accelerate in 2025

• The costs for AI will keep coming down, making more use cases feasible, and “that’s the opportunity space. It’s as big as it comes, and that’s why you’re seeing us invest to meet that moment”
• How do we think about long-term capital intensity for this business? Mgmt didn’t comment directly to this analyst question
• Believe the Co’s strategy to take an end-to-end AI stack approach creates a strong differentiation in optimizing cost, but also on a latency and performance basis: It is partly why they have been able to bring forward flash models at very attractive value props, which is what is driving developer growth
  • Have doubled developers to 4.4mn in just ~6 months

Total Advertising Growth Remained At A Low DD Rate… 2025 Will Be The “Biggest Year” For Search Innovation & YouTube Rev Growth Accelerated

• Google Search & Other ad revs incr’d +13% y/y (slightly up from +12% y/y in Q3) with broad-based strength led by fin svs (esp insurance), followed by retail (which was the same last qtr)… Paid clicks grew +5% y/y and cost per click grew +7% y/y
  • HOWEVER, that strength in fin svs will create a tough comp in 2025
  • Note that Q4 total advertising growth also faced tough comps due to APAC-based retailers spending levels in Q4:23

• Rapidly integrating AI innovation into the consumer search experience
  • Started testing Gemini 2.0 in AI overviews… Available in 100+ countries & plan to roll it out more broadly later in the year
    • AI Overviews are driving higher usage and satisfaction
    • Seeing people increasingly ask entirely new questions
    • Recently launched ads w/in AI overviews on mobile in the US (previously rolled out ads above and below)… overall monetization is roughly the same rate
  • Circle to Search is now available in 200mn+ Android devices: It is driving addt’l search use and leading to even more types of questions
    • Those who have tried Circle to Search use it to start 10%+ of their searches
  • Intro’d a reinvented Google Shopping experience rebuilt from the ground-up w/ AI
    • In Dec saw ~+13% more daily active users on Google Shopping in the US y/y
  • Offering new ways for people to search such as with Lens
    • Lens is used for 20bn+ visual search queries every month, and most of these searches are incremental
  • Believe there are many more avenues to innovate in Search looking ahead: “As AI continues to expand the universe of queries that people can ask, 2025 is going to be one of the biggest years for search innovation yet”

• YT ad rev growth modestly accelerated to +14% y/y from +12% y/y in Q3; Growth was driven by brand, followed by DR
• YT usage is strong and taking streaming share:
  • YouTube continues to be #1 in streaming watch time across ad-supported and premium experiences
  • In the US, YT’s share of streaming is now at a record high

• Early investment in podcasts are paying off: Google is now the most frequently used svs for consuming podcasts in the US, according to a recent Edison report
  • In 2024, people watched 400mn+ podcasts each month on living room devices alone.

• Making progress with YouTube shopping: Expanded at the end of last year to 3 addt’l countries
  • Now have 250k+ creators in the YT Shopping affiliate program in the US and Korea alone

• YT Shorts is closing the gap with long-form: In 2024, the monetization rate of short relative to in-stream viewing incr’d by more than +30ppts in the US, and the Co expects to make additional progress in 2025
  • Making it easier for advertisers to benefit from shorts on all screens: Excited by success on Connected TV, which now makes up 15% of shorts viewing in the US

• Continue to believe AI will revolutionize every part of the marketing value chain across media buying, creative, and measurement
  • Media buying: Made YouTube Select Creator takeovers generally available in the US and will be expanding to more markets this year
  • Creative: Intro’d new controls and made reporting easier in Pmax
  • Measurement: Last week, made Meridian (their marketing mix model) generally available for customers

The Gemini App Is All About User Experience In 2025, But There Will Be Advertising Potential Over Time

• Have had strong momentum for Gemini on the app side, particularly in H2, as it became more accessible (debuted on iOS last Nov)
  • Unveiled Gemini 2.0 in Dec – built for the Agentic era
  • 0 Flash is one of the most capable models at the free tier
  • Late last year, also debuted the experimental Gemini 2.0 flash thinking model
  • Gemini Live is “definitely a hit”
  • Gemini Deep Research has been well received as well for advanced users

• Focused on a free tier and subscriptions with Gemini app right now and want to lead with the user experience this year; However, the Co does have very good ideas for native ad concepts

Waymo Is Ramping Rapidly

• Served 4mn+ passenger trips in 2024 and is averaging 150k+ trips each week and growing

• Expansion plans
  • Early 2025: Austin & Atlanta in the US and vehicles will arrive in Tokyo in the “coming weeks”
  • 2026: Miami

• Developing the sixth-generation Waymo driver, which will significantly lower hardware costs

Following the above commentary on Alphabet (see Theme #1), Amazon was the other Big Tech juggernaut to report results this week, and the higher profitability in Q4 was not enough to offset concerns about the combination of: 1) weaker Q1 guidance; 2) an in-line to a slight miss on AWS revenue growth; and 3) of course, much higher CapEx. More specifically, total Q4 op income beat by +11%, given strong upside in the North America and international segments (it was the eighth consecutive quarter that the company posted a y/y margin improvement in both the North America and international segments), while revenue was more or less in-line. However, Amazon’s Q1 guidance was -12.8% lower than consensus expectations on op income and -3.3% lower on revenue at the midpoint, but it is worth noting that FX is expected to weigh on results, along with an accounting change.

On AWS, constant currency revenue growth of +19% y/y was consistent with the prior qtr. That said, and as noted for Google Cloud, AWS also was negatively impacted by supply constraints, though management sees that bottleneck improving in H2. Regarding CapEx, guidance of ~$100bn was a big step up from the ~$78bn in 2024 and ~$53bn in 2023.  Nonetheless, management believes this level of spend is justified, given that “AI represents for sure the biggest opportunity since cloud and probably the biggest technology shift and opportunity in business since the Internet.” It is a “once-in-a-lifetime type of business opportunity” for the company.

In terms of the core Stores business, it is essentially “same ole, same ole”.  Amazon continues to expand selection, focus on lowering prices, and increase delivery speeds, of which the investment is not seeing diminishing returns. The company continues to execute on squeezing out more cost efficiencies, and the cost of serve should further decline in 2025 despite 2 consecutive years of improvement there.

See below for more details on these key takeaways, along with some interesting updates on the Co’s advertising and video businesses, among other updates.

-> Amazon shares fell -4.1% in reaction to earnings and ended the week -3.6%; YTD, Amazon stock is still up +4.4%

Higher Q4 Profitability Overshadowed By Weaker Q1 Guidance & A Slight Miss On AWS Revenue Growth

• Q4 was another qtr of a larger op income beat (by +11.4%) along with a more modest revenue beat (by +0.3%)
  • Total revs rose +10% y/y (+11% ex-FX) vs +11% in Q3
  • Op income grew +61% y/y (margins hit 11.3% vs cons 10.2%)
  • Adj EPS beat by +25%

• Q4 by segment – Higher than expected North America revenue was mostly offset by lower than expected Intl revenue, while profitability in both segments were WELL above Street forecasts; AWS was mixed
  • Amer: Revs rose +10% y/y (vs +9% y/y in Q3) with 8% op margins vs cons 6.6%
  • Intl: Revs grew +8% y/y or +9% y/y ex-FX (vs +12% y/y in Q3), and profitability was much stronger than expected (up +1.7bn y/y) with a 3% op margin
  • AWS: Revs grew +19% y/y was more or less in-line, while op income slightly beat
    • The higher est’d useful life of servers starting in 2024 contributed ~200bp to the AWS margin increase y/y in Q4

• Q1 guidance was a disappointment in part due to expected FX hit and a chg in acct of fixed assets:
  • The mid pt of rev guidance (between +5-9%) was -3.3% below cons
    • Assumes a ~-$2.1bn or -150bp headwind from FX
    • Also the leap year added +$1.5bn in the yr ago qtr
  • The mid-pt of op income guidance was -12.8% below cons
    • Guidance incls changes to the useful life of fixed assets that in aggregate will decrease full-year 2025 op income by ~-$400mn

Capacity Constrained In AWS But This Should Ease In H2, And Investments Will Lead To Higher Growth

• AWS revs grew +19% y/y ex-FX, which is the same rate as in Q4
  • Saw growth in both generative AI and non-generative AI offerings

• AWS revenue would have grown faster if not for constraints on capacity, but mgmt expects these constraints will relax in H2:2025; What has been constrained?
  • 3P chips are coming a little slower than before
  • Mid-stream changes take some time
  • There are some power constraints
  • Motherboards are in short supply

• In AWS, the faster it grow, the more CapEx the Co ends up spending b/c it has to procure data centers, hardware, chips, and networking gear ahead of when it is able to monetize it
  • “We don’t procure it unless we see significant signals of demand”

• Very bullish on the Cloud Biz: While “AWS growth will be lumpy over the next few years as enterprise adoption cycles, capacity consideration, and tech advancements impact timing… it’s hard to overstate how optimistic we are about what lies ahead for AWS customers and business””
• Mgmt believes they are very well positioned in AI, given they have capabilities in all three layers of the stack
  • Intro’d new Trainium2 AI chip which is delivering much better price performance than current GPU powered instances
    • Working on Tranium3, which expect to preview late in ’25 and defining Tranium4 thereafter
  • Have their own foundation models in Amazon Nova and new models and features in Amazon Bedrock
  • Amazon Q is helping with the migration from old platforms
  • Intro’d the next edition of Amazon SageMaker to pull data, analytics, and AI together more concertedly

• AWS op margins will fluctuate; AI initially has lower margins and heavy investment load, but over the long term, AI margins will be comparable to non-AI workloads

• New agreements with… the U.S. Army, Intuit, PayPal, Norwegian Cruise Line, Northrop Grumman, Medtronic, The Guardian Life Insurance Company of America, Reddit, Japan Airlines, Baker Hughes, The Hertz Corporation, Redfin, Chime, and Asana

• Regionally, the Co launched AWS Asia Pacific (Thailand) and AWS Mexico (Central) Region

CapEx Takes A Big Step Up In 2025 Given The “Once-In-A Lifetime” Opportunity”; AWS Will Continue To Invest In Emerging Areas

• Q4 CapEx guidance of $26.3bn is a “reasonable representative” run-rate for 2025, implying ~$100bn for the year vs ~$78bn in 2024
  • Most of the spend is primarily for AWS but will also support the N. Amer and Intl segments, where the Co is investing in capacity for fulfillment and the transportation network, in addition to same day delivery and the inbound network plus robotics and automation

• “AI represents for sure the biggest opportunity since cloud and probably the biggest technology shift and opportunity in business since the Internet”
  • “We think virtually every application that we know of today is going to be reinvented with AI inside of it and with inference being a core building block just like compute and storage and database”
  • AI is “one of these once-in-a-lifetime type of business opportunities”

• Also will continue to invest in experiences that have a larger potential over the long-term
  • Alexa
  • Healthcare
  • Grocery
  • Kuiper (planned launches of production satellites in the “coming months”)

• Expect the cost for inference to “substantially” come down but companies will also end up “spending a lot more in total on technology once you make the per unit cost less”
  • Impressed by what DeepSeek did esp w/ training techniques and inference optimizations were interesting; Everyone building frontier models today are learning from one another and a lot of innovation is to come; Ultimately think all big gen AI apps will use different models

The MO For The Stores Biz Remains The Same – Expand Selection, Lower Prices, & Improve Convenience

• Reached highest annual mix of 3P seller units at 61% of the total in 2024
• Mgmt has not yet seen diminishing returns from improving the speed of delivery: Customers more than not buy more when there is faster delivery; With Prime Air, can deliver items inside one hour
  • Expanded the # of same-day delivery sites by more than 60% in 2024
  • Delivered at its fastest speeds ever for Prime members in 2024
  • Delivered 9bn+ units the same or next day globally
  • With that said, sometime people do choose to receive packages later as well

• Paid units grew +11% y/y in Q4 (vs +8% y/y in Q3)
• The Co does not expect an impact from UPS’ decision: UPS “decided that serving Amazon is a lower margin for them. And so I think they’ve walked away from some of the volume that they otherwise could have had in the partnership. We’re able to handle it with our own logistics capability, and we’ll see how it continues to evolve”

Amazon Expects To Drive Down Cost To Serve AGAIN In 2025

• Reduced cost to serve on a per unit basis for the second year in a row while also increasing speed and increasing selection (has been a meaningful driver to the higher op income)
• Mgmt believes they can reduce cost to serve again in 2025 and beyond due to –
  • On top of the regionalization they have done, recently rolled-out redesigned US inbound network which brings inventory close to end customers; It is still early days
  • Also optimizing the number of items per package sent to customers
  • Per unit transportation costs continue to decline
  • Accelerate robotics and automation in the network

• The next tranche of robotics initiatives has started hitting production, but this will be a many-year effort:
  • “We actually don’t think there are that many things that we can’t improve the experience with robotics”

Media-Related Efforts Continue To Show Success… Ad Revs Deliver Consistent Y/Y Growth & Sports Content Attracts Eyeballs

• Ad revs were up +18% ex-FX, reaching $17.3bn ($69bn annual run rate) vs +18.8% in Q4
  • Sponsored products (largest portion) have more room to grow
  • Wrapped up first year for Prime Video ads and “quite please”; Have momentum into 2025
  • And have differentiated audience features that leverage billions of customer signals and drive returns

• Prime Video events are attracting large audiences
  • Red One: 50mn worldwide viewers in its first four days (Amazon MGM Studios’ most-watched film debut ever on Prime Video)
  • Third season of Thursday Night Football: Full-season avg of 13.2mn viewers on Prime Video per Nielsen, up +11% y/y and saw a peak of 24.7mn during the Wild Card playoff game btw the Steelers and Ravens

Last week, we got our first look at Media earnings with Comcast reporting, while this week, Disney and Fox (see Theme #5) were the main Media events; however, it was hit or miss. Disney’s Experiences and Sports segments topped analysts’ estimates, and profitability across the board was a standout, though the Entertainment segment and direct-to-consumer (DTC) missed top line forecasts. D+ subs are expected to fall sequentially next quarter due to a “temporary” uptick in churn from both the recent price increases as well as the end of a recent promotional offer. Notably, management didn’t raise the full year profitability guidance despite the outperformance in the quarter. Drilling down, Disney’s FQ1 adj EPS growth of +44% y/y is pacing significantly above the full year guidance of high single digit growth, and the company’s almost $300mn in DTC op income in FQ1 is tracking well vs the full year guidance of $1bn. Based on comments on the call, our take is that they are trying to create some buffer to overdeliver on the previously stated guidance, but time will tell if that is the case or if management is bracing for a softer year ahead.

While the Experiences business performed quite well vs expectations, there is some concern about Comcast’s EPIC theme park (launching in May). Management has already baked in a “small” impact to the guidance, which it is “confident” in reaching. Sports and the flagship ESPN DTC are also a key catalyst, and the new offering will be coming this fall. Disney is leaning into the product and aims for ESPN to reach customers wherever they are, including via the new skinny bundles. It was also interesting to see that Disney’s FY25 content budget is now $23bn (vs the previous $24bn), but management didn’t provide detail around that change.

See below for more on what we thought were the most important takeaways and updates from Disney’s earnings and conference call.

