LT Weekly: Nov 1, 2024

It was a non-stop earnings blitz on the circuit this week, as 46 companies in our LionTree Universe reported their third quarter numbers, a big step up from the 15 that reported last week. Similar to last week, stock price reactions were biased to the downside, as 24 companies (52.2%) traded down in reaction to their prints, while 22 companies (47.8%) traded up. Criteo SA was the worst performer of the group, down -21.3% post its report, while Reddit was the best performer, jumping +42.0% (see Theme #12).

In addition to Reddit on the social media front, Snap put out its numbers this week, and the stock was up +15.9% in reaction (see Theme #4). The digital duopoly of Meta and Alphabet were also up this week, though Street reactions diverged, with the former trading down -4.1% and the latter trading up +2.8% (see Theme #2 for the deep-dive on both and Theme #9 for Google’s Cloud results). The mixed reactions followed through across Big Tech, as Amazon’s stock jumped +6.2% in reaction, while Apple fell -1.3% (see Theme #12 for the quick takes) and Microsoft was down -6.1% (see Theme #9 for more on Azure’s performance).

The digital duopoly wasn’t the only duo to report this week, as both cable juggernauts Comcast and Charter went up +3.4% and +11.9%, respectively, on the back of their prints (see Theme #5 for the deep-dive on the cable bizs and Theme #6 for updates from Comcast’s Content & Experiences business). On the interactive entertainment front, Electronic Arts and Roblox followed a similar pattern and also traded up +2.4% and +19.9%, respectively (see Theme #11). Also in media, but on the video streaming side, Roku posted its biggest one-day loss since mid-February, plummeting -17.3% (see Theme #7 for more color).

Roku wasn’t the only stock that suffered a notable drop, as Uber saw its biggest drop since Oct 2022, down -9.3% after its print, though delivery competitor DoorDash saw a more favorable reaction and traded up +0.9% (see Theme #8 for more on those dynamics). Finally, Bookings kicked off the OTA prints on a favorable note, trading up +4.8% (see Theme #10).

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

Higher capital spending in the AI arms race has been a key theme in the Big Tech sector, as companies scramble to build the necessary AI infrastructure to solidify a leading position in this technological revolution that is underway. Last qtr, the message from Alphabet and Meta was that it was too risky to under-spend then over-spend, which spooked investors. This qtr, Alphabet reassured the Street, pointing to an expected deceleration in CapEx y/y growth in 2025 relative to 2024’s increase. On the other hand, Meta’s capital spending trajectory is not as clear, other than the Co continuing to say that 2025 CapEx spend will be up “significantly” from its raised 2024 guidance (see Theme #3 for Amazon’s update on its CapEx outlook). This topic will continue to be a hot button for investors, who are eager to see the financial benefits from these investments. But some of those are starting to show through…

Both Alphabet and Meta delivered better than expected results relative to expectations (especially regarding profitability), though y/y top line growth rates were impacted by tough comps (as previously discussed). Alphabet’s advertising ad revenue growth of +10% and Meta’s Family of App ad revenue growth of +19% still reflect healthy performances. Alphabet’s Search business has not seen a negative impact from GenAI standalone platforms and, in fact, has seen AI “supercharging” search. People are expanding how they are using search. Regarding YouTube, ad revs were more or less in-line, as Short’s monetization improved again this quarter with higher watch time. For Meta, the Co has been able to achieve its advertising results with fewer impressions and higher growth in avg price per ad, which was a key point. Looking ahead, higher engagement and monetization is Meta’s strategic formula, and using AI to improve recommendations is a core tenant of both of those objectives. Threads is growing nicely (reached almost 275mn MAUs) and is expected to be the next major social app for the company (though monetization is not a priority now). Meta AI is seen as a critical engagement driver as well, with monetization to follow.

Outside of core advertising, Alphabet’s Cloud business had a blockbuster qtr, with accelerating revenue growth and much stronger operating margins (see Theme #9 for more). Meanwhile, Meta continues to spend a lot on Reality Labs, though traction remains a work in progress. We’ll see how well the newly released Quest 3S performs over the holiday season.

Net-net, Alphabet and Meta performed well in many aspects this quarter but their bigger picture progress regarding this AI technology wave will remain front-and-center. Alphabet started off a little slowly with Gemini compared to its peers. However, the Co has been integrating Gemini across its core products, and there is now “a lot of velocity” in the underlying models. Alphabet is working on the third generation and has an aggressive roadmap ahead for 2025, so more to come. For Meta, CEO Mark Zuckerberg thinks “this may be the most dynamic moment” that he’s seen in the industry, and Meta is moving forward full speed ahead. One last thing to note is that Meta’s management bypassed a question regarding recent press about Meta developing its own AI search engine (link).

See below for what we thought were the key themes and updates out of Alphabet and Meta’s results and conference calls. Also, see Theme #9 for thoughts on performance in the Cloud and Theme #4 on perspectives on Snap’s results.

-> Google shares rose +2.8% post-earnings and ended the week up +3.6%; Meta shares fell -4.1% in response to earnings and closed the week down -1.1%; YTD, Google stock is trading up +22.6%, and Meta shares are still up +60.2%

-> Also, note that Alphabet’s upcoming DOJ antitrust trial remains an overhang

Alphabet & Meta’s Qtrly Headline Results Topped Expectations & Reflect Strong Growth In The Core And Much Better Than Expected Operating Margins

• • GOOGL – Headline numbers topped expectations across the board: Consol revs growth accelerated to +15% y/y (+16% ex FX) from +14% growth in Q2 and beat cons by +2.2%; Op margins of 32.3% was also stronger than cons’ 30.6% (margins expanded by +4.5ppts y/y); EPS beat by +15% (and was up +37% y/y)
    • Google Services revs beat by +1.9% (up +13% y/y) and op income was +9.3% ahead of cons
      • Total Google Advertising beat by +0.7% (+10% y/y)
      • Subscription, platform and devices revs beat by +9.2% (rose +28% y/y); YT TV and YT Music Premium were strong contributors to subscription revenue growth, in addition to Google One, plus the launch of Made by Google devices in Q3
    • Cloud revs beat by +4.2% (posted accelerated growth to +35% y/y) due to performance in GCP; 17% op margins was significantly above cons 10%

• • META – Strong Q3 results relative to expectations w/ lowered FY expense outlook
    • Total revs beat cons by +0.9% and grew +19% y/y (ex FX +20%), though decelerated from +22% y/y in Q2 and +27% y/y in Q1: Family of Apps Ad rev beat by +1%, while Reality Labs rev disappointed
      • OUTLOOK: Mid-pt of Q4 revs guidance ($45-48bn) was +0.7% above cons
    • Adj op income beat by +9.6% (much stronger margin of 42.7% vs cons 39.4%)
      • OUTLOOK: Lowered top end of the 2024 total expenses guidance: From $96-99bn to $96-98bn
    • EPS beat by +15.5%; FCF was +30% higher due to lower CapEx spend

Hefty CapEx Spend Remains A Theme For Big Tech Though Alphabet’s Y/Y CapEx Growth Should Peak In 2024

• GOOGL – Q3 CapEx was once again higher than expected, but the y/y increase in 2025 should ease
  • Q3 – Similar to Q2, CapEx in Q3 was higher than expected, which weighed on FCF: Spent $13bn (+3% above expectations, and guidance was “at least $12bn”), and FCF missed by -24%; The majority of spend is on tech infrastructure (~60% of that on servers and ~40% on data center and networking equip)
    • And expect Q4 CapEx to be similar to Q3 levels (previous guidance was “at least $12bn”)
  • 2025 – Expect an increase y/y, but “likely not the same percent step up that we saw between ‘23 and ‘24”: Will provide more color on the Q4 call
• META – Q3 CapEx was lower than expected but will ramp significantly in Q4 and in 2025
  • Q3 CapEx of $9.2bn was much lower than cons $11.08bn but was impacted in part by the timing of Q3 server deliveries, which will be paid for in Q4
  • 2024 – The Co raised FY CapEx range from $37-40bn to $38-40bn
  • 2025 – Anticipate “significant” CapEx growth in 2025: With a focus on AI infrastructure expansion
    • “We expect a significant acceleration in infrastructure expense growth next year as we recognize higher growth in depreciation and operating expenses of our expanded infrastructure fleet”

Alphabet’s & Meta’s Ad Growth Was Impacted By Tough Comps But Not By As Much As Expected & Still Reflected Healthy Rates

• GOOGL – Tough comps continue to weigh on ad revenue growth: While Google Total Advertising beat expectations, it did decelerate to +10.4% y/y vs +13.6% in Q2, given the impact of tough comps y/y due to APAC based retailers
  • Search & Other Ad revs up +12%, which was a slight decel from +14% y/y in both Q1 and Q2: Growth was broad-based across verticals led by fin svs due to strength in insurance, followed by retail
  • YouTube Ad revs grew +12% y/y which was a slight decel from +13% in Q2 and well below Q2 +21%: Growth was driven by brand, closely followed by direct response (DR)
    • Had a slight tailwind from election-related ad spend in Q3, which was “a little bit more pronounced in YT ads”
  • Network revenues were down -2% y/y
  • H2 commentary – Comps get tougher as H2 progresses: Due to APAC-based retailers and a headwind y/y from growth in subscription platforms and devices revenue in Q4 due to the pull forward of the Made by Google launch in Q3
• META – Family of App ad revenue was strong at up +19% (ex FX +20%) and beat cons by +1% and as expected slightly decelerated from Q2’s +22% y/y due to touch comps/FX impact: FoA adj op margins of 54% were materially ahead of cons’ 51.9%
  • Online commerce vertical was the largest contributor to y/y growth, followed by healthcare and entertainment & media
  • Ad growth by user geography / and by advertiser geography: 
    • ROW +23% / 17%
    • Europe +21% / 21%
    • Asia Pac +18% / 15%
    • N. Amer +16% / 21%
  • Delivered fewer impressions but higher growth in avg price per ad:
    • Total impressions incr’d 7% (driven by Asia Pac and ROW) vs cons’ +10.7%
    • Avg price per ad incr’d +11% (due to advertiser demand partially offset by impression growth esp from lower monetizing regions and surfaces) which was better than cons’ 5.5%