-> Disney share fell -2.4% in reaction to earnings and is now flat for the year

The Experiences & Sports Businesses & Profitability Were The Upside Areas In FQ1

• Total consolidated FQ1 revs were up +5% y/y, essentially in-line w/ cons, while op income (up +31% y/y) was +17% ahead of consensus & adj EPS (+44% y/y) was +21% ahead
• Experiences & Sports posted the biggest upside vs the Street
  • Experiences revs beat by +1.3% and op income beat by +5.1%
  • Sports revs beat by +2.5% and op income beat by +$210mn

• Operating income upside was across all segments

Reiterated FY25 Adj EPS Growth Guidance Despite Pacing Ahead

• Q2 FY25 guidance:
  • Entertainment DTC: Modest decline in Disney+ subscribers vs Q1
  • Sports: Op income adversely impacted by ~-$100mn due to college sports and one addt’l NFL game, plus ~-$50mn from exiting the Venu Sports JV
  • Experiences: Disney Cruise Line pre-opening expense of ~-$40mn
• FY25 guidance: Reiterated ~+hsd% y/y adj EPS growth DESPITE the +44% y/y adj EPS growth in FQ1
• Mgmt commented that the higher-than-expected FQ1 adj EPS growth rate “certainly gives us confidence, and even higher level of confidence than we probably even had before, as we get into the balance of the year. At the same time, given the rapidly evolving macro environment, we think it would be premature at this point to change the guidance, but obviously the results were certainly in excess of expectations in the first quarter”
• FY25 guidance by segment:
• Entertainment: ~+double-digit% y/y segment op income growth, w/ an increase in Entertainment DTC op income of ~+$875mn, which includes a comp to an adverse impact of their India DTC biz of ~-$200mn in FY24
  • Growth will be weighted to the H1 due to timing of theatrical releases compared to FY24
• Sports: +13% segment op income growth
• Experiences: +6-8% segment operating income growth
• Expects FY25 CapEx of ~$8bn vs $5bn in FY24, driven primarily by fleet expansion at Disney Cruise Line and new guest offerings at our theme parks around the world
• India business is expected to:
  • Contribute +$73mn to Entertainment op income in FY25 vs +$254mn in FY24
  • Contribute $9mn to Sports op income in FY25 vs a -$636mn loss in FY24
  • Equity loss from the India JV of -$33mn in Q1 primarily due to the impact of purchase accounting
    • FY25: expect an equity loss of ~-$300mn, driven by purchase accounting

• Lowered the content cost budget in FY25 to $23bn from the previous $24bn but did not provide any color around that

Profitability Improved In DTC At A Faster Pace Than The Qtrly Rate Implied In The Full Year Guidance

• DTC op income incr’d by +$431mn to $293mn, which is tracking on a qtrly rate ahead of the FY profit target of $1bn; However, the Co is not changing the guidance now
  • “We’re out of the blocks very, very quickly. As I mentioned earlier in this call, we’re certainly not afraid to over-deliver if the business momentum gives us that”

• DTC ad rev fell -2%, but ex D+ Hotstar, it was up +16% y/y (FQ4 +14% y/y)
  • More than half of new US Disney+ subscribers are choosing the ad tier

• “The only way you succeed in global streaming, both from a subscription perspective and a profitability perspective, is with a great combination of high-quality product with volume and technology”; They believe they are well positioned here
  • Already made the business more economical
  • And with the tech that they have in place, combined with their content,” we actually are bullish about our ability to grow subs too”

D+ Subscriber Adds Top Expectations But Will Decline Seq Next Qtr /Nonetheless, Expects Subs Growth For the Full Year

• D+ Core subs net adds of 4.4mn was stronger than expected, and the Co ended the period with 125mn total subs (+4.6% ahead of cons)
  • Bundle subscriptions continued to grow with Hulu on Disney+

• But expect a modest seq decline in D+ Core subs in FQ2: Driven by the “temporary” uptick in churn from both the recent price increases and the end of a recent promotional offer
• With that said, Paid sharing is starting to “take hold,” and as they add more of the movie slate that they produced in the back half of ’24 into the streaming service in ’25, that “will drive sub growth as well” for the full year

Remain Confident In The Experiences Full Year Guidance Despite EPIC Launching In May

• FQ1 Experiences rev rose +3% y/y
• Domestic parks rose +2% y/y
  • International parks rose +12% y/y

• FQ1 Experiences op income was impacted by several one-time impacts: Hurricanes Milton and Helene (~-$120mn impact) & pre-opening expenses (~-$75mn impact) related to the launch of the Disney Treasure
• Domestic parks fell -5% y/y
  • International parks incr’d +28% y/y

• Feel very confident in the full year guidance despite EPIC opening: A small impact from EPIC is already built into the existing guidance, which the Co feels very confident about (performance in FQ1 increases confidence in the FY guidance even more)
  • Mgmt reiterated summer bookings are up y/y, despite Epic
  • Will also have easier comps in H2, esp FQ4, given their ship is coming on as of this quarter, which supports the results from FQ2 going forward

• Update on new experiences:
  • Disney Treasure is off to a “spectacular” start w/ selling out rooms: A high % of people are rating it excellent; Expect this ship to be profitable in its first quarter in the water
  • Lightning Lane is launching, but it’s a product that “we are learning how to use, so we are marketing it very gently initially”: It is in line w/ expectations, but “we are moving slowly”; It’s going to build over time

Lays Out More Details On Flagship ESPN DTC Timing

• FQ1 Sports revs were ~flattish y/y
  • Domestic ESPN ad revs +15% y/y

• FQ1 Sports op income incr’d +$350mn y/y to $247mn

• Flagship ESPN DTC is still slated for “fall” 2025 – the goal is to make ESPN as accessible as possible: The Co is “leaning in”; Enhancements include “some form of betting, and fantasy, a high degree of customization and personalization, and essentially a much bigger offering in terms of product programming than the linear channels currently offer”
  • Have opportunity to bundle it with Disney+ and Hulu
  • Will be “really smart and strategic about pricing there”
  • If users happen to subscribe to Disney+ and Hulu, then they can experience ESPN flagship in a one-app experience
  • “Flagship is not really designed to preserve a business. It’s designed to grow a business”

• Impact of skinny bundles? “Plan to take advantage of the emergence of these bundles because it is a great way to distribute ESPN”
• There were some analyst concerns about the cost of the NBA rights, given the weaker season to date ratings and the step-up next season, but mgmt. reiterated its optimism about the rights and that economics are baked into the ESPN guidance, which they are committed to

Not Ruling Out M&A Of Small Cable Networks But Linear Networks Are Viewed As “Assets”

• View linear networks as “assets”: Linear networks at our company “are not a burden at all”; The Co is programming them and funding them at levels that actually give them the ability to enhance the overall TV business
• M&A? “Won’t rule out the possibility some of the smaller networks in some form or another in being configured differently in terms of how we bring them to market, maybe even ownership, but we’re not right now”

Unlike the debate following Disney’s results (see Theme #4), Fox’s FQ2 delivered a landslide victory across all fronts, as higher political advertising, strong MLB postseason ratings and NFL pricing, continued growth at Tubi, and robust news ratings and pricing all helped drive an easy beat across revenue and adj EBITDA. The outperformance was driven by both segments, as Cable Networks and TV Stations posted sequential accelerations and topped both revenue as well as adj EBITDA estimates.

On the advertising side, y/y growth accelerated sequentially across both the segments, and that momentum has been continuing into FQ3 across the portfolio. Most timely is the upcoming Sunday Super Bowl 59, which sold out ad slots and saw “record pricing.” Notably, Tubi is set to stream the Super Bowl for the first time (alongside the regular broadcast) after the service posted a +31% y/y increase in ad rev in FQ2, which was an acceleration even when excluding political revenue. Despite plans to “step on the gas a little bit” for the Super Bowl in terms of investments, it remains on track to meet its profitability goals.

FOX News was also particularly strong in the quarter, given the election, and those share and ratings gains have sustained. To capitalize on the strength, the focus remains on expanding distribution of not only FOX News, but the other core FOX channels as well as across traditional, digital, and DTC. The rise of “skinny bundles” has been a key avenue to accomplish that. The company is “very pleased” with the ride of the “skinny bundle,” as it works out to be both “financially and economically a positive.”

Finally, and arguably the biggest announcement out of the call, was that Fox would be launching its own DTC streaming service by the end of 2025. While they continue to remain “huge supporters” of the traditional cable bundle, the goal of the new streaming service will be to reach the “large population” of cord-cutters and cord-nevers.

See below for our key highlights and takeaways from the call…

-> Fox shares rallied +4.8% post results and is the best performing media conglomerate YTD, up +8.7%

Fox Unilaterally Beat Expectations In FQ2

• It was knockout qtr across the board in FQ2, w/ profitability being the standout
  • Total revs – beat by +4.7%: Grew +20% y/y (accel from +11% y/y in FQ1)
  • Adj EBITDA – beat by +36.7% (and was an FQ2 record): Grew +123% y/y (accel from +21% y/y in FQ1)
  • Adj EPS – beat by +41.2%
• Cable Networks – rev beat by +12.5% and adj EBITDA by +18.5%
  • Rev grew +31% y/y
  • Adj EBITDA grew +16% y/y

• TV Stations – rev beat by +1.7% and adj EBITDA beat by +7.3%
  • Rev grew +16% y/y
  • Adj EBITDA grew to $205mn from -$138mn in the prior year’s qtr

Demand For News & Sports Has Not Abated… FOX News Viewership Shows No Signs Of Slowing Down & Expectations Are High For The Super Bowl

• FOX News once again ended the qtr as the most watched cable network in total day and in primetime, growing total day audience by ~+40% y/y, and prime time audience by +45%y/y
  • FOX News saw 4.5bn hours of content consumed across its platform in FQ2

• FOX News posted its highest qtrly share of primetime cable news audience in its history, at over 60%, which includes a 70% share in December
  • This was more than double the viewing of its closest competitor

• Saw an uptick in “non-traditional media sources” during the past election cycle – “We view these new media markets opportunistically and as central to our growth strategy”
  • Increase in consumers who either supplement or solely accessed their news and information from “non-traditional media sources”
  • On YouTube, FOX News generated ~410mn views in January, beating their closest competitor, NBC, by ~2.5x

• Looking into FQ3 – Momentum has cont’d w/ FOX News FQ3-to-date ratings are up over +50%, prime time ratings are up over +40%, delivering FOX News a 69% share of prime time cable news audience

• On sports… “Autumn is traditionally the strongest time of year for FOX Sports, and 2024 was no exception”: Driven by Major League Baseball World Series, college football expanding to Friday nights, and the NFL (which “remaining the most watched content in all of television)
  • FOX was the leader in consumption of live sports events in FQ2
  • Next big event is this Sunday’s Super Bowl LIX

Tubi Continues To Be A Big Driver To Overall Ad Revenue & Super Bowl Streaming Is The Next Catalyst

• Tubi’s audience reaches those viewers not in the traditional cable universe: Audience is 65%+ cordless, made up of cord-nevers and cord cutters
• Tubi was a “strong” contributor ad rev growth, up +31% y/y and accelerated even when excluding political rev

• Tubi will livestream the Super Bowl for the very first time, which will afford Tubi “an opportunity to engage a large cohort of new users”
  • After the game viewers will have access to Tubi’s library of 275k+ movies and TV episodes
  • Cost? “There’s some technology streaming costs, obviously, but it’s tiny compared to the opportunity in front of us. So, very low incremental costs”
  • Benefit? “Tremendous exposure”; “A lot of first-party data….[which] is really critically…and will help us drive our CPMs”
  • “It’s not necessarily a big change in strategy, but it’s a huge opportunity for Tubi, and it’s something we were very keen to focus very intensely on”

• On the road to profitability: Investment in Tubi has reduced this yr as the biz continues to scale; Will continue to invest throughout this year and next before it reaches profitability
  • Will “step on the gas a little bit” when investing for Super Bowl in FQ3 “to take max advantage of the marketing and user acquisition that comes with that”
  • “To the extent that we see more opportunities and we’ll remain opportunistic, but at the moment, we’re bang on track”
  • “On schedule to meet our breakeven profitability as per our […] business plans and expectations for the business”

Broad-Based Strength Across Advertising In FQ2 Is Expected to Continue Into FQ3

• Total ad revs were up +21% y/y (accel from +11 y/y in FQ1), with broad-based strength across their portfolio, including “significant” political ad spend collected at their local stations, “strong” MLB ratings and “robust” pricing across key sports properties, continued growth at Tubi and “strong” engagement at News
  • Cable ad revs grew +32% y/y (accel from +11% y/y in FQ1) driven by the strength in FOX News linear ratings and digital engagement and supported by “healthy” pricing in both national and direct response; Additionally, Sports ad revs benefited from higher MLB postseason ratings
  • TV ad revs grew +19% y/y (accel from +11% y/y in FQ1), boosted by political ad revs, “strong” MLB ratings and pricing strength across their sports schedule, and continued growth at Tubi

• FOX News, in particular, is seeing “really a tremendous amount” of new advertisers come to the platform, driven by strength in ratings and momentum post the presidential election and inauguration
  • “We’ve seen over 100 new clients who have not been FOX News advertisers with major national clients come on to the platform…that’s driving demand and driving pricing”

• Looking into FQ3 – Ratings and revenue are accelerating from FQ2; “Advertising strength has continued into our fiscal third quarter, where we are seeing very healthy trends across our portfolio”
  • NFL postseason broadcast of the Wild Card Divisional and NFC Championship saw their “highest ever” unit pricing and demand for these matches
  • Super Bowl 59 saw “record” pricing and is sold out
  • FOX News ad trends across DR and national ad categories are “strong”; Seeing increased demand from both existing blue-chip advertisers and new clients due to FOX News record share of audience
  • In entertainment, scatter pricing is tracking at HSD above upfront levels, and cancellation options are at “historical lows”

Announced Plans To Launch A DTC Product By YE To Reach Cord-Cutters And Cord-Nevers

• Continue to remain “huge supporters” of the traditional cable bundle: “We see the traditional cable bundle as still the most value for our consumers, and frankly, the most value for the company”
• “This service will be a package of our existing content on existing brands targeted at consumers that are not currently in the bundle”
  • Do not expect to have any exclusive rights costs or additional incremental rights costs
  • Offering is meant to target cord cutters and cord-nevers “that are not traditionally in the cable bundle”
  • “So, the incremental cost will be relatively low, certainly relative to what our peers have spent in this space”

• Subscriber expectations will be “modest” and will price the service “accordingly”, given that “we don’t want and we have no intention of churning our traditional distribution customer into our D2C customer”

• Targeting launch by end of this calendar year

Pricing Gains And Subscriber Declines Are Helping Drive Affiliate Growth

• Total affiliate revs grew +6% y/y (in-line w/ FQ1)
  • Cable affiliate revs grew +4% y/y (vs +3% y/y in FQ1) as pricing gains from affiliate renewals outpaced the impact from net subscriber declines
  • TV affiliate revs grew +9% y/y (vs +10% y/y in FQ1), as healthy growth in fees across FOX owned and affiliated stations more than offset the impact from industry subscriber declines

• Have completed all affiliate renewals that will impact FY25

• Subscriber declines improved for the second consecutive qtr: Went from “a touch under 8%” last qtr to ~7%
  • “I think there probably is some seasonality in subscriber trends with, obviously, being in the middle of an energized and exciting sports season…but we are very heartened by the trends moving in the right direction”
  • “Hopefully, the skinny bundles continue to see that trend continue…but it’s too early really to say that’s having a major impact”

• What’s driving the pricing gains? “A very focused portfolio of channels that distributors really want” AND a “distribution strategy that prioritizes the bundle”
  • “As we’ve said for the last five years, we think that strategy of both content and distribution should lead us to take share of wallet. And I think we’re starting to see that”

Growing Adoption Of “Skinny Bundles” Is A Net Positive For Fox

• “Only disappointment” in sports was that they were not moving forward with Venu…: “In the end, the legal distractions around the business became increasingly difficult to bear”

• …BUT “continue to be focused on maximum distribution of our content, whether that be traditional, digital streaming or our own D2C offering in the near future”

• Bullish on growth in skinny bundles: “Encouragingly, the distribution market has made some major strides recently”; Have seen the launch of several smaller, lower cost bundles of sports, news and broadcast networks “and we expect this trend to continue”

• “We’re very pleased with this trend of the bundle. It’s financially and economically a positive for us”
  • Stronger economics vs what Venu could have given them: Inclusion of FOX’s Sports and News channels in new skinny bundles is “a real economic benefit to us, even more so than the sports-specific Venu”
  • Financial benefits from skinny bundles are about the same as traditional bundles, as nearly all of Fox’s core channels (FOX Network, FOX News, FOX Business, FS1, FS2, and Big Ten Network) are included

Sports Betting Licensing Will Take Some Time, But Also Have Plenty Of TIme

• Sports betting licensing process is “a relatively complicated one, but it’s moving forward”: Talking to ~26 states for licensing; “We expect there to be sort of no significant hurdles with that process, but it will take time”

• Option is not due for another 5 yrs (end of 2030) BUT “we would expect to get licenses very significantly before that”

After updates out of Alphabet and Amazon that highlighted strong digital ad growth amongst these market share leaders (see Theme #2 and Theme #3) as well as previous volatility with Pinterest and Snap’s results, it was hard to gauge what to expect this week from the latter, and it ended up being a tale of two cities. Starting with Pinterest, after two quarters in a row of double digit sell-offs post earnings, this quarter’s strong Q4 and solid Q1 guide was very favorably received. The company reached key milestones, including its first-ever $1bn+ revenue quarter, a record high in MAUs, and its highest-ever user engagement.

The holiday season was a key contributor to those results, as Pinterest hit a record revenue volume during Cyber 5, while simultaneously reducing CPAs by over -30% y/y. The company has also made significant progress in filling gaps in its auction, advancing its ability to ingest demand from a variety of sources. This improvement, coupled with a strong focus on lower-funnel tools, is expected to drive continued growth in 2025. A major focus remains on the development and adoption of Performance+, with new features and functionality set to be released in 2025. Pinterest anticipates the role of third-party demand will continue to decrease as its core first-party business grows, which strengthens direct advertiser relationships and is a positive dynamic for the platform. Looking ahead, the company pointed to all the aforementioned levers as drivers behind continued growth in 2025 as well as further share gains in key verticals, including retail and emerging categories like financial services and technology,

On the other hand, Snap’s Q4’s beat across the top-line and across all geo segments was overshadowed by weak Q1 guidance, especially a -27% miss on adj EBITDA due to investment plans. Q4 DAUs also beat by a hair, with almost all the growth coming from RoW, and the outlook for next qtr was ~in-line with the Street’s expectations. The company is focused on building “a more resilient”, “performance-based,” and “diversified business,” with investments planned, including an +8-10% increase in headcount through 2025.

The advertising business continued to show resilience, with SMB adoption and improved ad products driving direct response ad growth, though brand-oriented ad revenue remains a challenge. New ad formats like Sponsored Snaps and Promoted Places are showing promising early results. Outside of advertising, Snapchat+ subscriptions more than doubled y/y, net adds accelerated q/q to reach 14mn total subscribers, and price increases are being explored to drive ARPU growth in the long term. Also in the works is Simple Snapchat, which is being used by 25mn+ Snapchatters in almost every country. Engagement trends are encouraging, but there are things that need to be worked on before a broader rollout over the coming year.

There was a whole lot that was discussed across the two companies…see below for our takes on the most incremental updates and developments.

-> Pinterest jumped +19.1% on the back of its report and ended the week up +21.4%; On the other hand, after initially surging ~12% after hours, Snap’s stock ended the day post earnings down -8.7%, It slightly rebounded over the next few days and closed the week down -3.3%

Starting off with Pinterest’s Report…

PINS – Posted A Strong Q4 And Achieved Its First $1bn+ Rev Qtr

• Q4 rev – BEAT by +1.2% (and was PINS first ever $1bn+ rev qtr): Grew +18% y/y (in-line w/ Q3) to reach $1.2bn
  • UCAN – ~IN-LINE: Grew +16% y/y, with strength coming from retail and emerging categories, including technology and financial svs
  • Europe – BEAT by +3.4%: Grew +21% y/y (+20% ex-FX), with strength driven by retail
  • RoW – BEAT by +8.0%: Grew +44% y/y (+53% ex-FX)

• Q4 adj EBITDA – BEAT by +5.6%: Reached $471mn (41% margin, ~+300bps y/y)

PINS – Q4 Net Adds Drove MAUs to a Record High, While Strengthening Engagement Among the Most Mature Users

• Global MAUs reached another record high of 553mn, growing +11% y/y (in-line w/ +11% y/y in Q3)

• WAU/MAU ratio reached an all-time high of 62%
  • “Sign of deepening engagement even at record number of users”
  • Ratio is highest in more mature regions, like UCAN and Europe

• Users continues to grow y/y across all geographies in Q4
  • US and Canada MAU +4% y/y
  • Europe MAU +7% y/y
  • RoW MAU +15% y/y

• Gen Z is increasingly their largest and fastest-growing audience

• ARPU also grew seq and beat expectations across all regions

• Looking ahead… “while we don’t guide to users, I think the effects that we see, we believe, are durable and based on the uniqueness of our platform and we continue to focus on that as we look ahead”

PINS – Q1 Guidance Came In Well Above Expectations (Profitability Was A Standout)

• Q1 rev guidance – BEAT by +1.1% @ midpt: $837mn-$852mn vs cons $835.7mn

• Q1 adj EBITDA guidance – BEAT by +15.2% @ midpt: $155mn-$170mn vs cons $141mn, implying 13-15% y/y growth (+15-17% ex-FX)
  • Reflects the effects of lapping Leap Day and the earlier Easter timing in Q1:24

PINS – Looking Ahead To 2025…Doubling Down On Several Multi-Year Initiatives To Continue To Drive Growth 

• Will continue to grow the user base and deepen engagement and bring back users more frequently through efforts in actionability and curation
• Will continue to leverage AI and “unique” first-party signal to drive “a more personalized and relevant” experience for users
• Will continue to complement their “strong and growing” first-party business through new sources of demand, as they’ve done through the launch of resellers and 3P partners
• See room to further grow ad load, particularly in high-intent surfaces and verticals on the platform, and for users that are in a commercial mindset

• Will invest in curation experiences and the shop-ability of the platform to allow users to move more seamlessly from inspiration to action

• Will continue to innovate and improve lower funnel tools, allowing advertisers to successfully reach customers who are demonstrating high commercial intent

PINS – Q4 Ad Trends Highlight Continued Impression Growth, Record Holiday Revenue and Accelerating Lower-Funnel Adoption

• Q4 ad impressions grew +43% y/y (vs +41% y/y in Q3), and ad pricing declined -18% y/y (vs -17% y/y in Q3)
  • Efforts to begin serving ads and monetize intl markets or previous gaps in their auction have been accretive to net revenue
  • HOWEVER, as these initiatives have scaled, it has naturally led to an increase in ad impressions growth and downward pressure on overall global platform pricing due to this ongoing mix shift

• Saw over +90% y/y growth in clicks to advertisers, even after lapping the initial impact of direct links from Q4:23 that drove four consecutive qtrs of more than +100% growth

• Saw largest-ever rev volume over the Cyber 5 holiday shopping period WHILE simultaneously decreasing CPAs by 30%+ y/y
  • Created personalized gift guides across 27 categories with 40k+ products, resulting in +40% higher click-through rates via personalized recommendation modules
  • Retailers who showcased special offers by including a promotion for their conversion saw an +18% increase in conversion rate compared to those ads w/o a promotion

• Lower-funnel adoption is accelerating, particularly amongst their bigger advertisers
  • For some of Pinterest’s largest advertisers, 80%+ of their spend is now tied to lower-funnel objectives, which is up “significantly” over the last two years and “significantly” higher than the overall platform mix
  • Have been steady gaining share of performance-driven budgets amongst their “most sophisticated advertisers,” capturing ~5% of total ad budgets and 10%+ of digital ad budgets

PINS – Retail And Emerging Verticals Were Strong, Partially Offset By Softness Within Food & Beverage

• Retail: “Continue to see broad-based strength”; “Been strong for us in 2025, and there’s certainly more room to grow there in 2025”
• “Emerging verticals” – financial svs and technology: “Continue to be a nice driver for us”
  • Saw strength in both categories in Q4 “and really much of 2024”
  • These are ad verticals with bns of dollars in digital ad spend, “and we still have a very small percentage market share today. So, we see lots of opportunity there”

• Food and beverage: Was softer in 2024 due to category-specific headwinds, but are now lapping the early stages of that softness, which started in Dec 2023
  • Expect overall drag to top line rev to “lessen slightly” in Q1 “as we start to see very early signs of green shoots in that category…it’s too early to say the headwind is fully behind us”

• Did not see benefit from election-related spend in Q4, as PINS does not accept political advertising

PINS – Growth In First-Party Demand Is Reducing The Need For Third-Party Partnerships

• 3P demand “was targeted at rounding out gaps” in their auction, “with a particular focus on improving shop-ability as a complement to our first-party sales effort”

• Have seen “great progress” on multiple fronts in rounding out those gaps  
  • “Our platform is more shoppable than ever”
  • “Driving strong first-party demand…and new demand efforts providing a complement when needed”
  • “Enhanced our ability to bring in programmatic demand as well as demand through resellers”
  • As a result – search results are +2x as relevant as they were two yrs ago

• “As the core first-party business grows, it reduces the need for third-party demand…that’s a very healthy dynamic for our overall business”
  • Advertisers are coming to them directly, “which is what we want,” and “we’re finding we have fewer gaps in our auction, especially in our more mature markets”

• “Capability to ingest demand from many sources…and thereby reduce gaps in our auction, is more advanced than it’s ever been, which allows us to respond more dynamically when and if there are shifting demand patterns. So, this is an area that we’ll continue to optimize and advance as we move forward”
• Will NOT break out rev from 3P partners or resellers separately: “We’ve noted these initiatives were new and began to scale in 2024 with each quarter ramping sequentially. And we’ll continue to test and optimize as we move forward”

“More Of The Opportunity Is In Front Of Us Than Behind Us” On Performance+ 

• As a reminder, “Performance+ is a key advancement in our lower funnel ad product suite that utilizes AI to bring greater performance and better efficiency to our advertisers while automating much of the campaign setup process”

• “We’re at the beginning of a multi-year product cycle for Performance+”: “Don’t think of these as moments in time or as a hockey stick in a given moment. These have a steady build over time and a compounding effect of these things as they build on each other”

• Looking into 2025… “Will continue to release new features and functionality while simultaneously continuing to drive adoption and increase the percent of revenue eligible to take advantage of key features within the automation suite”
  • Will roll out Performance+ to the lower funnel with more granular bidding functionality, allowing advertisers to effectively bid on a “wider swath” of their catalogs
  • Advertisers will require 50% less inputs to create a campaign, “and that’s a significant improvement in campaign setup”
  • “Doubling down” to give advertisers more creative control: Including automated cropping, adjusting image brightness, and adding logo overlays so their brand is present, all of which is expected to roll out in H1:25

Shifting Over To Snap’s Earnings Print…

SNAP – Beats Across The Business In Q4 (With Adj EBITDA & EPS Particularly Standing Out)

• Q4 rev – BEAT by +0.5%: Grew +14% y/y (a slight decel from +15% y/y in Q3)
  • Amer rev grew +8% y/y (vs +9% y/y in Q3) with the relatively lower rate of growth due to the impact of weaker large client upper funnel demand being relatively concentrated in the region
  • Europe rev grew +20% y/y (vs +24% y/y in Q3)
  • RoW rev grew +35% y/y (vs +32% y/y in Q3), driven by the continued progress with their DR ad platform and investments in go-to-market operations

• Q4 adj EBITDA – BEAT by +11.5%: Reached $276mn compared to $159mn in the prior-yr qtr, reflecting higher rev and OpEx discipline (similar commentary last qtr)  
  • Adj EBITDA flow-through was 60% in Q4 (up from 50% in Q3), reflecting seasonally higher rev in Q4 and continued prioritization of investments to drive topline growth and deliver improved financial performance

• Q4 FCF – BEAT by +13.2%: Reached $182.4mn vs cons $161.2mn

SNAP – But Q1 Guidance Beat On Rev But Missed Big On Profitability Expectations + Preliminary Plans To Invest “Productively” In 2025

• Q1 rev guidance – BEAT @ the midpt: $1.325bn-$1.36bn vs cons $1.33bn, implying +11%-14% y/y growth (but seq decel at midpt from +14% y/y in Q4)
• Q1 adj EBITDA –MISS: $40-$75mn, which was well below cons $78.7mn due to some investment plans

• Some preliminary 2025 guidance… “Our investment plans for 2025 reflect… optimism, alongside a strong commitment to make further financial progress towards profitability as we scale”
  • Expect to grow full time headcount by +8-10% over the course of 2025
  • Infrastructure cost per DAU will be b/w $0.82-$0.87 per quarter in 2025 (was $0.84 in Q4)
    • Expected to rise through the year driven by planned investments to move toward even larger models and near real time model refreshes
  • FY OpEx b/w $2.7-$2.75b, driven by higher legal costs associated w/ litigation and compliance

SNAP – Focused On 5 Key Initiatives In 2025 “To Build On The Momentum We Established In 2024”

• New ad placements – Sponsored Snaps and Promoted Places
  • Provide advertisers w/ incremental reach while enabling them to connect with the Snap community “in unique and personalized ways

• Improving go to market process
  • By providing advertising partners with actionable insights and introducing automated campaign optimization tools to enhance performance

• Rolling out a simplified Snapchat experience
  • Designed to improve accessibility and usability for Snap users

• Continue to advance machine learning infrastructure
  • To drive higher-quality ad interactions

• Expand developer ecosystem
  • By enhancing tools to simplify AR creation, and increase the number of Spectacles experiences that can bring AR into everyday life

SNAP – DAUs Were Mostly In-Line, With Majority Of Net Adds Coming From RoW / Continue To Prioritize User Engagement And Creator Onboarding + Monetization Opptys

• Q4 – DAUs BEAT by +0.4%: Grew +9% y/y (in-line w/ Q3) to reach 453mn (incr’d +10mn seq); Overall ARPU was in-line with estimates
  • Amer DAUs were ~flat q/q and y/y at 100mn
  • Europe DAUs were ~flat q/q and up +3mn y/y to reach 99mn
  • RoW DAUs were up +10mn q/q and up +36mn y/y to reach 254mn

Q4 – DAUs outlook was ~in-line: Expected to grow +6mn q/q or +37mn to reach 459mn vs cons 458.3mn

• Global time spent watching grew y/y (did not specify exactly how much vs +25% y/y last qtr), driven primarily by strong growth in total time spent watching Spotlight
• For users – introduced new features in Q4 to “inspire creation and help our community strengthen their relationships through Snapping”
  • Launched new Bitmoji stickers based on new trends for Snapchatters to react and express themselves visually
  • Announced new location sharing features in Family Center, Snap’s in-app hub for parental tools and resources, making it easier for families to stay connected while on the move
  • Launched new and early access Snapchat+ features including Footsteps, which helps Snapchatters keep track of the places they’ve visited on the Snap Map and new app themes and custom backgrounds

• For creators – continued to invest in content creation tools and a “diverse” set of monetization oppties in Q4
  • Prioritized “authentic creators and timely original content”
    • e., comments on Spotlight videos within 24 hours of submission increased “significantly” in Q4, driven primarily by fresher content, leading to “deep” engagement b/w Snapchatters and content creators
  • New unified Monetization Program that allows eligible creators to monetize Spotlight videos
    • Builds on existing Stories Revenue Share Program that helps creators monetize their Stories
  • # of creators posting content grew 40%+ y/y in Q4 (vs +50% y/y in in Q3)
  • 1bn+ Snaps were shared publicly on Snapchat every month in Q4 from Snap’s community, creators, and media partners

SNAP – SMB Adoption & Improved Ad Products Drove DR Performance, While Brand-Oriented Is Still On The Road To Recovery  

• Q4 total ad rev grew +10% y/y (in-line w/ Q3): Driven primarily by growth from DR ad rev (similar commentary in Q3)
  • Q4 direct response ad rev increased +14% y/y (vs +16% y/y in Q3)
  • Q4 brand-oriented rev was down -1% y/y (in-line w/ the prior two qtrs), driven by continued weakness concentrated among “a relatively small” group of large clients focused largely in North America

• Continue to be focused on reaccelerating demand for upper funnel brand rev (similar commentary last qtr)

• SMB active advertisers doubled y/y in Q4 and were the largest contributors to ad rev growth in 2024, driven by a combination of more performant DR products, improved go-to-market operations optimized for SMB customers, and a simplified buying experience
  • More broadly – “the overall growth in revenue […] is going to come even more from folks as they either grow into the medium advertiser segment or that start out there. And the key there is really about ease of getting started”

• Strong demand for Pixel Purchase and App Purchase Optimizations continues, which are becoming a more meaningful contributor to topline growth

• Began testing Sponsored Snaps and Promoted Places in Q4 and seeing promising results
  • Looking into Q1… plan to roll out Sponsored Snaps and Promoted Places to addtl markets; Will also begin limited testing of Pixel Purchase optimization for Sponsored Snaps as the placement is made available for lower funnel bidding objectives

• Best ad performance has been coming from verticals where they’ve built “great” product market fit
  • Retail, CPG and health and wellness are seeing “really good results” after rollout of 7-0 pixel purchase optimization a year and a half ago, and that’s been a “very big” driver of the DR biz over the last yr
  • Gaming, retail, e-commerce, and financial services saw increased adoption following mid-2024 updates to app-based optimizations, which leveraged a new ML architecture and product stack and drove 70% YoY growth in app purchase optimizations in Q4

SNAP – Simple Snapchat Is Showing Promising Trends In Engagement, But Still Some Work Required Before A Broader Rollout  

• Expanded test of Simple Snapchat in Q4: To 25mn+ Snapchatters “in nearly every country” Snapchat is offered (up from ~10mn across “dozens” of countries last qtr)
• “Continue to see encouraging trends in engagement metrics,” including –
  • Increased content active days among less frequent and more casual users
  • Greater share of time spent watching content vs than scrolling to find something to watch

• Preparing for a broader roll out over the coming year
• “Two big puzzle pieces that we’re still working on” –
  • Migrating Story ad demand from the Stories page tiles to in-feed or Sponsored Snap units
  • Addressing engagement losses among users who prefer the tile-based Stories page
  • “We’ve got a number of ideas on how we can solve both of those pieces, and we’re going to work on rolling those out in the coming weeks and month”

• No material impact included in Q1 revenue and user growth forecasts

Snapchat+ Subscribers Growth Accelerated Seq, And Price Increases May Be A Consideration In The Future   

• Other rev “more than doubled” y/y (in-line w/ commentary last qtr) to reach $143mn: Includes all non-advertising rev, the majority of which is Snapchat+ subscription rev

• Snapchat+ subscribers reached 14mn (up from 12mn+ in Q3 and 11mn+ in Q2)

• “Think there will be room for some price increases”: “And I think folks have indicated that they’re getting a lot of value from Snapchat+. So that may be another avenue in terms of growing ARPU over the longer term.”