Alphabet’s Search Business Is Being “Supercharged” By AI Vs Cannibalized

• GOOGL – AI is transforming and expanding how people use Search and is “supercharging” the business: With AI, the Co can understand intent better and connect users to the most relevant ads; There are no signs of negative impact from standalone GenAI platforms like ChatGPT; Users are coming to Seach more often
  • AI Overviews transition is “working well”, including for ads: Started to rollout to 100+ new countries and will reach 1bn users on a monthly basis; Seeing strong engagement; People are learning that Google can answer more of their questions; Started showing search and shopping ads w/in the overview for mobile users in the US
    • For AI overviews overall, the Co is seeing monetization at the ~same rate
  • Circle to Search is now available on 150mn+ Android devices, w/ people using it to shop, translate text, and learn more about the world around them: A third of the people who have tried circle to search now use it weekly
  • Lens is now used for 20bn+ visual searches per month, w/ 25% of these searches having commercial intent: It is “one of the fastest growing query types we see on Search”
    • Annc’d the rollout of shopping ads above and alongside relevant lens visual search results to help better connect consumers and businesses
  • “All these AI features is just the beginning”

Alphabet’s YouTube Shorts Monetization Is Improving

• GOOGL – YouTube (YT) YouTube’s total ads and subscription revenues surpassed $50bn over the past four quarters for the first time
  • Using AI to greatly improve recommendations on YouTube 
  • Seeing robust watch time growth of YT: Particular strength in Shorts and in the living room; 70bn+ YT shorts are watched every day
  • Short’s monetization improved again this quarter: Cont’d to significantly close the monetization gap with in-stream video, particularly in the US and other more highly monetizing markets
    • Of all the channels uploading to YouTube each month, 70% are uploading Shorts; Now have the ability to upload Shorts up to 3min long
    • Advertisers now able to book first position on Shorts
  • YT Subscription growth is strong: YT- Together, YouTube TV, NFL Sunday Ticket and YouTube Music Premium are driving subscription growth; “Leaning into” the living room experience with Multiview and a new option for creators to organize content into episodes and seasons, similar to traditional TV
    • Google DeepMind’s most capable model for video generation video is coming to YouTube shorts to help creators later this year

Other Ways That AI Is Transforming Alphabet’s Business

• GOOGL – AI will revolutionize every part of the marketing value chain
  • On creative: Advertisers now use Gemini powered tools to build and test a larger variety of relevant creatives at scale
    • Their most advanced text-to-image model, Imagen 3, helps customers produce high quality imagery for their campaigns
  • On media buying: AI-powered campaigns help advertisers get faster feedback on what creatives work
  • On measurement: Meridian is helping to scale measurement of cross channel budgets to drive better business outcomes
• GOOGL – Gen AI is helping to make the Co more efficient
  • Today, more than a quarter of all new code at Google is generated by AI, then reviewed and accepted by engineers

Meta’s User Engagement Remains A Key Focus & Threads Is Slated To Become The Next Major Social Media App

• META – 3.2bn people use at least one of its apps per day in Sept
• WhatsApp just passed 2bn calls made globally every day
• Facebook continues to see positive trends with young adults esp in the US
  • Have seen a +10% increase in time spent within the Facebook video player since the global rollout of the unified video player
• Instagram growth remains strong globally
  • “Reels continues to see good traction, and we’re making ongoing progress with our focus on promoting original content, more than 60% of recommendations now coming from original posts in the US”
• Threads is on track to become the Co’s next major social app: It has almost 275mn MAUs and has seen more than +1mn sign ups per day; Engagement is growing as well
  • But won’t be a driver to 2025 revenue – goal is to drive growth & deepen engagement

Meta – AI Is Having A Positive Impact On Core Business Engagement & Monetization And The Long Term Road Map

• Meta’s core revenue growth strategy is centered around…
  • Deliver engaging experiences to users
    • Improving recommendations is a key focus
    • Gen AI, Threads, and Meta AI will also drive more engagement
  • Monetizing that engagement over time
    • Oppty to grow ad supply on lower monetizing surfaces like video – think shift to short form will continue
    • Continuing to optimize when and where to show ads w/in a person’s session
      • Enhance marketing performance
• AI is expected to accelerate their core business and should have strong ROIs over the next few years “so I think we should invest more there”; The AI investments require serious infrastructure, and the Co expects to continue investing significantly there too
  • What are the biggest opportunity sets for AI on the platform? Making Feed, Reels, and ads more relevant, helping advertisers generate better ads, helping people create the content that they want, and helping with the integrity of operations and compliance; It is also going to enable completely new types of services; Expect people to interact with a variety of AI agents on both consumer and business side
• Meta AI has 500mn+ MAUs: On track to be the most used AI assistant in the world by the end of year; Focused on making Meta AI more valuable to user which will lead to monetization over time (not now); What do people use it for?
  • Info gathering
  • Help with how to tasks (largest use case
  • Go deeper on interest or look for content on services
  • Image generation
• Improvements to AI driven feed and video recommendations have led to an +8% increase in time spent on FB and a +6% increase on Instagram this year alone
• 1mn+ advertisers use Meta’s genAI tools to create 15mn+ ads in the last month
  • Estimate that businesses that use image generation see a +7% increase in conversion (and thinks there’s more upside to this)
• Great momentum with Llama: Released Llama 3.2 this qtr, and Llama 4 is well into its development; Expect the smaller Llama 4 models will be ready sometime early next year and are very excited about this launch

Meta’s Business Messaging In Gaining Momentum, While Realty Labs Remains A Work In Progress

• META – Business messaging monetization was better than expected: Family of Apps Other revenue, which is primarily business messaging rev growth from the WhatsApp Business platform, was up +48% y/y to $434mn; This was +18% above consensus
• Significant spending continues in Reality Labs, while revenues come in shy
  • RL revs grew +29% y/y to $270mn (-13% below cons), and operating loss was $4.4bn (cons $4.68bn)
    • Demand for Ray-Ban Meta glasses continues to be “very strong”
    • Look forward to seeing how well Quest 3S does this holiday season
    • Orion (full holographic AR glasses) is where they are ultimately going
  • Outlook – 2024 Reality Labs operating losses will “increase meaningfully” y/y; The Co is not sharing guidance for 2025 yet

Alphabet’s Waymo Surprised On The Upside

• GOOGL – Waymo (the biggest part of Other Bets) is now “a clear technical leader within the autonomous vehicle industry and creating a growing commercial opportunity”
  • Surprised on the upside how much people love the product
  • Each week, Waymo is driving 1mn+ fully autonomous miles and serves 150k+ paid rides
  • Waymo has multiple paths to market and growth will come through its partnership with Uber in Austin and Atlanta, plus a new multi-year partnership with Hyundai
  • Drones: Another new bet Wing (drone delivery) passed the 1-year anniversary of scaling its partnership with Walmart in the Dallas Fort Worth area and now operates in 11 stores serving 26 cities and towns

There were a lot of pluses with respect to Amazon’s results this qtr. The Co delivered very strong profitability upside on slightly better revenue, and the mid-pt of Q4 guidance was more-or-less in-line on revenue but reflected higher margins than expected. The level of profitability in both the international business and AWS stood out in particular. For international, Q3 adj operating income of $1.3bn easily topped consensus $206mn. Factors driving the improvements are the same that have been driving N. America profitability, meaning lower cost to serve, greater contribution from advertising, improved selection, and faster delivery speeds (which help drive consumer demand). There is now a clear profitability trajectory in the international segment, and it was encouraging to hear that over time, the Co believes this business can reach N. American profitability levels (which continue to press higher as well).

In the retail business, Amazon’s approach remains the same – providing customers with a very broad selection, low prices, fast and free delivery, and a range of compelling Prime member benefits. The Co is on track to deliver its fastest speeds ever for Prime members globally for the second year in a row. Mgmt does still see some price consciousness on the part of consumer but also sees that they are buying more everyday essentials from the Co, which leads to a stickier and more valuable customer over time.

As another top-line and profitability driver, Amazon’s advertising business continues to post strong y/y growth of +19%, and there are more levers for growth going forward, with both sponsored links as well as Prime Video.

AI and capital spending, of course, was a big focus on the call. Amazon’ 2025 CapEx will be higher y/y (as Alphabet and Meta also noted), but mgmt did a great job at reassuring investors that they are not overbuilding capacity and will see strong returns and higher margins as the AI business matures. AI is having a big impact not only in AWS, but also on other areas of the company.

Lastly, Amazon shared some stats that were good reminders about the company’s large opportunity in the retail business. Amazon is only ~1% of the market segment share of worldwide global retail, and ~80- 85% of that market segment share still lives in physical stores: “If you believe that equation is going to flip in the next 10 to 20 years, which, which we do, there’s just a lot of opportunity, not just for us, but for several players”.

See below for more details on what we thought was most incremental from the Co’s results and conference call.

-> Amazon shares traded up +6.2% on the back of results and closed the week up +5.4%; The stock is up +30.3% YTD

Amazon Delivers A Stronger Than Expected Qtr Esp On Profitability

• Q3: Operating margins beat cons by a wide +18% on a +1% revenue beat 
  • Total revenue growth slightly accel’d to +11% y/y from +10% y/y (or +11% ex-FX) in Q2
  • Op income grew +56% y/y to $17.4mn, the highest qtrly op income ever, and was +$2.4bn above the high end of the guidance range
  • Adj EPS beat by +25%
• Q3: N. Amer and Intl revs and op income both topped expectations, while better AWS profitability was the main area of upside (with ~in-line revenues)
  • Amer revs rose +9% y/y (in-line with +9% in Q2), w/ op margins of 5.9% (vs +5.6% in Q2), which was up +100bp y/y due to cont’d improvements in the fulfillment network cost structure
  • Intl revs grew +12% y/y and profitability was MUCH better than expected
• Q4: Mixed – Rev guidance was slightly lower, and op income was better at the mid-pt
  • Revenue guidance of $181.5-188.5bn was -0.7% below cons at the mid-pt
  • Operating income guidance of $16-20bn was +3.9% above cons at the mid-pt

Making More Gains On Lowering Cost To Serve

• More gains to capture with outbound regionalization and getting items closer to customers: Early in re-architecting the way they inbound items and spread them to regional fulfillment nodes, but already improved ability to spread inventory across fulfillment centers by +25% y/y
  • Expect these changes will further improve inventory placement, offer faster delivery times, save transportation costs, and increase units per ship per box
• Expanding same-day delivery facilities: W/ 40mn+ customers receiving free same-day delivery this past qtr, a +25% increase y/y
• Innovating in robotics to speed up delivery, reduce costs, and improve safety in the fulfillment network: Launched their 12th generation fulfillment center design (Shreveport, Louisiana), which reduces fulfillment processing time by up to -25%, increases the number of items the Co can offer for same day or next day delivery, and is expected to drive a +25% improvement in cost to serve during peak

CapEx Will Be Increasing In 2025, But Returns Seem Visible

• YTD total CapEx (cash CapEx + capital leases) reached $51.9bn and are on pace to hit $75mn in 2024 
  • The majority of the spend to support the growing need for technology infrastructure relates to AWS but also incls tech infrastructure to support the North America and international segments
  • Continuing to invest in fulfillment and transportation network to support the growth of the business, improve delivery speeds and lower cost to serve (incls investments in same day delivery facilities in the inbound network and as well in robotics and automation)
• Spend will “spend more” in 2025: Really driven by gen AI
• Need to invest in infrastructure ahead of demand but have good visibility: The AI biz is a multi-billion business growing at triple digit percentages y/y and growing 3x faster in its stage of evolution than AWS did itself and AWS grew very fast
  • The faster they grow demand the faster they need to invest in the infrastructure upfront
  • But they can make this an attractive ROC business
  • “I believe we have more demand that we could fulfill if we had even more capacity today… we want more capacity and supply to be able to provide them”
• Gen AI is a once in a lifetime oppty: “I think our customers, the business and our shareholders will feel good about this long term that we’re aggressively pursuing it”

Still Seeing Some Consumer Price Consciousness & Trading Down But Units Sales Were Up

• “Customers have been looking for deals and are price conscious”
• Strength in everyday essentials rev is a positive indicator: Customers who purchase these types of items build bigger baskets, shop more frequently and spend more on Amazon; Will take a short-term degradation in ASP b/c of the long-term value of the customer
  • Speed delivery is a key factor for growth in this category
• Worldwide paid units accelerated to +12% y/y growth (vs +11% y/y in Q2)
  • Lower pricing and shipping more quickly, and it is resonating, as unit growth continues to be strong and outpace rev growth
• Prime remains a core contributor to the y/y growth: Prime membership growth accel’d in Q3 both in the US and globally
• “We’re encouraged by the start of the holiday season, which kicked off in October with a strong Prime Big Deal Days”

Have Reached A Clear Positive Trend Line With International Profitability

• Intl profitability is at $2.5bn YTD
  • Seeing strength in established countries like the UK and Germany, as they drive efficiencies through improved productivity in the transportation network and better execution in fulfillment centers
• Have seen fluctuations but starting to see clear trend lines that are moving positive: Have seen y/y improvement in op margin For each of the last 7 qtrs
  • Driven by the same factors as N. Amer: Lower cost to serve, greater contribution from advertising, improved selection, and faster delivery speeds, which help drive consumer demand
• Different countries are at different stages, but over time, the Co thinks intl margins should reach US levels, which are not static either

Still More Room To Go With Advertising

• Ad revenues growth (ex-FX) rose +18.8% y/y to reach $14.3bn: This compares to +20% in Q2 and slightly beat cons by +0.4%
  • Provide all types of brands with full funnel advertising at scale
  • Still believe there are many opportunities to further expand like w/ sponsored products, newer areas like prime video ads
    • Entering the first broadcast season for prime video advertising following a very strong showing In the upfronts
  • Supporting brands of all sizes w/ their gen AI powered creative tools across display video and audio, incl video generator
• “While we’re generating a lot of advertising revenue today, there remains considerable upside”

Gen AI Across The Business Ex-AWS

• Using gen AI “pervasively” across Amazon’s other businesses (more on AI in AWS in Theme #9): Have hundreds of apps in development or launch
  • Expanded Rufus, the gen AI-powered expert shopping assistant, to the UK, India, Germany, France, Italy, Spain and Canada; Added more personalization in the US
  • Recently debuted AI Shopping Guides for Consumers, which simplifies product research
  • Recently launched Project Amelia and their AI assistant
  • Are re-architecting the brain of Alexa with a new set of foundational models and are adding AI into all of their devices
    • Next gen AI assistants will be better at not just answering questions as well as summarizing, indexing, and aggregating data, but also taking actions…”and you can imagine us being pretty good at that with Alexa”

Other Key Call Outs & Initiatives

• Early sales of recently launched new Kindle lineup has significantly outperformed expectations: It includes the AI-powered Kindle Scribe for enhanced note-taking; 20bn+ avg monthly pages are read on Kindle devices worldwide
• Significantly improving the customer Pharmacy experience:
  • Amazon Pharmacy now delivers to 95% of first-time customers within two business days and 20% of Prime members within 24 hours
  • Next year, plan to expand to 20 new cities, enabling nearly half the US to receive medications within hours
• Still very early in robotics in fulfillment network: AI is going to be a big piece of what they do in their robotics network; Just hired some key people; Customers are monetizing the resources, but these investments will be useful asset for many years

Profitability took the center stage in Snap’s Q3 report, reaching $142mn (up from year-ago $40mn) and beating estimates by +42%. Revenue was a modest +1% ahead of expectations and grew +15% y/y, which marked a slight deceleration from Q2’s +16% y/y, as N. America’s growth continues to be tempered by weaker brand-oriented demand, while Europe and RoW continue to make progress on the DR ad platform front. More specifically, ad rev grew +10% y/y (in-line w/ Q2), which was primarily driven by direct response as Snap made “meaningful progress” in its lower funnel DR biz. The combination of more performant DR products, go-to-market operations optimized for SMB customers, and easier onboarding and integration tools are helping to expand Snap’s SMB customer base. As a result of these efforts, total active advertisers more than doubled y/y. However, brand advertising remains a drag and is not expected to rebound in Q4.

A big focus on the call was on roll-out of Simple Snapchat, the Co’s new and simplified version of Snapchat. The Co is taking a slow and steady approach and is currently testing with ~10mn Snapchatters across “dozens” of countries. Early feedback suggests that Simple Snapchat is driving the greatest content engagement gains among “more casual users”, which is encouraging. Rollout of the new interface will be gradual and focused on understanding inventory shifts and monetization impacts, but some potential near-term disruption is baked into the Q4 guidance.

Looking ahead, the mid-pt of the Q4 profitability guidance range came in above cons, while the mid-pt of the Q4 rev guidance was weaker than expected (includes some risk associated with the Simple Snapchat roll-out) and reflects a deceleration in growth seq. Overall, there are signs of progress in the core ad business, but the turnaround remains a work in progress.

Commentary on Snap’s augmented reality initiatives was relatively light and mostly reiterated commentary from its Partner Summit back in mid-September. Lastly, to flag, Snap announced a $500mn stock repurchase program (though only 2% of the mkt cap).

See below for more details on what we thought was most incremental.

-> It was a sigh of relief with Snap results/guidance and the stock closed the day up +15.9% in reaction to earnings and ended the week up +19.9%; With that said, the stock is still down -26% YTD

Q3 Saw A Clean Sweep Of Beats On The Top-Line, With Profitability Being The Highlight + The Annc’d Buyback Program…

• Q3 rev – BEAT by +1.0%: Grew +15% y/y (but a slight decel from +16% y/y in Q2)
  • N. Amer rev grew +9% y/y (vs +12% y/y in Q2), with the relatively lower rate of growth due to the impact of weaker Brand-oriented demand being relatively concentrated in the region (similar commentary made last qtr)
  • Europe rev grew +24% y/y (vs +26% y/y in Q2), as continued progress on their DR ad platform fully offset the impact of more challenging prior year comparisons
  • RoW rev grew +32% y/y (vs +20% y/y in Q2), driven by the continued progress with Snap’s DR ad platform
• Q3 adj EBITDA – BEAT by significant +41.6%: Reached $132mn compared to $40mn in prior-yr qtr, reflecting higher revenue and operating expense discipline
  • Adj. EBITDA flow-through was 50% in Q3, down from 55% in Q2
• Q3 FCF – BEAT by +27.5%: Reached $71.8mn vs cons $56.3mn
• Authorized $500mn share repurchase program

…BUT Q4 Headline Guidance Came In Mixed

• Q4 rev guidance – BELOW @ the mid-pt: $1.51-1.56bn vs cons $1.56bn, implying +11-15% y/y growth (vs +15% in Q3) 
  • Bakes in risk of near-term disruption from early testing of Simple Snapchat in Snap’s most highly monetized mkts and upper funnel advertising from large enterprise clients that has been underperforming the overall ads biz in recent qtrs and has historically been an important component of demand in Q4
• Q4 adj EBITDA guidance – ABOVE @ the mid-pt: $210-260mn vs cons $231.8mn (+1.4% beat at mid-pt)

Overall User Trends & Guidance Were Better Than Expected, Despite N. America Not Performing As Well As Anticipated