SNAP – Mostly Optimistic Views On Emergence Of DeepSeek And Uncertainty Around TikTok 

• View on DeepSeek – “It’s been really inspiring to see the innovation there”
  • “It just further validates our view that a lot of these models are going to continue to become commoditized over time and, obviously, are going to become more and more efficient to run”
  • “I think right now, we’re just sort of in early experimentation phase with some of their open-source work”

• View on TikTok – “The overall environment of uncertainty is benefiting our business”
  • Any benefit from blackout? “Some of the changes with TikTok, they’ve sort of been an imperfect experiment. So, we’re not trying to draw too many conclusions from some of the engagement that we saw when the app went dark for that brief period of time”
  • “A big priority for us is really just helping make sure we support advertisers and creators during this period of uncertainty”
    • Advertisers – “very focused on contingency planning and diversifying their spend”
    • Creators – “are really thinking hard about how they can build the most diversified engagement with their fan base across various platforms, including Snapchat”

Continue To Make Headway In AI And AR Initiatives, Particularly On Lens

• Developed “groundbreaking” AI model capable of generating high-resolution images on mobile devices “in just seconds”: The on-device model can produce images in 1.4 seconds on an iPhone 16 Max
  • Will bring this technology into production in the coming qtr

• Expanded Lens Creator Rewards program and introduced new Lens Challenges: Designed to reward the top Lenses built by the community and help AR creators monetize their AR Lenses

• Introduced the first two-person genAI Lens, which uses generative AI to create a personalized selfie together with a friend  

• Also introduced the new Me in the 60’s Lens, which enables Snapchatters to transform into a ‘60’s version of themselves
  • Was viewed 900mn times

• Launched Easy Lens in Lens Studio 5.4, an AI-powered tool that simplifies creation by enabling users to create and customize Lenses through text prompts
  • 3k+ Lenses have been published using Easy Lens within a month of launch with Snapchatters engaging with these Lenses ~300mn times

After ending the year with a better-than-expected set of Q4 results, Spotify now moves into a year of “accelerating execution.” It will all be about pumping out new products and features at a swifter pace, and profitably. The company is doubling down in music and will invest more in video, hence while margins are targeted to be up again in 2025 vs 2024, the level of improvement will be at a moderated rate vs what they delivered y/y in 2024. Price adjustments are part of the toolkit looking ahead, and the new super premium tier will be a key catalyst when it launches this year (no official date set but expected in H1). The next phase for the music industry will be launching other types of segmented tiers, meaning pricing plans will no longer be a one-size-fits-all.

For the quarter itself, the +555bp y/y improvement in gross margins (especially driven by the Premium business and lower content costs) was a key highlight on the back of better-than-expected revenues. MAUs and ARPU were both better than anticipated (the company posted an impressive ~+double-digit% y/y growth in MAU and subs in Q4). That is all a good formula. “Wrapped,” as usual, was a big contributor to Q4 performance with 245mn users engaged, surpassing 2023’s record. Management also called out a competitor exiting select “developing” markets as a MAU driver in the quarter. On the ad-supported side, the build remains a work in progress, and it will become more of a 2026 story.

See below for more of our thoughts and perspectives regarding the key themes from Spotify’s earnings update.

–> SPOT shares rallied strongly at +13.2% on the day (this is the 5^th qtr in a row of strong stock reaction to results), and ended the week up +13.6%; YTD the shares are up +39%

It Is Hard To Argue With The Q4 Headline Results & Q1 Guidance Was Constructive Though A Seasonally Slower Qtr

• Total revs BEAT cons by +2.2% and grew +17% y/y (+16% y/y ex-FX) vs +19% y/y in Q3
  • Q1 outlook – Rev of €4.2bn was +1% ahead of cons; Assumes ~+90bp y/y benefit from FX

• Operating income beat by cons +2%, though margins were a tad light, given Social Charges were +€80mn above forecast due to share price appreciation during the quarter
  • Q1 outlook – Op income of €548mn was a sizeable +19% ahead of cons; Includes -€18mn in Social Charges
• Big step up in FCF… reached €877mn in Q4, bringing 2024 FCF to €2.3bn
  • 2025 outlook – Expect FCF to “meaningfully exceed” 2024 levels
  • What about cash returns to shareholders?
    • The top priority is investing in “sustainable growth opportunities” with “attractive return potential” but “to the extent capacity rises, we will, of course take our shareholders into consideration”
• Total MAUs beat cons by +1.6%

Margin Expansion Was A Key Positive & Expect More Of The Same In 2025, Though At A More Moderate Rate, Given Planned Investments

• Notable upside in the Q4 gross margin was due to upside vs cons in Premium (primarily due to content cost favorability): 2% vs cons 31.9% (+555bps y/y)
  • Premium posted very strong improvements due to Audiobooks, music, and Other cost of revenue
  • Ad-supported gains (but missed), driven by music and podcast (partially offset by real estate impairment activity)

• Q1 outlook – Gross margin at 31.5%, topped cons 31%

• 2025 gross margin & operating margin are guided to improve y/y “albeit at a more moderated pace relative to last year’s exceptional levels”
  • Plan to make targeted investments in core offerings
  • May make seq gross margin cadence “a bit more variable” over the course of this year
  • But Q4:25 is expected to be higher than Q1 due to seasonality

• Expect more of the profitability growth to come from developed markets vs emerging markets, but over time emerging market like India will be profitable

A Competitor Exiting Select “Developing” Markets Helped Drive MAUs

• Total MAUs rose +12% y/y and grew +5.5% q/q… 35mn total MAU net adds was largest Q4 in history (beat guidance by +10mn)
  • Wrapped campaign ~+double-digit% y/y growth in user engagement across 184 mkts
  • Had an exceptionally strong Q4 w/ outperformance driven by developing markets
  • Grew in all regions, led by RoW and LatAm
  • Aided by a “shift in competitor dynamics in select developing markets”

• Q1 outlook – MAUs at 678mn were line w/ cons 678.3mn (implies +3mn new MAUs)
  • The Co is “not prioritizing retention of the recent influx of lower engagement users in Q1 as we continue to focus on growing higher-value users”
  • This will amplify typical Q1 seasonality

• 2025 MAU commentary – Expect net additions to be w/in the range of the last four years

Premium Business Was Much Stronger Across The Board & Focused On Customer Quality

• Q1 Premium business delivered much stronger across the board with especially strong performance with gross margins
  • Revenue (87% of the total) rose +17% y/y (+19% CC) vs +21% in Q3 and beat cons by 1.5%
  • Gross margin was stronger than expected at 34.7% vs cons 33.9%
  • Subscribers grew +11% y/y to 263mn vs cons 259.93mn (+4.4% seq) led by RoW
    • Q1 outlook…total Premium subs of 265mn (implies 2mn net new subs vs 3mn in Q4 due to Q1 seasonality)
    • “Expect another year of healthy growth with a focus on customer quality and improving LTVs”
  • ARPU grew +5% y/y (+7% CC) and beat cons (€4.85 vs cons €4.73)
    • Price increase partially offset by product/mix shift

Ad-Supported Business Is Making Progress With The Build But It Is Still A 2026 Story

• Q1 Ad-Supported revenue (13% of the total) is still in only growing ~+msd% y/y: Rose +7% y/y (+6% CC) vs +6% in Q3 but still beat cons by +6.7% due to higher-than-expected ARPU and MAUs
• Both music and podcast ad revs were driven by impressions sold partially offset by pricing softness; Automated sales channels were the largest driver of overall ad growth
• MAUs BEAT: 425mn vs cons 419.1mn (+5.7% q/q)
• ARPU BEAT: €0.43 vs cons €0.40
• But ad-supported gross margins were below expectations (15.1% vs cons 16.2%)
• Expected roadmap for the ads business… Reiterated that 2025 will be the year of building, and 2026 is “when we think we’re going to get scale”
  • Moved from brand to performance sales, but “were late on the ball” and it takes time
  • “Saw some early positive progress in our automated sales efforts”
  • The technical build is largely complete
  • Getting unified supply on their server
  • Are opening up from more demand on bidding
  • Will look to add more partners (in addition to The Trade Desk)

Pushing Harder Into Video, Making Progress In Education, & The Next Phase Of New Pricing Tiers

• Pushing harder into video podcast
  • Seeing higher engagement w/video podcasts… now have 330k video podcasts globally & 270mn users have streamed one
  • In Nov, launched uninterrupted video podcasts for premium subs
  • Evolved Spotify for Podcasters into Spotify for Creators and introduced Spotify Partner Program
    • Intr’d new efforts and tools to help video creators turn their shows into a sustainable businesses
    • Seeing a big uptake on video podcasters coming to the platform and adopting the partner program
  • Investing heavily in the TV experience for several years, which is an important part of their strategy

• Making progress in the Education category, but it is early days
  • Regarding the education & courses product initially launched in the UK, it is “early days,” but they are passionate about the category and “pleased” with developments
  • The global entertainment industry is estimated to be btw $2-2.5tn vs the global education marketplace, ex K-12, at the same size
  • “We’re not a pure-play entertainment platform. We are also a platform where people spend a lot of time educating themselves already with podcast, with audiobooks. So education is really a quite natural step and extension into that journey”

• The next version of the music industry will tailor the Spotify experience to different subgroups
  • Moving from a one-size-fits-all approach to a more specialized experience for users
  • Not too much addt’l color on the new “Super tier” product, but per CEO Daniel Eck, “I’m playing around with it now and it’s really exciting and I can’t wait to show you guys that”

2025 Is The Year Of “Accelerated Execution”

• Mgmt plans to “pick-up the pace dramatically” as it relates to product velocity
  • “We’re going to double down on music, and we’re going to be very disciplined”
  • Investing in more music experiences like video, like higher priced prem tier, new ways to bring artists and fan together, and new features
  • The Co wants to move faster to ship improvements

Other Key Comments

• Reiterated the view that there is not a “win-lose” with the labels and that they always see “a win-win”
• How can AI benefit SPOT?
  • Productivity – writing code and in general; Aggressively seeing productivity improvements
  • Moderation costs – the cost for moderation was prohibitive before without AI
  • User experience and recommendations benefit more than this new generation of AI, including w/ both AI DJ and AI Playlist; See foundational models getting commoditized pretty fast, so they are think investing at a prudent level

In contrast to Spotify’s stellar results earlier in the week, it was more of a transition quarter for Warner Music Group, with several moving parts and one of the biggest being new FX headwinds, which are impactful given that 58% of the company’s revenue is non-dollar denominated. The impact on operating income margins in FQ1 was -200bps, resulting in management pulling their full year guidance of a +100bps y/y margin improvement, given the lack of visibility on currency fluctuations for the rest of the year.

Aside from FX impact, the most significant areas of focus from the results were: 1) Subscription streaming growth performance, which was well telegraphed to decelerate from last quarter’s level given they were comping price increases, but that deceleration was a tad more than expected; 2) the new deal with Spotify on which management was not at liberty to divulge many details but did confirm that the terms were a step in the right direction, providing them with confidence in moving to a “greater commitment or control into wholesale pricing” (the Amazon deal is moving in the right direction as well); and 3) what’s to come next with innovation in the sector and the Superfan opportunity.

Also to note, trends in the ad supported business remain challenged and are tied to the macro picture, which WMG doesn’t have much control over. The company also has “zero control” over what happens with TikTok but doesn’t “have much exposure.”

See below for more color on what we thought was most incremental from WMG’s quarterly update.

-> WMG share fell -1.1% on the day (after being down as much as -6.8%); It is up 5.6% YTD vs SPOT up +39.3% YTD! UMG for reference is up +9.1% YTD

FQ1 Profitability Was Dragged Down By FX… And Mgmt Pulled The Full Year Margin Guidance

• Total revs were in-line, but adj OIBDA missed by -3.1%:Adjusted for notable items and in constant currency, FQ1 total revs were up +4% y/y which was broadly in-line, while adj OIBDA grew +1% but fell short of cons by -3.1%; FCF grew +12% y/y
  • Recorded Music – MIXED: Revs grew +4% and beat cons by +1.1% and adj OIBDA was ~flat
  • Music Publishing – MISSED: Revs were up +7% and missed by -1.2% while adj OIBDA missed by -9.7%

• FX had a pronounced impact on adj OIBDA as ~58% of total revenue is in non-US dollar currency
  • FX represented an ~-$36mn headwind to adj OIBDA and a ~-200bps headwind to margins in FQ1
  • But emphasized that FX will stabilize over time

• And mgmt pulled the +100bps y/y margin expansion targeted for the full year, given the impact from FX

Recorded Music Subscription Revenue Growth Decelerated To The Low End Of Mgmt’s Expectations & Ad-Supported Streaming Revenue Remains Under Pressure

• Recorded Music Subscription streaming grew +7% y/y ex-FX, which was an expected deceleration from last year’s double-digit growth (and FQ4’s +10.6% y/y), given the lapping of prior year price increases.
  • “I think we hit the low end of our guidance at +7%”
  • Drivers for Subscription streaming: “The vast majority being subscription and volume and over time pricing being additive”

• Reiterated guidance for “high single digit” Subscription streaming growth for FY25 when adjusted for BMG or this fiscal and on a multi-year basis
  • Are confident in hitting the target: “The recent deals point to opportunity for price and improvement and better monetization, which adds support and conviction for us”

• Ad-supported streaming fell -7% y/y ex-FX vs the -5.6% y/y in FQ4
  • Timing of deal renewals and content delivery with certain emerging streaming platforms was a factor
    • No new emerging platform deals in the period
  • And mgmt. cautioned that the unit is at the whim of macro trends

The New Distribution Deal With Spotify Was In Focus As Well As Was The DSP Structural Environment

• A lot of questions about the new deal with Spotify, but limited color was provided other than it was a step in the right direction and gives confidence in moving to “greater commitment or control into wholesale pricing” (the Amazon deal is moving in the right direction as well)
• How does have less competition amongst DSP impact WMG? Have to enable “a lot more experimentation” but it “takes having the ability and the rights to do it” but WMG is leaning in
• The Superfan demand is there, and the opportunity is greenfield:
  • There will be different variances with different partners
  • This area has not been figured out
  • A lot of people are extremely passionate about certain artists and are willing to spend a lot of money to attend in-person experiences, buy merchandise, buy all kinds of experiences and interact with artists
  • “We want to participate in innovation around this and we are. But it hasn’t been cracked by anyone”

Remain Committed To Its Strategic Roadmap & Have Exciting Slate Of Music

• Increase share of the pie: “Already seeing early positive signs as Atlantic, one of our flagship labels, increased its market share by +0.5% in the US over the prior year quarter, according to Luminate data”
  • Growing organic investment behind A&R
  • Pulling levers like w/ partnering w/ local players such as SkillBox in India, acquiring valuable catalogs like Cloud9 and Benelux, and making leadership changes including appointing a new CEO in Japan

• Grow the pie: “Our recent deals, including the renewal we just inked with Spotify, represent positive momentum”
  • Actively working with partners to constantly evolve and to attract more customers in the music ecosystem via –
    • New formats
    • Expanding features
    • Adding new tiers
    • Experimenting w/ biz models

• Becoming more efficient and providing more CF
  • Have exited some non-core businesses
  • While doubling down on their “central value proposition to artists and songwriters”
  • Goal is to reinvest the majority of these savings into strategically important initiatives

• Excited about the acq of a controlling interest in Tempo Music w/ an option to acquire the remainder by the end of 2027
  • Tempo provides them w/ an evergreen catalog, which includes premium music rights
  • “It gives us more control, expands our admin and distribution relationship”
  • The business is ~ 80% Music Publishing and 20% Recorded Music.
• Excited about upcoming new music from… Lizzo, David Guetta, Jack Harlow, Jisoo, Benson Boone, Maria Becerra, Karan Aujla, and Zach Bryan, as well as the excellent performance” of their catalog

It was a big week for the video game sector, as EA and Take-Two posted their earnings from the December-ended quarter on the publisher side of the industry and Roblox reported its latest numbers on the platform side (see Theme #10). Although the market ultimately had a positive reaction to EA and Take-Two’s prints, there were some puts and takes with the two publishers’ results. On the top-line, both companies’ net bookings fell short of consensus estimates, with EA’s missing by -5.3% and Take-Two’s finishing a narrower -1.2% below expectations. The duo’s net bookings guidance for next quarter was also disappointing, as headwinds that impacted last quarter are expected to persist through their next fiscal quarter ending in March. The main point of divergence in the EA and Take-Two’s headline numbers was primarily related to profitability. The former’s gross margins and operating margins underwhelmed the Street’s forecasts, while the latter’s benefited from ongoing cost reduction initiatives and exceeded estimates.

Delving deeper into the performance of each publisher’s tentpole franchises, there wasn’t much to write home about regarding EA’s performance across its key titles. In addition to EA’s struggling global football franchise, which investors were already aware of following the company’s pre-announcement two weeks ago, commentary around its Apex Legends and Battlefield games was also somber. Nonetheless, EA is in the process of turning around each of these titles, implementing gameplay updates to EA Sports FC to better engage the community’s competitive cohort and developing a major update to Apex Legends that will hopefully re-ignite interest amongst the game’s fans. EA also took an unprecedented step in the development process for the next iteration in the Battlefield franchise by launching Battlefield Labs. This will provide playtests for a select number of players and incorporate their feedback before the game’s final release. Beyond these titles, the American Football franchise and The Sims continued to see strength during the quarter, though commentary on each was relatively sparse. All said, EA “consider[s] this to be a temporary moment” and not a structural issue.

Turning to Take-Two, the company’s net bookings miss was mainly driven by the lackluster performance of its Zynga mobile gaming business, specifically Empires & Puzzles as well its hypercasual mobile portfolio, though this was offset by a “significant outperformance” by NBA 2K25. Notably, NBA 2K25 benefited from innovative new features and gameplay updates that resonated with its community (in contrast to reception that the changes made to EA Sports FC 25 received), and the Gen 8 to Gen 9 console transition was no longer a headwind to the game’s sales. Perhaps most importantly for Take-Two, investors and gamers, alike, were reassured that the launch date of GTA VI is still planned for fall 2025 after a 12-year wait between GTA V’s release. Additionally, the 2K studio’s unmatched pipeline will lay help lay the foundation for one Take-Two’s “strongest ever” calendar years in 2025 and drive sequential improvements in net bookings in FY26 and FY27.

See below for more details:

-> EA shares were up +7.6% in reaction to earnings and ended the week up +4.6%; Take-Two shares jumped +14.0% following the print and finished the week up +12.5%; YTD, EA stock is still down -12.1%, while Take-Two stock is up +13.4%

1) EA – See below for details on what we thought were the key themes, updates, and takeaways

EA – “Q3 Was Not The Financial Performance [EA] Wanted Or Expected”

• EA’s FQ3 headline numbers MISSED expectations: Net bookings fell -6.4% y/y in FQ3 (vs +14.2% y/y in FQ2) and beat cons by +0.3%, Non-GAAP gross margin of 80.0% (vs 78.7% in FQ2) missed cons’ 81.4%, and non-GAAP op margin fell of 40.5% was below cons’ 41.2%; FCF beat by +11.2%
  • Live Services & Other (~71% of net bookings) – MISS: FQ3 net bookings rose +12.6% y/y (vs +10.5% y/y in FQ2) but fell short of cons by -4.4%; Lackluster performances by EA Sports FC and Dragon Age were the primary factors behind the live svs net bookings miss
  • Full Game (~29% of net bookings) – MISS: Net bookings were down -3.2% y/y in FQ3 (vs +20.4% y/y in FQ2) and missed cons by -7.4%, driven mainly by lower than expected full-game sales of EA Sports FC 25

EA – Headwinds Will Persist In FQ4

• The FQ4 net bookings guide was worse than anticipated: Expects net bookings between $1.444-1.594bn, representing a -8.8% y/y drop and missing cons by -7.9% at the mid-pt, w/ declines in Global Football as well as Apex Legends being partially offset by the release of Split Faction

• FQ4 GAAP EPS is projected to be $0.65-1.00: A +22.4% y/y increase at the mid-pt
  • Net rev is expected to range from $1.682-1.832bn: A -1.2% y/y decline at the mid-pt
  • Cost of rev is forecasted to be between $305-315mn: A -13.2% decrease at the mid-pt
  • OpEx is expected to be $1.112-1.122bn: A -6.0% y/y decline at the mid-pt

EA – The FY25 Guidance Reflects A “Prudent Approach”

• FY25 net bookings guidance was reaffirmed (after being cut two weeks ago in the Co’s pre-annc’ment): Still anticipates a net bookings range of $7.00-7.15bn (vs the prior $7.50-7.80bn from FQ2), which implies a -4.8% y/y decline and missed cons by -8.0% at the mid-pt
  • Global Football franchise net bookings are expected to be down ~-ldd% y/y in FQ4
  • Dragon Age: The Veilguard is projected to contribute less than previously
  • The American Football biz remains on track to surpass $1bn+ in net bookings in FY25
  • Otherwise, core live svs assumptions remain unchanged

• The FY25 GAAP EPS outlook was narrowed to $3.90-4.25: Vs $3.82-4.33 previously
  • Net rev was lowered by -3.0% at the mid-pt: Now forecasts $7.25-7.4bn (vs prior $7.4-7.7bn)
  • Cost of rev was cut by -3.9% at the mid-pt: Now expects $1.48-1.49bn (vs prior $1.53-1.56bn)
  • OpEx was tempered by -2.1% at the mid-pt: Now anticipates $4.38-4.39bn (vs prior $4.445-4.515bn)
  • Non-GAAP op margin was lowered by -35bps at the mid-pt: Now projects 30.5-31.6% (vs prior 30.7-32.1%)

• FY25 operating cash flow guidance was reduced by -14.9% at the mid pt: Now expects $1.8-1.9bn (vs prior $2.075-2.275bn)

• The FX impact is expected to be “minimal”: If rates remain unchanged from today

EA Is “Positioned To Return To Growth In FY26” + Comments On FY27

• EA has “conviction” that its “broader pipeline initiative” will drive growth in FY26: Upcoming releases include EA Sports College Football 26 (in the summer), Battlefield, and Skate; Indicated that growth will occur even when excluding the Battlefield release
  • Growing oppties w/ existing titles is also a key part of the strategy: FC is expected to rebound in FY26, w/ new actions and events that have been planned as well as the World Cup occurring towards the end of the period; Will also continue to expand on The Sims
  • Other drivers: Include scaling the EA Sports app as well as advertising and sponsorship oppties
  • The Co will provide more color on FY26 on the FQ4 earnings call

• The Co still sees top-line growth and margin expansion through FY27: Driven by initiatives that outlined above

EA Sports – FC 25 Was A Disappointment, But The American Football Franchise Remains Strong

• EA Sports FC – A “convergence” of dynamics resulted in a “material source of downside”: Global Football net bookings declined ~-msd% y/y in FQ3 (after seeing positive y/y growth in live svs in FQ2)
  • Global Football net bookings were up double-digits y/y in Oct…: As FC 25 had a “high-quality and stable launch,” w/ pre-orders, engagement, and player monetization all increasing on a y/y basis
  • … BUT “this momentum did not sustain through the qtr: Performance downside was due to “soft top-of-funnel acquisition and lapsed engagement later in the qtr”
    • “Post-launch cohorts waited longer in the cycle to acquire the new title”: Many of these players have stayed w/ prior iterations, as Dec promo events to drive conversion fell short of expectations; This led to disappointing full game sales of FC 25
    • The competitive cohort also saw “faster-than-usual engagement churn”: This group’s engagement was down ~-hsd% y/y in FQ3; One reason was that gameplay “felt more defensively focused,” while competitive players wanted a “more open, aggressive, attacking version of football”
  • Still, there were some bright spots for the franchise in FQ3 –
    • FC Mobile experienced a double-digit y/y increase in new players, engagement, and monetization
    • FC Online was up slightly y/y, w/ strong promo content driving monetization
    • Rush has been a “net positive to the franchise”: This is expected to continue over the long-term
  • EA has since been focused on turning around the Global Football franchise: The Co released a gameplay update on Jan 16 that included its Team of the Year event
    • Team of the Year net bookings were up “significantly” y/y: EA recorded record weekly active users over the event’s weekend, and competitive cohorts started to trend back towards prior yr levels
    • Gameplay updates have been “very well-received” by the competitive cohort

• The American Football “has cont’d to see strength”: Highlighted that weekly active users and total unique spenders were up double-digits y/y in FQ3, driven the titles’ “expanded offerings”
  • Ultimate Team players incr’d by double-digits y/y: EA has been focused on deepening player engagement and connection w/ this game mode
  • There is “meaningful pent-up demand” for College Football: Cited the first 12-team national championship of the real-life college football season as one of the main drivers
  • The NFL also “continues to grow”: The league has been expanding into “new days and new categories” w/ the emergence of streaming; Amazon’s efforts and Netflix’s Christmas Day games have been an “incredible boon for the NFL”

EA – Color On Other Tentpole Franchises

• The upcoming Battlfield title will be the “biggest” iteration ever built: The game “exists on an incredible scale, both in terms of breadth and depth of gameplay” as well as in terms of access points; The Co has invested more in this iteration than any other before it
  • Battlefield Labs is a “key” change in the development process (link): Battlefields Labs was annc’d the day before the earnings call and represents the “most ambitious community testing program in franchise history”; Players will be updated w/ the latest testing information and will be able to provide feedback
    • Initial tests will involve an invited group of players and servers: These will be located in Europe and North America; There are also plans to expand invitees and server locations in the future
    • “The response to the playtest and the Battlefield Labs initiative has been overwhelmingly positive and well beyond [EA’s] expectations”
  • “The last two iterations of Battlefield have not resonated as strongly”: The titles have also “been found wanting by meaningful parts of the community globally”; This resulted in the Co’s new approach to game development w/ Battlefield Labs
  • EA is willing to be flexible on the FY26 release window: “If we got close to that timeframe and believed that this wasn’t going to be a great window for us, then we would take a look at what an alternate window might be”

• Apex Legends net bookings were down y/y, as expected –
  • “The trajectory of the biz of that franchise has not been headed in the direction that we have wanted for some time”: As previously highlighted, EA has been “trying, tuning, and testing many things in the context of the ongoing support of the community”
  • The Co is working on a “more meaningful update of Apex as a broad game experience”: This is expected to be launched after Battlefield is released; Emphasized “this will not be the final incarnation of Apex”

• The Sims franchise delivered y/y net bookings growth: Focused updates and new player experiences have cont’d to broaden the franchise and drive engagement w/ The Sims community
  • The MySims: Cozy Bundle release outperformed the Co’s expectations: 50% of those who purchased the game and the bundle were new to EA
  • New creator kits helped drive engagement: These kits marked the first time that a full collection of in-game assets were designed by creators and published by The Sims dev team
  • The Co also expanded offerings for The Sims on the Switch platform during the qtr

EA – Capital Allocation Notes

• EA returned a similar amount to shareholders seq: The Co returned $425mn to stockholders in FQ3 (vs $426mn in FQ2) via a combination of repurchases and dividends; This amount represented a +13.0% y/y increase in returns to shareholders

• The Co annc’d plans for an accel’d $1bn stock repurchase program: This is in addition to its current $375mn per qtr program, bringing its total stock buybacks to $2.5bn within the fist yr of its current $5bn authorization

2) Take-Two – See below for details on what we thought were the key themes, updates, and takeaways

Take-Two’s Headline Results Reflected “Solid Results During The Holiday Season”

• Take-Two – Headline results were MIXED, as margins surprised to the upside but bookings disappointed: FQ3 net bookings incr’d +2.6% y/y (vs +2.1% y/y in FQ2) but fell -1.2% short of cons; Non-GAAP gross margin of 68.9% topped cons’ 65.6%, and non-GAAP op margin of 12.3% beat cons’ 10.8%; Adj EPS was +24.1% above cons
  • Mobile net bookings (~52% of total bookings) – MISS: Incr’d +1.7% y/y in FQ3 (vs -8.3% y/y in FQ2) but missed cons by -7.5%
  • Console net bookings (~39% of total bookings) – BEAT: Rose +2.6% y/y in FQ3 (vs -8.3% y/y in FQ2) and beat cons by +8.4%
  • PC & Other (~9% of total bookings) – BEAT: Grew +8.9% y/y in FQ3 (vs +24.5% y/y in FQ2) and topped cons by +6.7%
  • Recurrent consumer spend (RCS) was in-line w/ guidance: RCS grew ~+9% y/y in FQ3 (vs ~+6% y/y in FQ2) and was on-par w/ the Co’s forecasts; RCS comprised ~79% of net bookings (vs ~81% in FQ2), as Mobile incr’d ~+msd% y/y, NBA 2K’s RCS grew over +30% y/y, and GTA Online’s declined y/y

Take-Two Believes This Calendar Yr Will Be “One Of The Strongest Ever” For The Co

• The outlook for FQ4 was below the Street’s expectations: Expects net bookings between $1.484-1584bn, implying a +13.7% y/y increase (vs +2.6% y/y in FQ3) but missing cons by -0.4% at the mid-pt; The adj EPS range of $0.91-1.16 fell -15.2% short of cons at the mid-pt
  • The primary drivers behind net bookings: Include NBA 2K, the GTA series, Civilization VII, Toon Blast, Match Factory!, the hypercasual mobile portfolio, Empires & Puzzles, WWE 2K25, and Words with Friends
  • RCS growth is expected to slow seq: RCS is projected to increase ~+3% y/y (vs ~+9% y/y in FQ3), assuming a ~+high-teens% y/y rise in NBA 2K, partly offset by declines in mobile and GTA online
  • OpEx is forecasted to drop for the first time in FY25: Anticipates OpEx will decrease ~-2% y/y on a mgmt basis (vs +8% y/y in FQ3, +24% y/y in FQ2, and +12% y/y in FQ1), mainly driven by a “more normalized level of mkting” for Match Factory!, plus savings from cost savings efforts
    • On a GAAP basis, FQ4 will be impacted by the shifting of some OpEx into FQ4

• But FY25 guidance was reaffirmed: Still projects FY25 net bookings between $5.55-5.65bn, marking a +5.1% y/y increase but missing cons by a slight -0.2% at the mid-pt; The implied adj EPS range remained at $2.35-2.60 after being downwardly revised last qtr
  • BUT the outlook for RCS growth improved: Now anticipates RCS to rise ~+5% y/y (vs prior ~+4% y/y and the initial guide of ~+3% y/y) and account for 78% of net bookings;
    • A more detailed breakdown: NBA 2K is now expected to increase ~+ldd% y/y (vs prior ~+lsd% y/y) and mobile is now forecasted to grow ~+lsd% y/y (vs prior ~+hsd% y/y), while GTA Online is still projected to decline y/y
  • The mix of net bookings by label is forecasted to be ~49% Zynga, ~34% 2K, and ~17% Rockstar Games; At the start of the yr, Zynga was originally expected to account for ~50% of net bookings, 2K was projected to comprise ~32%, and the remaining 1% was assigned to “other”
  • The OpEx guide was maintained: Still projects OpEx rising ~+10% y/y on a mgmt basis, given higher mkting support for Match Factory! as well as other mobile and immersive core launches planned for the year, plus the addition of Gearbox and higher personnel costs; Cost reduction efforts will be a partial offset

• Take-Two “remain[s] highly confident” that it will “achieve seq increases and record levels of net bookings in FY26 & FY27: The Co is “exceedingly optimistic about the commercial potential of [its] titles” and believes they’ll have a “transformative effect” on its biz and the industry over the long-term