• Q3 – DAUs BEAT by +0.5%: Grew +9% y/y (in-line w/ Q2) to reach 443mn (incr’d +11mn seq); Overall ARPU also topped estimates 
  • N. Amer DAUs were flat y/y but up seq to reach 100mn, as initiatives to increase user engagement began to show early signs of progress (Co shared similar commentary last qtr); But missed consensus
    • N. Amer ARPU was also lower than expected
  • Europe DAUs were up +2mn seq and +4mn y/y to reach 99mn
  • RoW DAUs were up +9mn seq and +33mn y/y to reach 244mn
• Q4 DAU Outlook – HIGHER by +0.5%: Expected to grow +9% y/y to reach ~451mn vs con 448.7mn
• AI-enabled features and investments in content platform helped drive user engagement in Q3 
  • Spotlight reached 500mn+ MAUs on avg in Q3, up +21% y/y
  • Global time spent watching content incr’d +25% y/y (in-line w/ Q2) and +6% q/q (vs +10% q/q in Q2)
    • N. Amer time spent watching content was down -1% y/y (vs -2% y/y in Q2) and up +2% q/q (vs +6% q/q in Q2)
    • Relatively higher rate of growth outside N. Amer is due in part to the greater mix of content viewing being driven by Spotlight in these regions, as Spotlight reach and depth of engagement continues to grow “rapidly” across regions
  • # of people sharing Spotlight content with friends is up over +60% y/y
  • # of creators posting content grew ~+50% y/y
  • # of Snaps sent to My AI (Snap’s AI-powered chatbot) in the US more than tripled q/q

Seeing Ongoing Momentum With DR Products And Growth In SMBs / Brand Advertising Is Not Expected To Make A Comeback In The Near-Term

• Q3 total ad rev grew +10% y/y (in-line with Q2) to reach $1.25bn 
  • Driven primarily by growth from DR ad rev
• Q3 brand-oriented ad rev was down -1% y/y (in-line w/ Q2) 
  • Continued to see weak demand from certain consumer discretionary verticals including technology, entertainment, and retail
  • Looking to Q4 – Snap is “not expecting any significant recovery”: Have been down -1% y/y in last two qtrs and “not anticipating a major shift there” going into Q4; “Obviously, that’s an important component of revenue in the final quarter of the year. Our product execution is the key that we’re focused on there in terms of igniting growth long term”
• Focused is on reaccelerating upper funnel brand revenue growth 
  • Launched First Lens Unlimited in Q3, which offers advertisers the first impression of the day in the first slot of the AR Lens Carousel, allowing them to reach Snap’s community at greater scale
    • During testing, First Lens Unlimited drove an average increase of over +35% in incremental impressions for advertising partners
  • Launched State-specific First Story, which allows US advertisers to target First Story takeover campaigns to individual states or to reach the entire country with different creative for each state
  • Also experimenting with two new ad placements, Sponsored Snaps and Promoted Places, which are on track to launch in certain geographies in Q4 
    • Both of these placements are designed to leverage their existing full-screen vertical video Snap Ad format so that advertisers can automate placement across their service without having to develop bespoke creatives
• Q3 direct response ad rev grew +16% y/y (vs +15% y/y in Q2) 
  • Driven by continued “strong” demand for Snap’s 7-0 Pixel Purchase optimization (up more than +160% y/y) and growing contribution from App Purchase optimization
  • “Rapidly” expanding Snap’s SMB customer base through a combination of more performant DR products, go-to-market operations optimized for SMB customers, and easier onboarding and integration tools
    • Total active advertisers more than doubled y/y
  • Looking into Q4 and beyond: “Focused on continued execution there [specifically lower funnel DR], continued CAPI adoption, continued rollout of the app optimizations and client performance”; Focused on growing and building momentum with the SMB customer segment
• Other key advertising KPIs – 
  • Global impression volume grew +19% y/y (vs ~+13% y/y in Q2), driven in large part by expanded advertising delivery within Spotlight and Creator Stories
  • Total eCPMs were down ~-7% y/y (vs ~-3% y/y in Q2), as inventory growth exceeded ad demand growth in Q3
• Further improving go-to-market operational optimizations for SMBs 
  • Continue to enhance the advertiser onboarding experience by personalizing and automating the buying process from end-to-end so that SMB’s can optimize their campaigns faster and enhance performance
  • Recently launched automated in-flight campaign recommendations, adaptive templates for campaign set-up, and scaled creative editing
• Expansion of 7-0 Optimization to app install and app purchase is driving better performance for advertisers
  • Early results are showing cost-per-install decreasing -24% and cost-per-purchase decreasing -27% compared to 28-1 optimization
• Introduced new Landing Page View optimization goal to help advertisers drive “high-quality” traffic to their websites
  • Through improvements in ML models that optimize for this specific objective, observed lower cost for some advertisers versus traditional click engagement models.

Early Testing Of “New And Simplified” Snapchat Is Driving Incremental Engagement, But The Co Has Some Ways To Go Before Broader Rollout

• The new interface organizes Snapchat into 3 core experiences focused on communicating w/ friends, using the camera, and watching entertaining content 
  • For Snapchatters: Offers a more personal, relevant, and easy to use interface
  • For Creators: Unlocks greater discovery and enhances the ability for content to reach new audiences
• Initial observations arounds Simple Snapchat (introduced selectively in Q3) …
  • ~10mn Snapchatters using Simple Snapchat across dozens of countries
  • Driving the greatest content engagement gains among more casual / “new and less engaged” users
    • “Important input to community growth and advertising inventory”
  • Seeing “particularly positive” impacts on Android devices
    • Including incr’d time spent with content, incr’d story views, and more replies to friends’ stories
  • Also seeing an increase in content active days on iOS, BUT impacts to other top engagement metrics are not yet as broadly positive as on Android
    • This is due in part to the differences in engagement across these platforms
• “Encouraged” by the early progress BUT “we definitely have a lot of work to do to iterate and test before we begin a broader rollout […]
  • “Still early in the journey on understanding the monetization dynamics and some of those inventory shifts and how that could impact revenue”
  • “We certainly want to take the time to work through those sorts of changes and make sure advertisers and our partners, for example, are prepared for those sorts of changes”
  • Have begun limited testing of Simple Snapchat in Snap’s top markets and may expand this testing throughout Q4, but don’t anticipate a full rollout until Q1 at the earliest
• “I think the North Star is going to be the community engagement and then thinking about how we can best manage this transition so that our advertising partners and content partners can benefit from it as well”

On Augmented Reality – “Going To Stay Focused On Our Strategy And Keep Executing”

• Introduced fifth-gen of Spectacles in Q3
• Addressing the “chicken and egg” challenge of providing appealing lens experiences for first-time buyers of Spectacles 
  • Continue to focus on supporting developer ecosystem to help build Lenses for Spectacles for when the consumer product is made available
• 375k+ AR creators, developers, and teams from nearly every country have built 4mn+ lenses

Continue To Make Progress In Diversifying Revenue Streams (Snapchat+ Subscriptions Makes Up The Majority) 

• Other rev “more than doubled” y/y to reach $123mn: Includes all non-advertising rev, the majority of which is Snapchat+ subscription rev
  • Snapchat+ subscribers “more than doubled” y/y to exceed 12mn+ (vs 11mn+ in Q2)

Following the earnings sprint from the incumbent telcos last week (see Theme #2 from 10/25/24 Weekly), the cable companies stepped up to the plate this week to round out earnings for the connectivity space, and they certainly had a strong showing. Along with mostly stronger than anticipated headline results, another key highlight was that Comcast and Charter posted fewer than expected net losses in their core broadband segments in Q3. Each has been managing through the end of ACP well, and without the impact from the program’s conclusion, both would have seen positive broadband net adds during the quarter. This was partially due to the seasonal uplift that the cable companies received from back-to-school activity, though the two also benefited from AT&T’s 30-day work stoppage in the Southeast. However, outside of these one-time drivers, the broadband market remained “competitively intense”. Fixed wireless has “taken a toll”, and both Comcast and Charter downplayed the impact that future fiber overbuilding will have on their businesses. Other near-term headwinds in Q4 include the impact from the recent hurricanes in addition to further ACP-related churn. Still, Charter sees a “better unit growth setup” on the horizon in 2025.

Results on the wireless side of the cable companies’ businesses also outperformed consensus forecasts in Q3, and convergence remains at the heart of both companies’ strategies to grow their mobile segments, with each claiming that it is uniquely “positioned to win.”. While Comcast plans to continue experimenting with new converged offers moving forward, Charter’s recent brand refresh, which included new pricing and packaging for its converged bundles, have already been “showing promising results” in its early stages, driving more mobile lines per sale, among other benefits. Looking ahead, there is still a “very long runway of growth” left in the two cable companies’ mobile businesses. Comcast has only penetrated ~12% of its broadband subscriber base with wireless offerings, while Charter only sells mobile to ~8% of its internet-only customers.

Also, the cable companies’ video net losses weren’t as steep as the Street had anticipated in Q3. Comcast indicated that churn in its video business has been “stabilizing for a while” and pointed to the introduction of mobile into video bundles as a key reason why. The company also benefited from “high engagement levels” around the Olympics, highlighting that the viewing of Olympics content in Xfinity markets was double the national averages for the same content. Charter’s upcoming “reconstituted” video offering was also a major focus on its earnings call. With efforts to transform all of its major programming agreements in the rearview mirror, the company now has the ability to include its programming partners’ streaming apps within Spectrum TV Select plans, with paths for customers to upgrade to the ad-free version of these apps. Although some work still needs to be done to operationalize the new offering, once it is rolled out in early 2025, Charter will be able to provide TV Select customers with up to $80/month of retail streaming value at no additional cost.

On the investment side, the key update was Charter’s decision to push-out the second phase of its network evolution initiative into 2026 and 2027, marking the second time the company has announced a delay in its original timeline. The move will save Charter ~$500mn in CapEx in 2024, though it also expects an incremental ~$100mn outlay in Q4 to rebuild its network after the hurricanes. For its part, the pace of Comcast’s passings and network upgrade plans remains on track, though there will likely be a “little bit of catch-up” in CapEx spending in Q4.

See below for more details on our key takeaways from Comcast and Charter’s print… and see Theme #6 for our thoughts on Comcast NBCUniversal’s earnings.

-> Comcast shares rose +3.4% post-earnings, ending the week up +4.6%; Charter shares were up +11.9% following the print and closed the week up +9.1%; YTD, Comcast stock is trading down -0.7% and Charter stock is down -5.7%

The Cable Cos’ Strength In Headline Numbers Reflected Broad Outperformances Across Segments

• Comcast – Headline numbers outpaced expectations, outside of a slight miss on FCF: Q3 consolidated rev grew +6.5% y/y (vs -2.7% y/y in Q2) and beat cons by +0.9%, driven by the Olympics; Consolidated adj EBITDA fell -2.3% y/y (vs -0.7% y/y in Q2) but still topped cons by +1.2%; FCF fell short of cons by -1.6%
  • Connectivity & Platforms (~63% of total rev) – BEAT: Rev was up a slight +0.1% y/y in Q3 (vs -0.7% y/y in Q2) and closed +0.5% ahead of cons; Adj EBITDA incr’d +0.9% y/y (vs +1.6% y/y in Q2) and beat cons by +0.3% y/y; Residential rev topped cons by +0.9%, while Business Services missed cons by -0.2%
  • Net add subscriber metrics for broadband, wireless, and video all broadly outperformed

• Charter – Headline results mostly surprised to the upside: Rev incr’d +1.6% y/y in Q3 (vs +0.2% y/y in Q2) and topped cons by +1.0%; Adj EBITDA was up +3.6% y/y (vs +2.6% y/y in Q2) and beat cons by +1.0%, though adj EBITDA margin was in-line w/ cons’ 40.9%; FCF finished a material +124.1% ahead of cons
  • Residential rev (~78% of total rev) – BEAT: Q3 residential rev was up +0.3% y/y (vs -0.6% y/y in Q2) and beat cons +1.3%; Customer relationships fell -1.8% y/y (vs -1.3% y/y in Q2), while monthly rev per customer incr’d by +1.8% y/y (vs +0.4% y/y in Q2)
  • Commercial rev (~13% of total rev) – slight BEAT: Commercial rev rose +2.0% y/y in Q3 (vs +2.1% y/y in Q2) and ended a slight +0.2% above cons; SMB rev incr’d +1.0% y/y (vs +0.6% y/y in Q2), and Enterprise rev grew +3.7% y/y (vs +4.5% y/y in Q2)
  • Broadband and Video net losses were better than feared, and Wireless net adds also came in ahead of forecasts

Competition In The Broadband Mkt Remains High, As Move Activity Continues To Be Slow

• Comcast – “The underlying mkt… remains competitively intense”: Flagged a “cont’d competitive backdrop” that “hasn’t changed” from prior qtrs
  • “Fixed wireless has obviously taken its toll”: The Co “think[s] that’s a mkt that’s going to continue to exist”, as FWA has “carved out a niche in the mkt” for the “value-conscious consumer”
    • Comcast doesn’t have a “crystal ball” when it comes to FWA’s longer-term penetration rates, “whether its 10% [or] 15%”
  • “Fiber… is the real long-term competitor”: This has been the case for the last ~20 yrs, and Comcast continues to see a “steady increase” from fiber in its footprint
    • Comcast is 50% overbuilt w/ fiber, but “that will go higher”: Given that “the carriers have annc’d plans to take that higher”
    • Eventually, the Co sees “the competitive environment sort of leveling out”: Highlighted that early fiber mkts saw some “initial uptake” but ultimately resulted in a “relatively even share between [the Co] and fiber”
    • Comcast’s ARPUs in overbuilt mkts are “very consistent” w/ overall ARPU: This “goes back to [the Co’s] playbook in terms of segmentation” as well as its ability to provide “the best Wi-Fi in the mktplace” and content offerings
• Charter – “We are still very much in an atypical low churn environment when you exclude ACP”: That said, the Co “expect[s] mkt activity and selling oppties to pick up over time”
  • However, “it’s still a competitive environment for new sales”: Charter “continue[s] to compete well against both wireline overbuild and cell phone internet, each w/ expanded footprints”
    • “There’s not a great financial return for wireline overbuilds”: This is true w/ a single overbuilder, and the returns become “terrible” when there’s multiple; Overbuilders “can put up a few points of penetration” in the first 18-24 months, but then “the mkt kind of settles out”
    • Charter believes we’ve seen the “peak cell phone Internet impact”: Given that the cell phone Internet (FWA) providers will “face challenges” as data usage continues to rise
  • The Co is “thinking about the long-term for the biz”: Looking ahead, one of the “big questions or variables” is if a lower interest rate environment “impact[s] mortgages in a way that drives higher move rates”

Lower Than Expected ACP-Related Churn Contributed To Better Than Anticipated Broadband Net Losses

• Comcast – Q3 broadband net losses weren’t as steep as anticipated: Reached a net losses of -87k (vs -18k the prior yr qtr and -120k in Q2) were better than cons’ -141k; Comcast lost a net -79k residential customers (vs -110k in Q2) and -8k biz customers (vs -10k in Q2)
  • Excluding ACP, broadband net adds would have been positive +9k: 
    • ~One-third of ACP-related churn were direct losses experienced in Q3: The remaining ~two-thirds reflects a reserve taken for the number of subs predicted to churn in the coming months due to a non-pay or delinquency status
  • Three other factors “were unique” to the qtr: Without these drivers and the ACP impact, the Co estimates broadband net adds would have been “slightly worse” than the prior yr qtr
    • Comcast performed “well” in back-to-school: The Co performed ~ the same level as last yr in back-to-school activity
    • The Olympics was “good for cable”: The Co leveraged the Olympics “by investing in incremental nationwide brand mkting behind [its] Olympic-related offers”; Olympic audiences were “highly engaged”, w/ viewership in Xfinity mkts double the national avgs
    • AT&T’s work stoppage was a benefit: The 30-day stoppage was “not a major driver, but it did have an impact” in a “limited” part of Comcast’s footprint
  • SMB “continues to be a competitive mkt”: The Co has been focused on increasing rev via ARPU growth and expanding relationships w/ SMB customers by driving higher adoption of a suite of addt’l products
    • Comcast has been “taking share” at the enterprise level: Growth in enterprise rev has outpaced growth in SMB rev as the Co continues to scale the enterprise biz

• Charter – Internet net losses were better than feared: Reported net losses of -110k in Q3 (vs +63k in the prior yr qtr and -149k in Q2) were far better than cons -242k; Residential Internet net losses of -113k beat cons’ -235k, and SMB net adds of +3k surpassed cons’ -7k
  • Without the impact of ACP ending, Internet customers would have grown: The end of the program resulted in ~-200k Internet losses, w/ “incremental non-pay disconnects” driving more than half of those losses and voluntary churn being the primary reason for the rest
    • There was also a “small impact” from lower connects related to the program’s conclusion
    • Otherwise, Charter has “cont’d to do a very good job in managing the end of the program”: The Co has retained most of the customers that were previously receiving an ACP benefit
  • Other temporary tailwinds benefited net adds during the qtr: Including a seasonal back-to-school uplift in activity and one of the Co’s competitors (AT&T) experiencing a work stoppage; These won’t be factors in Q4
  • Net adds in the subsidized rural footprint ticked up seq: To +41k in Q3 (vs +36k in Q2)

Forward-Looking Commentary – The Recent Hurricanes Will Impact Q4

• Comcast – “The underlying environment remains the same” and “very competitive” in Q4: Also acknowledged “some impact” from the two hurricanes but didn’t have numbers to share on the call; Otherwise, churn is expected to remain at low levels, and activity is expected to seasonally tick up in the Southeast
• Charter – Q4 will be impacted by the hurricanes: In addition to extending bill credits to customers in impacted areas, which will weigh on rev, the Co anticipates “some lost customers and passings related to the storm from both suppressed gross adds and the damaged or destroyed plant”
  • ACP-related disconnects will also remain a headwind in Q4: Expects ~-100k incremental non-pay disconnects as well as some voluntary disconnects related to the end of ACP in Q4; After this, ACP related effects will be behind the Co
  • There’s “certainly a better unit growth setup” for 2025 than 2024: Given that there won’t be ACP and that the Co will have tailwinds from more organic and rural passings; Recent efforts to create addt’l bundles and higher product value packaging as well as a “reconstituted” video product will help as well

Strong ARPU Growth Has Been Helping To Offset Subscriber Declines

• Comcast – Broadband ARPU growth was flat seq: Incr’d +3.6% y/y in Q3 (similar to Q2’s rate), which was “another strong result in the context of a cont’d competitive backdrop”, given ongoing efforts “effectively balance rate and volume through customer segmentation”
• Charter – Residential ARPU growth accel’d seq: Grew +1.8% y/y (vs +0.4% y/y in Q2); Along w/ its new pricing and packaging strategy starting to drive “more sales w/ higher sell-in of [its] best products” the Co saw its highest mix of ads Unlimited+, which drove higher customer value and ARPU
  • Y/Y growth benefited from $63mn of customer credits issued in the prior yr period: This was related to the carriage dispute w/ Disney and temporary loss of programming in Q3:23
    • Other drivers: Included tailwinds from promo rate step-ups, rate adjustments, and the growth of Spectrum Mobile, partly offset by a higher mix of non-video customers
  • Internet ARPU growth took a step up seq: Was up +2.8% on a GAAP basis and +3.1% on a non-GAAP basis (vs +1.7% y/y in Q2); Those two rates will be “coming together” moving forward
  • “Mobile ARPU was up and is looking really good”: This was related to the uptake of Unlimited+ plans, which has been driven by the Anytime Upgrade offer; Otherwise, the impact of the Spectrum One roll-off of free lines was “more normalized”