Take-Two – NBA 2K Was The Main Callout Across The Co’s Major Franchises

• NBA 2K25 achieved a “significant outperformance”: The title “delivered a phenomenal qtr,” w/ “significant upside” to forecasts; NBA 2K25 has sold in 7mn+ units to-date after releasing on Sept 6
  • Engagement w/ NBA 2K25 has been “extremely strong” vs last yr: RCS is up more than +30% y/y, DAUs have incr’d nearly +20% y/y, and MAUs have grown almost +10% y/y
  • New innovations are resonating w/ players: Community-inspired enhancements to gameplay, major technological updates, and new game modes have been well-received
    • Expansions of the franchise in China also contributed to a “highly successful yr”: These included the release of NBA 2K arcade edition, My Team, NBA 2K Mobile, and NBA 2K Online in the country
    • Design changes to gameplay are bearing fruit: Highlighted new shooting and dribbling mechanics, a new badge progression system, a return of the old NBA 2K parks courts, as well as a “full overhaul” to the My Team mode, in particular
  • The Gen 8 to Gen 9 console transition is “no longer” a headwind: The Co is now “benefiting from that [transition] without question”
  • The Co believes there’s “a lot of upside from where [it] is right now”: Take-Two sees “a lot of greenfield” ahead for the franchise

• GTA V remains the Co’s best-selling title w/ ~5mn sales over the past qtr: The game has sold-in 210mn units to-date (vs 205mn+ units exiting FQ2 and 200mn+ units exiting FQ1) and has cont’d be one of the main drivers of RCS for the Co
  • “GTA Online delivered a strong qtr”: The game’s holiday update, Agents of Sabotage, was praised for its depth, new upgrades, and array of content; Underscored that GTA Online “still has enormous ongoing engagement”
  • GTA+ continues to expand its reach, but subscriber growth decel’d seq: Membership for the svs grew +10% y/y in FQ3 (vs +35% y/y in FQ2)

• Red Dead Redemption 2 (RDR2) sold-in ~3mn units over the past qtr: The title has sold-in 70mn+ units to-date (vs 67mn+ units exiting FQ2 and 65mn+ units exiting FQ1); RDR2 is currently seeing its highest level of current players on Steam
  • Red Dead Online further engaged its audience in FQ3: Driven by the release of the “fan favorite” Halloween Pass that featured a seasonal theme to bonuses and rewards

• Commentary on the Borderlands franchise’s performance was sparse: Borderlands was previously highlighted as a contributor to the Co’s net bookings performance in FQ2

Take-Two’s Mobile Biz Disappointed… BUT Several Initiatives Are In Place To Drive A Turnaround

• Zynga’s performance was “somewhat below [the Co’s] plan”: Mobile RCS was up ~+6% y/y in FQ3, which was below the Co’s forecasts of a ~+ldd% y/y uptick due to “moderation in some of [its] mobile franchises”
  • The underperformance was driven by the hypercasual mobile portfolio and Empires & Puzzles: Acknowledged “some challenges” w/ Empires & Puzzles and other legacy titles, caveating that these are title-specific issues but not an “industry problem”
    • The Co is working on turning around the Empires & Puzzle franchise: Including by launching new event types and corresponding heroes as well as by increasing in-game rewards; These efforts have already resulted in “some good news’
  • “Match Factory! is performing very well”: The game has been seeing “ongoing success” and remains on track to become Zynga’s second largest title by the end of FY25 in terms of net bookings
    • Match Factory! is still expected to become profitable by “the very end of the yr”: The title is “continuing to do better and better” as it stays in the mkt, and mkting levels behind are expected to reach a more normal level in FQ4
  • Toon Blast and Toy Blast both generated double-digit growth: Cited engaging features, including new event types, improved player profiles, and enhanced tuning

• Take-Two is still “highly optimistic about Zynga’s future”: The Co is “confident in Zynga’s cont’d ability to launch successful new titles as well as brand extensions for some of [its] console IP”
  • The Co plans to launch “new, hip mobile experiences” in the qtrs ahead: Such as the latest installment of Zynga’s highly successful racing franchise, CSR 3, though a release date has yet to be annc’d
    • Take-Two’s mobile biz “has the greatest sort of breadth of owned and licensed IP in the mobile biz”: This is “protective on the downside and offers great oppty on the upside”
    • “There’s still a lot oppty for the top 50 or 100 or even 200 titles to make a difference”: BUT explained that the more hits a Co has in mobile, the worse their results can look for a period, given the “burden” of mkting these games
  • D2C offerings are picking up steam: The Co saw strong double-digit D2C conversion in several major titles during the holiday season and is taking action to maintain this momentum
  • Partnerships w/ leading entertainment brands and personalities offer another avenue of growth: In FQ4, Zynga broadened its partnerships w/ pop culture icons, including collabs between Words with Friends and Bravo’s Real Housewives, Zynga Poker w/ Rob Riggle, and Power Slap w/ TKO

• The mobile biz will benefit from a one-time payment related to a new mediation partner for Zynga’s ad inventory: The Co didn’t specify the amount but explained that the accounting for these types of deals is “usually spread along w/ the value of the overall deal to the organization”

Take-Two’s Pipeline Is “The Strongest” In the Co’s History And Will Drive An “Inflection” In CY25

• GTA VI is still expected to launch in fall 2025: Take-Two will use its corporate consumer database w/ nearly 1bn consumer records to help it market the title as it nears its launch date
• 2K’s current development pipeline is “unmatched” –
  • Sid Meier’s Civilization VII will be released on Feb 11: The media’s reception to the game has been “very positive,” and player sentiment around it has been “extremely positive”; The game has already set a new franchise record for pre-orders
  • PGA Tour 2K25 is set for launch on Feb 28: This game is designed to appeal to both casual and hardcore golf fans, w/ several franchise advancements, a more immersive and customizable MyCareer experience, and a “robust suite” of creation tools, among other new features
  • WWE 2K25 will be released on Mar 14: Will feature an all-new bloodline theme showcase, new brawl environments, match types, and stipulations as well as the “largest-ever roster w/ 300+ playable superstars”; The title will also support a series of add-on packs
    • WWE 2K is launching exclusively to mobile devices this fall as well: As part of a collab between 2K and Netflix
  • Mafia: The Old Country will be launched during the summer: This title will build upon a franchise that has already sold-in 35mn+ units; The game’s annc’ment trailer received an “outstanding response”
  • Borderlands 4 will also be released in 2025: Borderlands 4 has “quickly become one of this yr’s most anticipated games” after 2K and Gearbox revealed a new trailer at the game awards
  • Project ETHOS doesn’t have a launch date yet: Earlier this week, 31^st Union studio head Michael Condrey was let go after the game’s underwhelming debut, though he will stay on as an advisor; Still, the Co is “really excited” about the title

Take-Two – Other Notable Comments On Approaches To Mkting & Capital Allocation

• Marketing budgets for titles are “usually around the same size as they were in the past” but more spread out: “There’s just so much importance in terms of mkting and getting people excited about the title,” so there’s “usually a bigger amount at launch and then spread over a period of time at the title’s lifecycle”
  • “And its just usually different types of mkting than it has been in the past”: Including “a lot more digital mkting… and different ways of getting to our consumers than we have in the past”

• Take-Two has “a lot more acquisition oppties available” to it: Indicated that the timing of the Co’s capital allocation plans and efforts to pay down debt could be affected by “big oppties” in the M&A space going forward

Aside from the updates from EA & Take-Two on the video game publishing side (see Theme #X), Roblox’s Q4 print provided some insights into the platform side of the video game industry this week; however, the company’s earnings left a lot to be desired, especially regarding its performance on key user metrics. In terms of headline results, Roblox reported mixed Q4 numbers, with net bookings that closed -0.5% behind consensus estimates and adj EBITDA that topped expectations by +9.4%; however, these inline to better results were overshadowed by KPI trends that were almost unilaterally on a negative trajectory. The company’s DAUs saw decelerating growth across all regions, and Eastern Europe, in particular, was highlighted as an area with “quite a bit slower” user growth due to some choppiness in Turkey. Directionally, Roblox’s hours engaged metric followed a similar trend, as growth slowed sequentially across nearly every single region except for APAC. The company cited the lapping of difficult comps from Q4:23, when it launched on PlayStation and launched a major update for Xbox, as one of the main reasons for its disappointing performance during the quarter, but this didn’t appear to explain the full story behind the decelerating levels of engagement on its platform and ultimately wasn’t sufficient to satisfy investors.

Still, Roblox believes there are several secular drivers that will propel its business over the long-term and push the company toward its goal of capturing a 10% share of the global gaming software market. Along with focusing more on non-core genres, such as roleplaying, sports and racing, action, and battle royale formats, – an initiative it outlined on previous calls – Roblox also believes it will benefit from a “fundamental shift” within the gaming ecosystem sparked by the advent of 3D streaming. This involves “very low latency” and “very responsive 3D interactions,” though the term remains relatively opaque, based on details provided on the call. The “quickly scaling” advertising business as well as a foray into paid access games also represent future growth avenues for Roblox, and the company also believes it has opportunities to improve operating leverage and the creative potential of developers on its platform using AI in the year ahead. Needless to say, only time will tell if Roblox will be able execute on these ambitious initiatives. See below for more details.

-> Roblox shares fell -11.1% in reaction to the print and closed the week down -6.8%; YTD, Roblox stock is still up +14.6%

Roblox Still Sees Several Secular Drivers Behind Its Biz Over The Longer-Term

• Roblox still has a good bit of “available headroom” to grow within the global gaming software mkt: Highlighted that the Co’s current mkt share is 2.4% and reiterated that it continues to believe that 10% of all gaming content will eventually run on the Roblox platform
  • 3D streaming is driving a “fundamental shift” within the gaming ecosystem: Emphasized that “this is not video streaming” and that 3D streaming involves “very low latency, local simulation of avatar, and very responsive 3D interactions”
  • There’s still “lots of oppty” in non-core genres: Including roleplaying, sports and racing, action, and battle royale formats; Expanding these, as well as attracting devs from other platforms, will drive mkt share gains
  • The Co is “really going to be driving platform tech”: Enhancing performance and quality will be the main focuses
  • An affiliate program is in place to support on- and off-platform acquisition: As well as the supplementing organic growth on its platform
  • Roblox is also continuing to expand its economy: Such as w/ paid access games and the Co’s ad economy; “There is a pipeline of creations right now getting lined up to launch on paid access,” and Roblox doesn’t view this as cannibalistic to other parts of its biz

The Co Reported Better Than Expected Adj EBITDA… BUT Net Bookings & FCF Disappointed

Roblox printed MIXED headline results: Net bookings rose +20.9% y/y in Q4 (vs +34.4% y/y in Q3) but missed cons by -0.5%; Rev was up +31.7% y/y (vs +28.9% y/y in Q3) and topped cons by +2.2%; Adj EBITDA, including the impact of deferred rev, of $382mn was +9.4% ahead of cons; FCF was -7.9% below cons

There Were Some Puts & Takes In The Q1 Outlook

• Q1 net bookings growth is expected to accel but slightly underwhelmed the Street’s estimates: Projects Q1 net bookings between $1.125-1.150bn, representing a +23.1% y/y increase (vs +20.9% y/y in Q4) but missing cons by a narrow -0.2% at the mid-pt
  • Factors driving the improvement in growth: Include “really good” exit rates from Q4 and a “very strong” performance in Jan, plus comps that will be “a little bit easier, “despite Easter being in Q1 of last yr vs landing in Q2 of this yr

• Q4 rev growth is forecasted to decel seq: Expects Q1 rev between $0.999-1.1015bn, a +25.1% y/y increase at the mid-pt (vs +31.7% y/y in Q4)
• Q4 adj EBITDA is projected to take a step down seq: Anticipates Q1 adj EBITDA between $20-40mn (vs $66mn in Q4), excluding adjustments for changes in deferred rev; When including the $120mn expected net change in deferrals, adj EBITDA is expected to be $150mn at the mid-pt (vs $382mn in Q4)
• Q4 FCF is expected to improve significantly seq: Forecasts FCF between $340-360mn (vs $121mn in Q4), implying a +83.2% y/y rise at the mid-pt; Net cash and cash equivalents from operating activities of $360-380mn is expected to be offset by $20mn of CapEx
  • “Working capital actually has a very large impact on the biz” from Q4 to Q1: Explained that Q4 has negative working capital, while in Q1, the Co will “collect all the activity that happened in Q4, especially around the holidays”

FY25 Guidance Reflects Decel’ing Growth Across All Financial Metrics

• FY25 net bookings guidance was lower than the Street anticipated: Anticipates an FY25 net bookings range of $5.20-5.30bn, marking a +20.2% y/y increase (vs +24.1% y/y in FY24) and missing cons by -0.8% at the mid-pt
• FY25 rev is projected to be between $4.245-4.345bn: Represents a +19.2% y/y increase (vs +28.7% y/y in FY24)
• Adj EBITDA is expected to be between $190-265mn: Implies a +26.2% y/y rise (FY24 adj EBITDA jumped to $180.2mn after FY23’s -170.7mn loss) when excluding adjustments for changes in deferred rev; When including the $825mn expected net change in deferrals adj EBITDA is projected to be $1.05bn (vs $627.5mn in FY24)
• FCF is forecasted to be between $800-860mn: Represents a +29.4% y/y increase (vs +417.1% y/y in FY24); Net cash and equivalents from operating activities of $1.05-1.11bn is expected to be offset by CapEx of $250mn

Roblox Still Sees Several Secular Drivers Behind Its Biz Over The Longer-Term

• Roblox still has a good bit of “available headroom” to grow within the global gaming software mkt: Highlighted that the Co’s current mkt share is 2.4% and reiterated that it continues to believe that 10% of all gaming content will eventually run on the Roblox platform
  • 3D streaming is driving a “fundamental shift” within the gaming ecosystem: Emphasized that “this is not video streaming” and that 3D streaming involves “very low latency, local simulation of avatar, and very responsive 3D interactions”
  • There’s still “lots of oppty” in non-core genres: Including roleplaying, sports and racing, action, and battle royale formats; Expanding these, as well as attracting devs from other platforms, will drive mkt share gains
  • The Co is “really going to be driving platform tech”: Enhancing performance and quality will be the main focuses
  • An affiliate program is in place to support on- and off-platform acquisition: As well as supplementing organic growth on its platform
  • Roblox is also continuing to expand its economy: Such as w/ paid access games and the Co’s ad economy; “There is a pipeline of creations right now getting lined up to launch on paid access,” and Roblox doesn’t view this as cannibalistic to other parts of its biz

More Difficult Comps & Other Region-Specific Headwinds Weighed On Roblox’s Growth In User Metrics

• Q4 growth in DAUs and hours engaged slowed seq and fell short of expectations: Q4 DAUs rose +19.3% y/y (vs +26.6% y/y in Q3) and missed cons by -3.5%; Hours engaged grew +20.6% y/y (vs +29.4% y/y in Q3) and closed -3.7% below cons
  • US & Canada – MISS: DAUs incr’d +15% y/y in Q4 (vs +26% y/y in Q3) and ended -5.1% behind cons; Hours engaged were up +17% y/y (vs +28% y/y in Q3), missing cons by -3.7%
  • Europe – MISS: Q4 DAUs grew +6% y/y (vs +15% y/y in Q3) and missed cons by -6.6%; Hours engaged were up +9% y/y (vs +17% y/y in Q3), falling -3.8% of short of cons
    • User growth in Eastern Europe was “quite a bit slower”: This was “driven primarily by Turkey,” though the economic impact on the Co was less pronounced than the hit on DAUs
  • APAC – MIXED: DAUs were up +30% y/y in Q4 (vs +37% y/y in Q3) and finished -1.4% below cons; Hours engaged incr’d +33% y/y (vs +45% y/y in Q3) but still beat cons by +1.3%
    • India and Japan were again highlighted as bright spots: Both regions saw over +50% y/y growth in DAUs in Q4 (vs Japan’s +59% y/y growth and India’s +55% y/y growth in Q3)
  • Rest of World – MISS: Q4 DAUs grew +27% y/y (vs +30% y/y in Q3) and missed cons by -1.3%; Hours engaged rose +26% y/y (vs +29% y/y in Q3) and fell -2.6% short of cons

• More difficult comps contributed to decel’ing growth in user metrics: In Q4:23, the Co launched on PlayStation and had a significant update on Xbox, resulting in a “very strong” Oct and Nov 2023; Lapping these releases

Color On Other KPIs

• Age 13+ DAU growth decel’d seq: Age 13+ DAUs of 52.1mn grew +26% y/y in Q4 (vs +34% y/y in Q3), accounting for 61% of total DAUs (vs 60% in Q3)
  • Under age 13 DAU growth was also worse seq: Q4 under age 13 DAUs of 32.5mn incr’d +11% y/y (vs +16% y/y in Q3)

• Monthly unique payer (MUP) growth was down seq: Q4 MUPs were up +19% y/y (vs +30% y/y in Q3)