Go-To-Mkt Color – Comcast Maintained The Status Quo, While Charter’s Recent Changes Have Been Showing Early Returns

• Comcast continues to focus on segmenting the mktplace across its products: The Co’s “fundamental” approach is to “give customers what they want at the right price and the right package”
  • Surrounding connectivity w/ “the right package offerings” also remains a focus: Mobile is “front and center” in this strategy, though the Co has been “leveraging everything, including new video products like NOW TV, NOW Latino, and Stream Saver”
  • The Co plans to lean into “big sports moment[s]” moving forward: The Olympics was a “unique place” to “drive value for [the] Co across all swim lanes”, and now, “when there’s a big moment in entertainment in any form, look for [Comcast[ to continue to do it”
• Charter’s sales & mkting efforts have been tied to the pricing & packaging for its new bundles – 
  • The new brand platform, Life Unlimited, is about the Co’s “increasingly converged set of products”: Along w/ “lower promo pricing and lower persistent bundled pricing”, the “new look and feel for the Spectrum brand” are all part of a broader effort to build more trust w/ customers
  • The Co’s new pricing and packaging efforts are “showing promising results”, though “it’s still very early”: They are driving “more video sell-in, more mobile lines per sale, and more gig sell-in”; Expects this and broadband sales to accel “over time” as its sales & mkting approach becomes more seasoned
    • Further benefits: Include growing customer ARPU at connect, despite lower product pricing, as well as lower billing, svs, and retention calls, while reducing churn; Believes it will also “be really successful in driving addt’l cash flow per customer”
    • New bundles have built-in retention mechanisms: For example, customers that take the new double play offer will receive a two-yr price lock, while those that take the triple play will receive a three-yr price lock
  • The Spectrum One offering also remains available: The offering, which includes one free mobile line for a yr, now comes w/ a higher starting speed of 500 Mbps

Data Usage Continues To Rise (Though Not Materially On A Seq Basis)

• Comcast – “Broadband usage is skyrocketing”: Comcast’s broadband-only customers are avg’ing 700 gigabytes per month (vs “over 700 gigabytes” per month in Q2), which the Co welcomes, given that its existing network “can handle significant increases in bandwidth consumption at a very low marginal cost”
• Charter – “Customer bandwidth demand continues to grow”

The Cable Cos’ Wireless Net Adds Outperformed But Were A Bit Lower Seq

• Comcast – Wireless net adds were ~flat seq and topped estimates: Reported net adds up +8.5% y/y to +319k (vs +322k in Q2) and beat cons by +5.8%; Comcast ended the qtr w/ ~7.5mn total domestic wireless lines, representing a +19.8% y/y rise
  • Highlighted benefits of having converged customers: When wireless and broadband are bundled together, they “drive overall customer relationship ARPU growth, churn benefits for broadband, and higher profitability”; Higher overall customer satisfaction has been another positive outcome
  • The Co still sees a “very long runway for growth” ahead: Given that wireless penetration of its broadband sub base remains at ~12% (similar to figures provided on Q2 but up from ~11% as of Q1)
    • Comcast plans to continue to test new convergence offers: These will help “capitalize on the significant oppties” ahead of the Co in wireless, including increasing the penetration of its domestic residential broadband base as well as selling addt’l lines per account
    • There are other oppties to enhance the Co’s convergence experience: For example, Comcast is rolling out a new feature called WiFi Boost, which automatically increases Xfinity Mobile customer speeds up to 1 gig on the Co’s WiFi network
  • Comcast’s convergence strategy “is proving out in [its] financial performance”: Underscored that the Co’s domestic broadband + wireless rev has been growing at a +5% y/y clip, “which consistently leads the industry”
• Charter – Mobile net adds dipped slightly seq but still beat expectations: Mobile net adds were down -8.2% y/y to +545k in Q3 (vs +557k in Q2) but exceeded cons by +1.6%, nonetheless; Charter ended the qtr w/ 9.4mn total mobile lines, a +29.6% y/y uptick
  • Charter has been seeing “cont’d success in Mobile”: The Co’s mobile offering “continues to evolve, driving strong results and supporting [its] new pricing and packaging efforts”
    • The Co saw its “highest” mix of adds on Unlimited Plus
    • Lines per customer “continues to grow nicely”
    • Free lines have been converting to paying ones at “very strong rates”:
  • Mobile penetration of Charter’s broadband base was similar seq: Highlighted that ~8% of the Co’s total passings currently take its converged offering of Internet and mobile; Charter “remain[s] underpenetrated”

Video Churn Has Shown Signs Of Stabilizing / Charter’s New Video Offering Was A Big Focus

• Comcast – Q3 Video losses were better seq and better than feared: Net losses of -365k in Q3 (vs -490k the prior yr qtr and -419k in Q2) beat cons’ -419k
  • Churn has cont’d to stabilize and “has been stabilizing for a while”: Introducing mobile into the mix and “high engagement levels” around the Olympics have contributed to “churn reduction”
    • The NOW portfolio has boosted video connects: The Co has been offering NOW TV and NOW Latino “surgically” as part of its broader segmentation strategy, and this has “helped video”
    • StreamSaver is “profitable, and it makes a lot of sense”: Believes that it offers a “great consumer price point” without subsidizing and that it’s “an example of good video choice”; “Look for more of that from [Comcast] over time”
  • Comcast has completed 10 renewals in the past 15 months: These have been w/ “a mix of both traditional and streaming distributors”; The Co most recently signed renewals w/ Charter and Hulu
  • Video rev was also better than expected: Down -6.8% y/y (vs -7.8% y/y in Q2) and topped cons by +1.2%; The y/y decline was a function of “cont’d customer losses, coupled w/ slower domestic ARPU growth vs last yr”
• Charter – Q3 Video net losses were better seq and not as steep as expected: Net losses of -294k (vs -327k in the prior yr qtr and -408k in Q2) were better than cons’ -377k; Resi net video losses of -281k beat cons -379k, while SMB net video losses of -13k were worse than cons’ +2k
  • Charter has “transformed all of its major programming agreements” over the past yr: Including most recently an early renewal w/ WBD and then NBCU; The agreements give customers greater overall package flexibility and the ability to include all key streaming apps within Spectrum TV Select plans
    • There are also “paths for customers to upgrade to the ad-free version of these apps”: Including the ad-supported versions of Max, Disney+, Peacock Premium, Paramount+, ESPN+, AMC+, Discovery+, BET+ and ViX
    • The Co will also sell programmers’ apps on an a la carte basis to broadband and skinny package video customers
  • There is still “some work to do to operationalize the new customer prop”: Expects to have the video offering “fully operationalized” in H1:25, or 18 months after starting to enter programming negotiations
    • Creating a video mgmt portal is the final priority: The first is programming relationships, the second is launching the DTC app, and the third is implementing a way for customers to upgrade to ad-free versions of streaming apps; Next, the Co will look to put all of that inside a video mgmt portal
    • By early 2025, TV Select customers will get up to $80/mo of retail streaming value at no addt’l cost
  • New bundling efforts are already generating a “significant uplift” in video sell-in: However, the Co is not forecasting video growth for next yr

Higher Mkting Expenses Weighed On Both Comcast & Charter’s Adj EBITDA Margins

• Comcast – Connectivity & Platforms adj EBITDA margin took a step down seq: Expanded +30bps y/y to 40.9% (vs 41.9% in Q2), which was ~in-line w/ cons
  • Residential adj EBITDA margin declined seq…: Incr’d +20bps y/y to 38.6% in Q3 (but down vs 39.9% in Q2); Declines in overall expenses from a mix shift toward higher-margin connectivity bizs and ongoing expense mgmt was offset by higher mkting and promo expense related to the Paris Olympics
    • … While Business Services adj EBITDA margin improved seq: Was down -10bps y/y to 57.4% (vs 57.0% in Q2)
  • Q4 cost reductions will occur at an “equal” magnitude to last yr
• Charter – Adj EBITDA margin was on-par with the Street’s estimates, declining seq: Improved +80bps y/y to 40.9% in Q3 (vs 41.4% in Q2) and closed in-line w/ cons
  • Breakdown of expense items – 
    • Programming costs were down -10.0% y/y (vs -9.8% y/y in Q2): Driven primarily by fewer video customers and a higher mix of lower cost packages within Charter’s video customer base, partly offset by contractual programming rate increases and renewals
      • A $61mn benefit related to the temporary loss of Disney programming in Sept 2023 was another offsetting factor
    • Cost to svs customers decr’d -0.5% y/y (vs -4.2% y/y in Q2): Productivity gains from 10-yr investments were partly offset by modest y/y growth in bad debt expense
    • Sales & mkting expenses grew +4.4% y/y (vs +1.9% y/y in Q2): Related to efforts to drive customer acquisition as well as the Life Unlimited brand relaunch in Sept
  • Tempered comments on Q4 EBITDA growth: “Strong” growth is still anticipated, but “it might not accel the way that [the Co] had hoped”, given that some expense reduction impacts came in a little earlier than expected; There will also be storm impacts that hit in Q4
    • There will be “some meaningful headwinds” to EBIT growth in 2025: Including Internet net losses in 2024 and a non-political yr for advertising

Investment Plans – Charter Further Delayed Its Network Evolution Initiative, While Comcast’s Network Upgrades Are “On Plan”