• Avg daily bookings per DAU was better than anticipated: Avg bookings per DAU of $15.97 was up +1.4% y/y in Q4 (vs +6.2% y/y in Q3), topping cons by +3.8%; Improvements to Roblox’s economy, including dynamic price floors, opening the avatar mktplace to all creators, and other price optimization features have paid off

Roblox’s Advertising Biz Has Been Scaling

• The ad biz is “on a great track”: Roblox is “in the middle of adding to [its] portfolio of ad products” w/ streaming video ads and “possibly” user-initiated video; The Co has also been building and increasing biz on sponsored titles on its homepage
  • The Co still plans to break out advertising as a separate segment when it feels that it’s big enough

• Other notable developments include –
  • Roblox is now live w/ shopping ads: As part of its integration w/ Shopify
  • 5 of the top 10 grossing movies of 2024 had activations on Roblox: Such as Beetlejuice and Wicked
  • The ad team has been supplemented w/ “amazing talent”: The Co has hired “a lot of key leadership” and its ads engineering and product words practices
  • Key client wins: Include e.l.f. Beauty, Amazon, and MrBeast, in conjunction w/ Beast Games

The Co Is Laying The Groundwork For Future Improvements In Op Leverage

• COGS growth accel’d seq: Q4 cost of rev incr’d +27.4% y/y (vs +25.3% y/y in Q3)
  • The Co is “still early” in its journey of unlocking op leverage in COGS: Sees differential as a “first move towards that,” though it is taking a wait-and-see approach as to whether it generates COGS leverage over the course of FY25
• DevEx ratios were ~flat seq: DevEx fees of $280.5mn rose +26.5% y/y in Q4 (vs +35.6% y/y in Q3), w/ a payout ratio of 20.6% (vs 20.5% in Q3)
  • Recent changes have improved the share of economics that Roblox provides its dev community: The Co began to offer more Robux for users buying on platforms other than mobile in Q4; It is now essentially giving Robux out ~proportionally to the cash it receives during the purchase
  • The Co has been “encouraging a healthy way to do engineering” to prevent creator burnout: Primarily by pushing all Roblox creators to iterate and make small updates rather than “giant monolithic ones”
• Personnel costs declined seq: Q4 personnel expenses were up +0.8% y/y to $200.2mn (vs $202.2mn in Q3), despite headcount rising to ~2,500 (vs ~2,400 in Q3); Personnel costs accounted for 15% of bookings (vs 18% in Q3)
  • Roblox expects to “hire pretty aggressively” in FY25: The Co sees headcount costs rising in the mid- to high-teens but still anticipates “very good cost leverage this yr over last yr”
• Infra, trust, and safety costs decr’d seq: Infra, trust, and safety expenses were up +1.9% y/y to $126.6mn in Q4 (vs $129.5mn in Q3), comprising 9% of bookings (vs 11% in Q3); Roblox has been driving quality & efficiency w/ AI as well w/ the way it runs lean infrastructure
  • The Co sees more op leverage in infra, trust, and safety costs ahead: By investing “at a slightly slower growth rate” than what it expects on the top-line

Roblox Is Now Running 200+ AI Pipelines & Systems

• The Co launched Avatar Auto Setup in Q4: This turns any industry 3D avatar model and turns it into a fully functional Roblox avatar, w/ skinning, boneing, and support for facial animation; “This is a real early signal in the ability of Roblox to use AI to ingest text, images, 3D objects and convert them really into functioning Roblox objects”
• Roblox Assistant was fully released in Q4: The assistant enables conversation creation within Roblox Studio; The Co has been seeing “more and more creators adopt Assistant in Studio” and expects to “see more and more of that”
• “A lot more” of AI generation features are coming soon: Including text generation within Roblox experiences in Q1 as well as extended 3D creation and 3D generation in experience in Q2

Expedia led off earnings in the online travel space with its Q4 earnings this week, and by all accounts, the company’s results underscored that the travel demand environment is still healthy and growing. In Q4, Expedia’s growth in gross bookings surged to +13% y/y (vs +7% y/y in Q3) and exceeded consensus estimates by a comfortable +5.0%, benefiting from robust international travel, where it has been taking share, as well as improving demand in domestic markets. These tailwinds were reflected in accelerating growth in air tickets, lodging room nights, and vacation rentals booked on Expedia’s platform during the quarter and occurred despite rising prices for each category. In its consumer business, the Co experienced bookings growth in each of its three core brands (Brand Expedia, Hotels.com, and Vrbo) in Q4, and on the B2B side, a “stellar quarter” was supported by new partnership deals and deepening relationships with existing partners in APAC.

Although it was hard to find any faults with Expedia’s performance in Q4, there were some concerns looking out to Q1, based on its guidance. The company acknowledged “some softening” in net bookings through the end of January and anticipates headwinds related to FX, the lapping of last year’s leap year, as well as the timing shift of Easter from March last year into April this year. Moreover, the success of the promotions that Expedia ran from Thanksgiving through the end of December are also expected to have resulted in some pull-forward of demand from Q1. Nonetheless, there are still many levers that the company can look to pull to drive growth and expand operating leverage across FY25. In particular, Expedia will look to continue to enhance its loyalty and marketing programs in the areas that generate the most ROI as well as improve supply to increase differentiation on its platform and create packages that its competitors won’t be able to match. There’s also “a lot of room ahead” to expand the advertising business.

Lastly, a key callout came from the capital allocation side, as Expedia announced that it will reinstate a quarterly dividend of $0.40 starting on March 2025. The company also alluded to maintaining flexibility in its capital structure for potential M&A opportunities, which could mean that some exciting developments could be in store in the year ahead. See below for more details:

-> Expedia shares surged +17.3% following earnings, finishing the week up +18.4%; YTD, Expedia stock is up +8.6%

Expedia Ended 2024 On A High Note W/ Beats Across The Board In Q4…

• Headline results were broadly stronger than anticipated: Gross bookings were up +12.7% y/y in Q4 (vs +7.1% y/y in Q3) and beat cons by +5.0%; Rev grew +10.3% y/y (vs +3.3% y/y in Q3) and topped cons by +3.7%; Adj EBITDA rose +20.9% (vs +2.8% y/y in Q3) and came in +12.6% ahead of cons
  • Adj EBITDA margin surpassed expectations: Q4 adj EBITDA margin of 20.2% was up +180bps y/y (vs -10bps y/y in Q3) and beat cons’ 18.6%
    • Cost of sales declined -1.5% y/y (vs -5.8% y/y in Q3): Ongoing initiatives have cont’d to deliver transaction efficiencies, particularly in customer svs
    • Direct sales & mkting expense rose +13.0% y/y (vs +11.0% y/y in Q3): Over +20bps of seq improvement was driven by cont’d efficiencies at Brand Expedia, which benefited from merchandising actions for the air biz that resulted in bookings without incremental mkting expenses

…Though Sees “Some Softening” Of Growth In Q1

• Q1 gross bookings growth is projected to slow seq: Anticipates Q1 gross bookings growth in the +4-6% y/y range (vs +12.7% y/y in Q3), given ~-2pts of FX-related headwinds at current rates and the impact from lapping last yr’s leap yr; Without those factors, gross bookings would grow +7-9% y/y
  • Pull-ins from Thanksgiving and Dec promos will also be a headwind to Jan bookings

• Rev growth is also expected to decel seq: Forecasts Q1 rev between +3-5% y/y range (vs +10.3% y/y in Q4); The shift in Easter to April this yr from March last yr will have a negative impact, along w/ the other headwinds affecting gross bookings; Beyond these, rev growth would be similar to last yr
• EBITDA margins forecasted to be flat to slightly better y/y: Q1 is typically the Co’s lowest EBITDA qtr, “causing margins to be highly sensitive”
  • The guide enables the Co to have flexibility to redeploy mkting to drive growth: These efforts will be offset by leverage coming out of overhead as well as other cost buckets

FY25 Growth Is Expected Maintain A ~Consistent Trajectory From Q1’s Levels   

• FY25 gross bookings and rev are expected to grow between +4-6% y/y and be ~in-line w/ 2024’s rates: This outlook assumes ~-2ppts of negative FX impact

• Another +50bps y/y expansion in EBITDA margins is anticipated: The Co will continue to optimize its cost structure to deliver efficiencies

The Travel Environment Has Been “Healthy” … BUT Q1 Has Seen Some Slippage

• Expedia saw “better than expected travel demand” in Q4: This occurred “despite price increases in hotels, vacation rentals, and air”
  • International demand remained stronger than domestic demand in Q4: The Co’s growth in US booked room nights grew ~+hsd% y/y (vs ~+lsd% y/y in Q3), which compared to ~+ldd% y/y in Europe and ~+high-teens% y/y in RoW (growth in both Europe and RoW room nights was similar to Q3’s levels)
    • “Over time, the stronger dollar makes it more attractive for Americans traveling abroad”
  • In Q1, there has been “some softening relative to Q4”: That said, the Co caveated that “nothing appears to be structurally different in the travel environment” and that demand has been “healthy”; However, Expedia also acknowledged “some moderation in prices”

Expedia’s Gross Bookings Accel’d Across All Major Product Segments In Q4

• Expedia gross bookings growth stepped up seq and exceeded estimates: Total gross bookings incr’d +12.7% y/y in Q4 (vs +7.1% y/y in Q3) and finished +5.0% ahead of cons; FY24 gross bookings of $110.9mn grew +6.6% y/y (vs +9.5% y/y in FY23)
  • Lodging gross bookings saw accel’d seq growth: Q4 lodging gross bookings rose +12.5% y/y (vs +8.2% y/y in Q3), as the hotel biz grew +14% y/y (vs 10% y/y in Q3) and room nights incr’d in the double-digits y/y; Strong momentum at Vrbo was also a driver
  • Growth in air ticket bookings also improved seq: Booked air tickets were up +10.5% y/y in Q4 (vs +7.8% y/y in Q3), w/ growth being driven by higher ticket prices, cont’d packaged product improvements, and new merchandizing capabilities
  • International was an area of strength: Indicated that the B2B biz continues to benefit from “strong international demand, especially in APAC,” and global expansion efforts in the Consumer biz “continue to show solid progress” w/ bookings growth outside the US accel’ing +4ppts seq
    • Expedia has been taking share in overseas mkts: The Co has been benefiting from better packaging as well as targeted mkting efforts

• Consumer gross bookings growth accel’d seq: Q4 Consumer gross bookings grew +9% y/y (vs +3% y/y in Q3), as each of the Co’s core brands (Brand Expedia, Hotels.com, and Vrbo) saw bookings growth during the qtr
  • “Brand Expedia remained strong”: The biz’s room nights incr’d in the ~+mid-teens% y/y in Q4 (similar to Q3’s rate) and had a “particularly strong post-Thanksgiving promotional window”
  • com’s bookings returned to slight growth: This was driven by momentum in international mkts, and the biz also continues to recover after being negatively impacted by the tech migration and reworking of the loyalty program
  • Vrbo saw a “cont’d accel” in bookings: More details below

• The B2B biz had a “stellar qtr,” w/ gross bookings increasing seq: B2B gross bookings were up +24% y/y in Q4 (vs +19% y/y in Q3); Growth has been supported by efforts to source unique supply for B2B partners, testing new products, and signing new deals
  • The Co’s strong B2B performance in APAC was driven by partnerships: Expedia has been adding new partnerships, and its existing partners have been growing in-line or faster than the mkt, enabling the Co to win share w/ them as their relationship deepens over time
  • “The quality of our supply is so critical in growing that B2B biz”: The Co has done “a lot of work” in providing supply that is “particularly relevant” for some of its B2B partners

The Vrbo Biz Continues To Rebound After Being “Meaningfully Disrupted” By The Re-platforming

• Vrbo’s booking growth accel’d seq w/ improved traffic and conversion: Initiatives to improve product, supply, and mkting drove an accel in Vrbo’s bookings throughout 2024
  • The 1mn properties that Vrbo recently added contributed to the biz’s recovery: For context, many of these are in urban areas and are always properties that aren’t shared spaces w/ no host
  • There are “some exciting plans” to enhance product and supply on Vrbo on 2025: The Co “know[s] there’s more work ahead” and is “going to continue leaning in” to areas that have the best ROI
    • Quality will be a major factor in the Co’s strategy behind adding supply to Vrbo in 2025: “It’s not only about adding new supply but also how do we make sure that the supply that we have has flexibility, has great cancel policies, has maybe different promos, and the like”
    • The Co will also continue investing in mkting and loyalty programs for Vrbo moving forward: Expedia is still testing what types of spend work best and has “learned a lot in the last yr”

The Updated One Key Loyalty Program Has Been A “Net Positive” In Many Ways

• The One Key program saw similar levels of growth seq: Global active membership in the Co’s loyalty program was up +7% y/y in Q4 (equal to Q3’s rate), and the program’s 12-month member repeat rate incr’d +300bps y/y (vs +150bps y/y in Q3)
  • Nearly 50% of room nights came from Silver, Gold, or Platinum members across Expedia’s three core brands: Explained that these higher-tier members receive addt’l benefits, such as member discounts, that are funded by the Co’s supply partners and help drive loyalty to its brands
  • “When travelers buy multiple items from us, they’re more likely to repeat”: Customers know “they’re getting a good deal” when they purchase a package or add-ons from Expedia and that drives repeat rates for the Co
  • The loyalty program continues to benefit Vrbo: The biz has acquired new travelers from cross-selling those that have earned loyalty points on Expedia and Hotels.com and then redeeming those on Vrbo

The Advertising Business Continues To Grow “Very Quickly”

• Growth in the ad biz decel’d seq: Q4 ad rev grew +25% y/y (vs +32% y/y in Q3); Across FY24, ad rev was up +32% and accounted for ~5% of the Co’s overall rev
  • The Co has cont’d to onboard more advertisers onto its platform: Highlighted that Expedia works with tens of thousands of hotels and other partners around the world
  • New features and ad formats have been “resonating strongly” w/ advertisers: In particular, the Co highlighted new ad types like video as well as new tools for partners to manage their campaigns as examples
  • Moving forward, the Co “still see[s] a lot of road ahead”: Including by getting more advertisers into its products and auctions and by providing them w/ more value, new ad types, and better returns

Expedia Has Three Overarching Priorities Heading Into 2025

• 1) Delivering more value for travelers: On the supply side, the Co will look to enhance deals and savings that travelers can only get through Expedia by offering more member rates beyond hotels as well as more targeted offers; Expedia will also look to add more self-svs options, both in product flows and in the virtual agent experience
• 2) Investing in areas w/ the greatest oppty to drive growth in each part of the biz: This means focusing on its three biggest brands in the consumer biz and having clear, sharp value propositions for each; The Co will also be “even more targeted” in its spending on loyalty programs and mkting
• 3) Continue driving operational efficiencies and expanding margins: Expedia believes it still has room to generate further efficiencies across its variable and fixed cost bases to increase its margins even further
• “AI is an accelerator for all three of these priorities”: The Co will continue to test and release AI-generated features to further personalize the traveler experience; AI also creates new possibilities to drive traffic as consumers increasingly search in new gen AI-native experiences; AI-native travel start-ups also present B2B partnership oppties
  • AI will also help Expedia’s teams “move faster and be more productive”: This isn’t just about cost reduction but also enabling the Co’s teams to “spend more time where they can have the greatest impact”

Capital Allocation Notes

• Expedia plans to continue to repurchase stock “opportunistically” in FY25…: The Co has ~$3.2bn remaining on its current share repurchase authorization after buying back 1.2mn shares for $1.6bn in FY24
  • … And is also reinstating its qtrly dividend starting in Mar 2025 w/ a dividend of $0.40 per share: This represents a 1% annual dividend yield
  • The Co will also focus on repaying debt and potentially refinancing it if mkt conditions are favorable: Expedia remains committed to a target leverage ratio of 2x
  • “It’s also important we have room in our capital structure to invest in the biz, including M&A”: As a result, it’s “important” for Expedia to “keep that flexibility”

While Uber reached all-time highs across gross bookings, adj EBITDA, and Trips, that was largely expected by the Street. What wasn’t expected was the Q1 guidance that came in below estimates and implied a seq deceleration in gross bookings and adj EBITDA, largely driven by FX headwinds, as well as impact from the LA fires and extreme winter weather.

That said, a potential seq deceleration into Q1 has not stopped Uber from continuing to drive growth across the business. Mobility gross bookings growth was in-line with last quarter, as its newer use cases like Uber for Business, Uber for Teens, Uber Shuttle, and more have all been scaling. 2025 is expected to be “healthier” in terms of pricing vs 2024, given labor market improvements, easing of inflationary pressure, and progress in slowing insurance price increases. Over on the Delivery side, gross bookings slightly accelerated seq to +18% y/y growth, which comes after four straight quarters of +17% y/y growth. Similar to Mobility, use case expansion is driving growth both on the merchant and customer front. Uber One is certainly helping on both fronts, adding ~+5mn members in the qtr. It is now available in all Delivery countries, and an increasing amount of mobility and delivery-related perks are being added regularly.

Despite the massive scale of the business already, management drilled down on the point that the company still has a runway to continue to grow at around the same levels in the near-term. While growth may be slowing down in more populated markets, Uber is actively pushing into those less dense geographies and is seeing success in both the Mobility and Delivery businesses across US and international. Growth bets will also be a material driver. On the note of growth bets, autonomous vehicles and the opportunity they have for Uber’s business was also a very large focus point on the call; however, it is still a long way away from having any impact on the business. In the meantime, Uber is dead set on positioning itself to be at the forefront of the opportunity.

There was a lot to digest from the earnings reports… See below for our key takeaways.

 -> Uber’s stock was down -7.6% post earnings, but ended the week up +11.6% (partially driven by Pershing Square’s Bill Ackman sharing Friday that he has built a ~$2.3bn stake in Uber (link)

 Uber Posted Its “Strongest Qtr Ever,” Reaching All-Time Highs For Gross Bookings, Adj EBITDA, And Trips

• Total Gross Bookings reached an all-time high and beat by +1.6%: Grew +18% y/y or +21% y/y ex-FX (accel from +16% y/y or +20% y/y ex-FX in Q3), with upside from both Mobility and Delivery
  • Trips reached an all-time high and beat by +1.6%: Grew +18% y/y (accel from +17% y/y in Q3) to 3.1bn or ~33mn trips per day on avg
  • Users beat by +1.7%: MAPCs (Monthly Active Platform Consumers) grew +14% y/y (accel from +13% y/y in Q3) to reach 171mm (up from 161mn in Q3)
  • Frequency (monthly trips per MAPC) reached another all-time high: Grew +3% y/y (vs +4% y/y in Q3) to 6.0

• FX was a headwind of -$1.1bn y/y or ~-300bps, driven by broad-based strengthening of the US dollar against foreign currencies with a “notable” devaluation of the Argentine peso, Brazilian real, and Mexican peso, resulting in an outsized -600 bps headwind for Mobility (saw a ~-25ppts currency headwind to LatAm gross bookings y/y)

• Adj EBITDA reached another all-time high, which was ~in-line w/ expectations: Grew +44% y/y (vs +55% y/y in Q3)
  • Adj EBITDA margin of 4.2% of Gross Bookings: Up from 4.1% last qtr and 3.4% in year-ago qtr

But Guidance Came In Below Expectations As FX Will Be A Larger Top-Line Headwind In Q1

• Q1 Gross Bookings guidance missed by -1.7% at the midpoint: $42bn-$43.5bn vs cons $43.48bn (implies +17-21% y/y growth ex-FX)
  • Outlook assumes an ~-5.5ppt currency headwind to total reported y/y growth, including an ~-7ppt and ~-4ppt currency headwind to Mobility and Delivery growth)
    • ~1/2 of GBs come from outside the US and ~1/4 of intl GBs come from LatAm, which saw “significant” currency depreciation across the dollar, notably in Argentina, Mexico, and Brazil (which are top 20 countries for Uber)
  • For perspective, at the Q4:24 exchange rates, Q1:25 reported Gross Bookings outlook range would have been nearly +$1bn higher ($43.0-44.5bn)
  • Guidance also reflects the effect of lapping of leap day in Q1:24 and the impact of Los Angeles fires and extreme weather in January

• Q1 adj EBITDA guidance missed by -0.5% at the midpoint: $1.79bn-1.89bn vs cons $1.85bn (implies 30-37% y/y growth)
• Incremental H1 guidance –
  • Expect Mobility to deliver over +20% growth
  • Expect Delivery growth to remain “relatively” stable ex-FX

• “Remain confident about continuing to make strong progress on our 3-year outlook in 2025”

Focused On Key Growth Initiatives In 2025 “That Will Propel Us Forward”

• Making Mobility and Delivery more affordable, enabling them to reach “even more” consumers

• Unlocking dozens of lower-density markets and “supercharging” their growth bets portfolio
  • Building out their “growth bets” so that core business, which is expected to grow in the “low-to-mid-teens”, is supplemented by growth bets to “push” that growth into the “higher teens”
  • Growth bets now generate $26bn+ in annualized Gross Bookings, up +55% y/y

• Continuing to prioritize cost discipline, which has “significantly” expanded profit margins and cash flow generation over the past four years

• Executing “brilliantly” on AV strategy, which “remains our highest priority”

Uber Ecosystem Is Strengthening Both Earnings On Supply Side And Engagement On Demand Side

• Drivers and couriers earned an aggregate $20.0bn (including tips), with earnings up +16% y/y or +22% y/y ex-FX (vs an aggregate $18.1bn in Q3, with earnings up +14% y/y or +21% y/y ex-FX)
• 37% of Uber consumers now use multiple products
  • Which is driving retention and increased spend, as multi-product consumers spend 3x as much, on avg, as those who don’t

Expansion In Use Cases And Price Segmentation Are Driving Growth And Deeper Penetration In Mobility

• Mobility gross bookings growth grew +24% y/y, in-line with Q3, underpinned by “stable” y/y trip growth seq
• Mobility adj EBITDA margin fell seq to 7.8% of gross bookings, down from a record 8.0% in Q3 but still up from the prior year quarter of 7.5%
  • Saw continued benefits from supply incentives, leverage on the operating costs, which was partially offset by higher insurance costs

• Mobility take rate of 30.3% missed cons 31.1%
• Driver supply growth remains “robust”, with active drivers up +26% y/y (no comp last qtr)

• Launched Uber Business Black in the US, UK, and Brazil, a new ride type for corporate travelers featuring luxury vehicles, increased flexibility, and first-class customer service.
• Uber for Business is seeing “strong” results, with Gross Bookings up ~+50% y/y in Q4 (~in-line w/ last qtr)
  • “There is still a long runway to further grow our share of wallet with the more than 200,000 companies and organizations we work with”

• Uber for Teens has been “a runaway hit in the US,” w/ Teen trips up 50%+ q/q in Q4 (accel from +40% q/q in Q3)
  • Expanded Uber for Teens to 26 new countries across the EMEA, APAC, and LatAm regions
  • Now live in 50+ countries, covering “the vast majority” of global Trip volumes
  • Launched Teen profiles, enabling teens to use their own payment methods and cash
  • “Excited to serve even more teens and their families around the world in 2025”

• UberX Share has exceeded $2bn in annualized Gross Bookings in <3 yrs
  • Recently launched UberX Share at 10 major airports in the US and internationally
  • Plan to expand scheduled UberX Share options to reach “even more” riders

• Uber Shuttle is “scaling nicely” in New York, w/ addt’l routes to LaGuardia Airport, adding a new stop from downtown Manhattan, and increased svs during peak times
  • Expect to launch at more airports in 2025

• Refreshed Uber Courier service: Rebranded and redesigned Uber Connect as Uber Courier to better reflect the variety of use cases the service provides
  • Also expanded the Saver feature in the US and Mexico, and launched a scheduling feature globally

• Taxi expansion in Japan: Partnered with a leading taxi dispatch provider that will bring up to 20,000 vehicles onto the platform
  • Demand in Japan remains “robust”, driven by increasing usage by domestic riders as well as international travelers

Anticipate A “Healthier” US Pricing Backdrop In 2025, Driven By 3 Factors

• Labor market has improved “dramatically” over the last few years: “We are a long way from our pivotal 2021 decision to make large investments to kickstart driver growth post-COVID”
  • Driver supply has “been in balance for several months now and is still growing steadily”
  • Rider experience improving in the form of lower surge pricing

• Inflationary pressures in the US are easing “rapidly”, particularly in used car and gas prices

• Have made “significant progress” in slowing insurance price increases “through a combination of tech innovation and strong policy work”
  • Now expect insurance costs on a per-trip basis to increase HSD y/y (and lower excluding California and New Jersey) in 2025
  • Remain committed to keeping prices as low as possible, passing through only the insurance cost increases to consumers; As a result, expect UberX prices in the US to be up marginally in 2025

Delivery Reaches A New Record On Rev And Profitability As Member Adoption Increases And Grocery & Retail Products Expand

• Delivery gross bookings grew +18% y/y (accel from +17% y/y in the last 4 qtrs), crossing the qtrly $20bn mark for the first time
  • Seventh straight qtr of Delivery MAPC y/y growth acceleration, with particular strength in the US, UK, Canada, and Mexico
  • Delivery biz gaining category position in every single one of their top 10 countries

• Delivery adj. EBITDA margin of 3.6% of gross booking was another record and a continued step up from 3.4%in Q3 and 3.2% in Q2, and also up from 2.8% in the yr-ago qtr; Y/Y improvement was primarily driven by cost leverage from higher volume and increased ad rev

• Delivery take rate of 18.7% was in-line w/ consensus estimates

• Active merchants were up +16% y/y (in-line w/ last qtr)
  • Have 1mn+ active merchants
  • Sales per merchant continue to increase on a y/y basis
  • But lots of runway for growth in selection…In Uber’s Top 10 markets, have ~1/3 of the merchants in those mkts on the platform

• Continue to invest in a variety of initiatives on the affordability front, including –
  • Merchant-funded offers, which help merchants drive incremental throughput in their stores while lowering the effective cost born consumers on Uber Eats
    • # of merchant-funded offers is at “all-time highs”
    • In Q4, consumers redeemed ~$1bn (up 60%+ y/y) worth of offers funded by Uber’s merchant partners
  • Pickup lets consumers order from restaurants at a “meaningfully” lower cost, while driving improved throughput at better margins for restaurants
    • Consumers who use Pickup engage “significantly more” on Uber Eats overall

• Efforts to expand Grocery and Retail adoption have increased spend and engagement across Delivery –
  • Continue to improve selection, and recently added Home Depot, Wegmans and Stew Leonard’s
  • Now accept SNAP EBT payments: Can be used to order groceries from participating locations through the Uber Eats app, starting with Albertsons Companies-owned brands and Walgreens locations nationwide
  • Improving quality of shoppers: Shifting marketplace metrics from cost and efficiency to cost, efficiency AND quality (accuracy of orders)
  • Introduced functionality to redirect orders if the selected store is temporarily closed or low on inventory
  • Launched Shopper Pick & Pack feature in select markets, which provides flexibility for couriers to shop for orders without also needing to deliver them
    • Seeing “meaningful” improvements as it relates to cost efficiency and increased fulfillment reliability
  • Launched several festival holiday features, including a holiday shopping hub, Christmas tree delivery in partnership with Lowe’s and Uber Carolers in select cities
  • Momentum in Uber Direct: Expanded partnership between Uber Direct and Toast Delivery Services, allowing restaurants on Toast’s platform to save on delivery fees, expand their delivery radius, and leverage Uber’s delivery network
    • Partnered with several addtl merchants, including P.F. Chang’s in the US, Burger King in the UK, hardware retailer Bunnings in Australia, and their first Uber Direct partnership in Poland with Media Markt
  • Completed a tech migration enabling merchants using their employees for order fulfillment to utilize the same fulfillment technology as Uber’s earners

Pushing Into Low-Density Markets Is A Key Focus In Helping Sustain Overall Biz Growth

• What is Uber doing to “extend […] the length of time that [Uber] can get that core business to continue growing at an attractive rate”?
  • Driving penetration into less dense/sparser geographies – “it’s not uncommon…to see 1.5 or more times faster growth outside of more dense areas”

• Offsetting slowdown in more populated/dense areas by pushing into less dense/sparser geographies
  • Initially focused on the US delivery biz, and then realized the same oppty existed across Mobility and around the world
• Active eaters, active merchants, and orders in low-density markets are growing “multiples faster” than high-density markets: “Making strides” in driving growth in non-Tier 1 cities, including –
  • In the US – bringing more choice to merchants and consumers, “who have historically been underserved by the lack of focused competition in these areas”
  • Internationally – building out svs in sparser geos in countries where Uber is already the category leader nationally
  • “Finding real promise” in Mobility, both in the US and on-US, as well as Non-US delivery
    • On Mobility – investing into supply, such as creating incentives to bring new drivers into those areas, opening more cities and locations
    • In Europe – focused on adding more taxis to build supply, then will use incentives to get to a pricing that will “spur demand”
  • Also focusing on product enhancements – for customers in those less dense areas, “they can pay with price or they can pay with time”
    • For those who want to pay with price – can use Reserve product
    • For those who want to pay with time – can extend wait times; “We’re finding that in the suburbs people are more open to longer wait times”

“Stellar” Qtr Of Growth For Uber One Driven By Improved Retention And Increased Benefits

• Uber One now stands at 30mn, up from 25mn+ in Q3 and up +60% y/y
  • “We are driving incremental growth through improved retention and increased value for our customers”

• Launched Uber One membership plans in 6 new countries, bringing the total number of countries w/ Uber One membership plans to 34
  • Uber One is now available in every Delivery country

• Launched Uber One for Students to new countries across the EMEA, APAC, and LatAm regions
• “Amplifying the power of Uber One through experiential and use-case based benefits”, such as –
  • Receiving an upgrade to Priority Delivery, resulting in faster delivery times
  • Getting matched with top-rated shoppers when ordering groceries
  • Rolling out new travel and commute benefits, including higher cashback discounts on premium rides and priority pickup to and from airports for members
  • Announced partnership w/ Delta Air Lines to allow Uber customers the oppty to earn Delta SkyMiles when they ride and order
    • Since the announcement, have seen waitlist grow to 300k+ ahead of rewards beginning this Spring
  • Also piloting “several” new benefits that will roll out in 2025 – “more to come on this front”

AV Strategy Was Heavily Emphasized As Uber Continues To Double-Down, But Still Long Ways To Go Before Any Material Impact

• Announced multiple new partnerships, including their first intl launch in Abu Dhabi
  • Anticipate more intl expansions in 2025

• Formed JV with NVIDIA to collaborate on new solutions to support the development of AI-powered autonomous driving technology
• Began delivering Uber Eats orders via autonomous sidewalk robots
  • In partnership with Avride in Austin and Dallas
  • In partnership with Cartken in Osaka

• Will follow a similar playbook as with taxis, low-cost, high-capacity, and UberX offerings – “it’s just an investment in building out the supply base to match variable demand”
  • Long-term investments in fleet supply have grown fleets to 15% of total inventory; Feel “very well positioned” to integrate and manage AVs within those operations
    • Also exploring depot acquisitions with necessary electrification for fleet charging
  • Forming technical partnerships with AV players
  • Engaging with OEMs to secure supply as manufacturing scales for the next generation of autonomous

• Early observations from partnership with Waymo? While scale of deployments are “very, very, small” and “it’s very difficult to get patterning based on these smaller numbers,” some observations included –
  • Uber network is able to drive “significantly higher” utilization vs any kind of first-party network “just because of the scale and the variability in terms of supply and demand in a particular market”
  • “Customers love the product” and ppt-in rate for customers the second time that they’re offered an AV is “significantly” higher than the opt-in rate the first time
    • Are able to price a Waymo ride at a premium

• “Even as we see AV technology advancing, we expect AV commercialization will take significant longer”: Several pieces of the go-to-market puzzle still need to come together, including –
  • A “consistently super-human” safety record
  • Enabling regulations
  • Cost-effective, scaled hardware platform
  • “Excellent” on-the-ground operations
  • High-utilization network that can manage variable demand with flexible supply
  • “And we think the only way that all five could come together is [if] Uber partnered up with the AV ecosystem. And we think we’re […] an indispensable part of […] achieving all five”

• “We are spending an enormous, yet appropriate, amount of organizational energy to execute on our AV strategy”
  • “It’s a broad investment. It’s across a very, very low number of units. So, you’re not really going to notice it in the P&L”
  • “BUT we do think that this investment is going to prepare us as autonomous starts to scale and as kind of the commercial economics start to be apparent”
  • Unlikely to impact Uber’s overall 3-yr outlook

Some Incremental Color On The Freight Business

• Freight gross bookings were ~flat y/y, which was a decel from +2% y/y in Q3, pressured by continuing category-wide headwinds
• Launched Broker Access, a new capacity-as-a-service solution that provides freight brokers with direct access to Uber Freight’s technology platform and network of fully vetted carriers
  • The program streamlines load booking and execution, provides end-to-end load visibility, and mitigates fraud