• Comcast expects to maintain its rate of home passings: Similar to last qtr, the Co highlighted that it has driven 1.2mn home passings over the past yr and that it projects to add 1.2mn+ new home passings this yr to “maintain [its] lead” in gig-plus broadband coverage “well into the future”
  • The Co’s network upgrade initiatives are also “on plan”: ~50% of Comcast’s footprint has been updated w/ mid-split tech (vs 42% in Q2), and the Co now expects to be “through the vast majority of that effort by the end of next yr”; Previously, Comcast had targeted to be at 50% by the end of 2024
    • DOCSIS 4.0 “rides right on the back of that”: The Co remains on a “clear path to offer multi-gig symmetrical speeds” and “really like[s] the roadmap”
    • Comcast is already ahead of the curve: The Co is currently “ahead of every single application in terms of broadband capability”
  • Comcast “anticipate[s] the activity” is coming w/ BEAD but has “tight thresholds”: It’s still “too early to really comment in terms of how much activity”, though Comcast does “plan to participate w/ reasonable conditions” and w/ “a lot of financial discipline”
• Charter’s network evolution initiative is now expected to be completed in 2027: The Co “deliberately slowed” work on step 2 DAA and remote PHY to get the software fully spec’d, pushing back equipment purchasing and deployments
  • The network evolution initiative was originally expected to be done in early 2025: The timeline was first pushed back by ~6 months in Q2:23 to the end of 2025 or early 2026
    • High-split upgrades should be “largely complete” in all step 1 mkts by the end of 2024: Charter is now broadly mkting its symmetrical speeds in seven of these eight mkts
    • The Co has seen “very low incremental $100 per passing”: In-line w/ targets originally laid out as part of the initiative
  • Rural passings occurred at a faster pace seq…: Subsidized rural passings grew by +114k in Q3 (vs +89k in Q2 and +73k in Q1)
    • … BUT aren’t expected to hit the Co’s 2024 target: Now expects to activate close to +400k in 2024, a +35% y/y increase, though lower than the initial plan of +450k due to shifting construction and labor capacity to rebuilding efforts in hurricane-afflicted areas
    • Charter now expects to participate less in BEAD than in RDOF: Given that the most recent broadband map updates have fewer available unserved passings near its network and include “a little less favorable rules framework” when compared to RDOF and state grants
  • There’s been “zero difference” in svs quality or competitiveness between HFC and FTTH footprints: Highlighted that 99.5% or 99.8% of the HFC plant consists of fiber, so it’s “essentially the same network”; Conversely, believes “there are some real advantages” to the HFC plant

There Were Some Moving Parts In The Cable Cos’ CapEx Plans

• Comcast – Connectivity CapEx was flat seq: Segment CapEx of $1.9bn dropped -6.5% y/y (vs -12.9% y/y in Q2), reflecting lower spending on scalable infrastructure and CPE, partially offset by higher investment in line extensions and support capital
  • Overall CapEx was +19.8% better than expected: Levels of investment in Epic Universe were “significant” but remained “consistent”
  • Capital intensity guidance implies “a little bit of catch-up” in Q4: The Co still anticipates similar levels of capital intensity to last yr but was pacing to hit the “low-end” through the first three qtrs of this yr
• Charter – CapEx levels declined seq and were lower than anticipated: CapEx of $2.6bn was down -13.5% y/y in Q3 (vs +0.7% y/y in Q2) and +22.1% better than cons; The drop was driven by declines in core CapEx items, including CPE timing and lower than expected spend on network evolution
  • 2024 CapEx is now expected to be ~$11.5bn (vs prior ~$12bn and $12.2-12.4bn originally): The revision reflects full-yr line extension spend of ~$4.3bn (vs prior $4.5bn), partly offset by “slightly higher” core CapEx related to hurricane rebuild activity
    • Network evolution spend is now expected to be ~$1.1bn (vs prior $1.6bn): Much of the planned spend for 2024 is being pushed into 2026 and 2027
    • The Co expects to incur ~$100mn of incremental CapEx related to hurricane rebuild efforts: That said, Charter is still in the process of assessing impact areas
  • 2025 CapEx will not exceed the range originally outlined at the beginning of this yr: Initially projected a $12-12.5bn range for FY25
    • “Total capital intensity is now poised to decline significantly after 2025”: Even after accounting for the Co’s plans to expand rural passings

Charter’s FCF Benefited From Lower CapEx, While Comcast’s Slightly Missed

• Comcast – “Significant organic investment” resulted in a slight miss on FCF: FCF of $3.4bn fell -15.5% y/y in Q3 (vs -60.9% y/y in Q2) and missed cons by -1.6%
  • Returns to shareholders dipped further seq: The Co returned $3.2bn to shareholders in Q3, w/ repurchases of $2bn (vs $2.2bn in Q2 and $2.4bn in Q1) and dividend payments of $1.2bn
• Charter – FCF came in well ahead of expectations: Q3 FCF $1.6bn rose +47.6% y/y (vs -27.2% y/y in Q2) and topped cons by a wide +124.1%, driven by higher adj EBITDA and lower CapEx
  • Share repurchases slowed significantly seq due to ongoing negotiations w/ Liberty Broadband: Bought back $260mn worth of shares in Q3 (vs $854mn in Q2), which was less than originally expected, as Charter became restricted by its negotiations w/ Liberty Broadband

We got a first look at Media sector fundamentals across theme parks, streaming, and the linear ecosystem with Comcast reporting much better than expected results across the board in its Content & Experiences business. With that said, results, to a large extent, were overshadowed by mgmt’s comments that they are in the early stages of exploring if a spin-off of its cable networks to shareholders makes sense and that they are open to a potential streaming partnership. Details were sparse, but it did create some investor enthusiasm.

In terms of some key takeaways with the core fundamentals in Comcast’s Content & Experiences segment, the Paris Olympics was a primary driver across the company’s streaming and linear media businesses. Mgmt did stress that the Olympics was “profitable” (without exactly quantifying) and generated $1.9bn in incremental revenue (including $1.4bn in ad revenue, of which $300mn was for Peacock). The event helped attract new Peacock streaming subs (added +3m in Q3 vs a loss of -0.5mn in Q2). Looking ahead, with the inclusion of the NBA, the Co is confident that they are now a year-long sports destination.

Theme park revenue and profit growth remained down y/y (as expected) and will continue to face comp headwinds until they ease in Q2:25 and the Co launches Epic Universe, which is expected to be “the most groundbreaking park ever introduced in the United States.” Investors will need to be patient until then.

See below for more color on our main areas of focus, which also include comments on advertising, studios, and other topics. (See Theme #5 for details on Comcast’s connectivity results).

Exploring A Spin-Off Of The Company’s Cable Networks

• Early stages of exploring the idea of creating a new, well-capitalized Co comprised of its cable networks that would be spun off to existing shareholders
  • Commencing a study to determine the feasibility and benefits of this spin-off: The potential spin-off would only include the cable networks and not other assets like Peacock or broadcast networks
• The Co is considering partnerships for Peacock: Mgmt highlighted that they chose not to participate in the M&A process around Paramount BUT would consider partnerships in streaming “despite their complexities” and that they could vary in form; Mgmt has been “studying the best path forward for these assets”

Comcast’s Content & Experiences Business Handily Beat Street Expectations

• Comcast’s Content & Experiences business beat expectations across the board: Total revs beat by +2.4% and adj EBITDA beat by +7.9%
  • This reflected a +19% y/y increase in revenues and a -9% y/y decrease in adj EBITDA
• Segments performance vs the Street
  • Media BEAT rev and adj EBITDA by +4.6% and +13.8%, respectively
  • Studios BEAT rev and adj EBITDA by +1.7% and +10.8%, respectively
  • Theme Parks BEAT rev and adj EBITDA by +2.6% and +1%, respectively

The Olympics Was Key Driver For Peacock In Q3 (And For B-Cast As Well)

• Total Media revenue incr’d +37% y/y (driven by Olympics), and Media EBITDA declined -10%, given that a profitable Olympics was offset by higher expenses due to the timing of other sports
• Peacock’s revenue grew +82% y/y and over +40% when excluding the Olympics
  • Added +3mn net new paid subs in Q3 (vs loss of -0.5mn in Q2 due to price hike and end of certain sports seasons), driven by the Olympics, NFL content, and popular entertainment shows, like Love Island, Bel-Air, and Fight Night
  • No color on specific numbers were provided, but the Co is very focused on profitability
• The Olympics led to record viewership…: Saw daily avgs over 30mn (+80% more than the Summer Olympics in 2021) and Peacock streaming 23.5bn minutes (up +40% from all prior summer and winter Olympics combined)
  • … Resulting in $1.9bn in incremental revenue for Comcast’s Media segment: This included $1.4bn in advertising revenue, w/ Peacock contributing over $300mn of that
  • The Olympics was also profitable: Despite a decline in Media EBITDA by -10% due to higher expenses from other sports events, the Olympics were profitable and highlighted the synergy between broadcast and streaming platforms
• NBA content is expected to enhance Peacock’s value, making NBC and Peacock a year-long sports destination and attracting a younger, more diverse audience
• Ex the Olympics, total ad revenue was flat y/y as the overall market “remained stable”

EPIC Is A Key Catalyst For Theme Park Growth Spring Of 2025

• Y/Y rev and adj EBITDA declines of -5% and -14%, respectively, were primarily due to lower attendance at domestic parks
• Very bullish on the upcoming launch of Epic Universe next year (May 22, 2025): Epic Universe “will be the most groundbreaking park ever introduced in the United States”
  • Strong early demand: Started to activate sales and marketing plans, including the sale of vacation packages: “We are seeing great demand in the early days since we announced that May 22 next year is opening day”
  • Pricing? It will warrant a “premium price” but “consistent with the market in Orlando.”
  • Pre-opening Costs: Comcast expects to incur ~$150mn in pre-opening costs during Q4:24 and Q1:25 (more weighted to Q1)
  • Will transform Universal Orlando into a week-long destination: With four theme parks, a CityWalk dining, retail, and entertainment district, and 11 hotels
  • Have a strong slate of other attractions & experiences planned: Donkey Kong Country in Osaka and a Fast and Furious roller coaster in Hollywood, as well as Universal Horror Unleashed in Vegas and our Universal Kids Resort coming to Texas

Comcast’s Studios Has Benefitted From A Strong Slate

• Studios revs rose +12% y/y and EBITDA incr’d +9% y/y, driven by the success of the film slate: Including Despicable Me 4 and Twisters
  • YTD, have 3 of the top 10 box office titles, including Twisters, Kung Fu Panda 4, and Despicable Me 4 (already grossed nearly $1bn)
  • Looking to Q4: Wild Robot debuted in Sept (strong reviews) and excited about Wicked opening in Nov

Roku’s first-ever $1bn revenue quarter was a highlight in Q3, along with a big outperformance on profitability and gross margin. However, that was tempered by a disappointing Q4 guidance for profitability (-12.8% below estimates, as sales & marketing is expected to be more seasonal in 2024 vs 2023, driving OpEx up +9% y/y) and for Platform revenue (guided to decelerate from +15% y/y in Q3 to +14% y/y in Q4). On top of that, the Co also announced changes to KPI disclosures, aiming to follow in Netflix’s footsteps (which will no longer report quarterly subscriber numbers and ARPU). Beginning in Q1:25, Roku will stop reporting the total number of streaming households and ARPU. Its justification is that the focus is on growing Platform revenue and profitability, and while a large portion of Streaming Household growth in is international markets, the majority of Platform revenue growth is generated in the US, so Streaming Household growth is not seen as representative of Platform revenue growth. Mgmt will still provide updates on scale as they achieve certain milestones, like 100mn Streaming Households, which they expect to reach in the next 12-18 months.

Looking more specifically at Platform revenue, the sequential acceleration in growth was driven by deepening 3P integrations (TTD in particular as it is Roku’s “deepest” integration, and the company is beginning to see positive impacts) as well as increased Home Screen monetization. The Home Screen continues to be a prime spot for innovation, as video ads are the only ad offering available at the moment, but more are in the works.

Bigger picture on advertising, y/y growth (ex-M&E) was driven by political, retail, and the CPG ad verticals, with political performing “above expectations.” M&E’s share of the overall Platform business is “significantly smaller” versus the last several years, and spend in the vertical is not expected to keep pace with the growth of brand advertising, which is growing “exceptionally strong.”

To quickly touch on Roku devices, commentary was fairly light. It’s now been a bit over a year since the launch of Roku-branded TVs, and they remain “very pleased” with the progress, which include plans to continue growing distribution and add new partners to the Roku TV program. The release of the 2024 Roku Ultra in September, which is its “most powerful streaming player to date” was also a highlight.

Overall, it was a good quarter, but there were some puts and take regarding the going forward picture and transparency, which is never received well by investors.

See below for more details on our key takeaways.

-> Roku fell -17.3% on the back of its report, its biggest one-day loss since mid-February, and ended the week down -12.7%; YTD, the stock is down -28.3%

Q3 Beat On The Top Line / Posted First Ever Qtr of $1bn+ Revenue… 

• Total rev – BEAT by +4.1%: Grew +16% y/y (vs +14% y/y in Q2) to reach $1.1bn
  • Platform rev – BEAT by +5.4%: Grew +15% y/y (vs +11% y/y in Q3) to reach $908mn, driven by both streaming svs distribution and advertising
  • Devices rev – MISSED by -0.7%: Grew +23% y/y (vs +39% y/y in Q3) to reach $154mn
• Adj EBITDA – BIG BEAT of +106.3%: $98.2mn vs cons $47.6mn (margins at 9.2% vs cons 4.7%)
  • Better-than-expected performance was primarily driven by the Platform segment
• Gross margins also beat (45.2% vs cons’ 43.9%) 
  • Platform gross margin of 54.2% was up +6.1pts y/y and beat cons’ 53.6%
  • Devices gross margin -7.6% was down -0.1pts y/y and beat cons’ -10.1%
• Fifth consecutive qtr of positive adj EBITDA and FCF

…BUT Q3 KPIs Were Mixed / Mostly Stagnant Vs Q2 & The Co Is Pulling Back On Disclosures Going Forward

• Streaming Households – BEAT by +0.3%: Added +2.0mn in Q3 (in-line w/ +2.0mn in Q2) to rise to 85.5mn globally
• Streaming Hours – MISSED by -0.9%: Up +20% y/y (in-line w/ +20% y/y in Q2) to 32.0bn
  • Avg Streaming Hours per Streaming Household per Day = 4.1hrs in Q2 (up from 4.0hrs in Q2 and 3.9 hrs in Q3:23)
  • See “significant” oppty to continue to grow, given that on traditional TV, avg viewing times per US household per day was 7.0hrs (as per Nielsen numbers cited by the Co)
• ARPU – BEAT by +1.5%: Was flat y/y (similar to Q2) at $41.10 on TTM basis
  • Reflects an increasing share of Streaming Households in intl markets, where Roku is currently focused on scale and engagement (similar to last qtr)
  • US ARPU has continued to grow over the last several qtr, but total ARPU has been flat due to the mix of Streaming Households internationally
• Going forward, the Co will no longer report quarterly updates on Streaming Households and ARPU beginning in Q1:25 
  • KPIs will be Streaming Hours, Platform revenue, adj EBITDA, and FCF
• Why the update? Don’t believe streaming household growth is representative of platform rev growth
  • Streaming industry has evolved “meaningfully” since Roku’s IPO in 2017, with Americans now spending “significantly” more TV time streaming than watching cable
  • Roku’s biz has also grown and evolved, and Roku is now primarily focused on growing Platform revenue and profitability
  • As Roku continues to grow internationally, its various markets are in different stages of monetization and have different economics, therefore Streaming Household growth is not representative of Platform revenue growth
• Expect to continue to grow Streaming Households in all locations, including the US, and will provide updates on scale as they achieve certain milestones (i.e., 100mn Streaming Households, where they expect to reach in the next 12-18 months)

…AND Q4 Guidance Came In Below Expectations, With Profitability and Platform Rev Growth Disappointing In Particular

• Q4 total rev – BEAT by +2.7%: Will grow +16% y/y (in-line w/ Q3) to reach $1.14bn
  • Q4 Platform rev will grow +14% y/y (decel from +15% y/y in Q3) 
    • What’s driving the seq decel? Had “very strong” Q3 on the political front, which will only really continue through October; Also had an ASC 606 adjustment in Q3 of $12mn
  • Q4 Devices rev will grow +25% y/y (accel from +23% y/y in Q3)
• Q4 adj EBITDA – BIG MISS by -12.8%: $30mn vs cons $34.4mn
• Gross margins will be ~in-line w/ prior qtrs
  • Platform gross margin expected be between 52- 53%, in-line with H1:24
  • Device gross margin to be in the negative high teens, due to continued investment in the Roku branded TV program and seasonal promotional spend
• OpEx expected to be up y/y in Q4, but down y/y for the FY 
  • In Q4, OpEx expected to be up +9% y/y, as sales & mkting is expected to be more seasonal in 2024 than 2023
  • BUT for the full year, OpEx and sales and marketing will be “slightly down”, reflecting ongoing operational discipline
  • Looking into FY25, expect “some incremental increase” in OpEx growth rate as they add some headcount in FY 2025, mostly in low-cost locations; Expect the increase to be “modest” and to get leverage in FY25 and beyond
• “Remain confident” in ability to grow Platform rev in “2025 and beyond”
  • Caveated that it may not accelerate from current run rates in all quarters, given price increase comps in SSD, strong political spend in Q3 and Q4, and positive ASC adjustments in Q2 and Q3

Efforts To Diversify Ad Demand Beyond M&E Are Beginning To Bear Fruit / Political Ad Spend Was A Key Standout In Q3 / Will Continue To Deepen DSP Integrations As TTD Is Yielding “Positive Impacts”

• Q3 y/y growth of advertising activities across the Roku platform, excluding M&E, outperformed both the overall ad market and the OTT ad market in the US
  • Y/Y growth of Political, Retail, and Consumer Packaged Goods ad verticals, among others, were up on the Roku platform
  • M&E and Health & Wellness ad verticals were pressured
  • Saw “strong” contribution from political spend in Q3, which came in “above expectations”
    • “Political is another vertical, of several, that Roku is getting better at monetizing every cycle”
  • Due to Roku’s “many growth initiatives and focused efforts to diversify ad demand, M&E is a significantly smaller percentage” of its overall Platform business now versus the last several years
    • Overall M&E spend is not expected to keep pace with the growth of our advertising, which is growing “exceptionally strong”
• Roku’s platform structure, which combines streaming distribution and advertising rev, protects it from CPM fluctuations affecting other streaming svs 
  • “We have inherent advantages that allow us to not just lessen the impact of market oversupply, but also…benefit from and really grow in this environment”
• Expanded Roku’s ad offering to better serve SMBs w/ Roku Ads Manager, a new, self-service CTV advertising solution, providing performance features like advanced targeting, conversion optimization and measurement, and shoppable ad formats
  • Builds upon Roku’s growing list of ad offerings that provide advertisers more choices for how they buy Roku Media, whether it be through direct IO (insertion order), a preferred DSP (demand-side platform) partner, or now through self-svs
• Deepened relationships with The Trade Desk and will continue to do more integrations that “expand our ability to serve the entire demand curve at multiple price points and…drive incremental revenue over time” 
  • Have partnered with TTD so that TTD customers can leverage Roku Media as well as audience data programmatically and have integrated Unified ID 2.0, TTD’s identity solution
  • Integrating with TTD and UID 2.0 hasn’t hurt margins; Roku can manage inventory well without sacrificing profit
  • “This represents our deepest integration to date with a third-party DSP, and we are beginning to see positive impacts”
• Continue to leverage Roku’s Home Screen to grow monetization and diversify revenue across ad verticals 
  • Ad spend on Roku’s Home Screen from non-M&E brands has grown in each of the last three qtrs
• Roku Originals creates oppties for brands for integrate into original storytelling in a way that is “deeply immersive and valued by TV ad buyers accustomed to buying ads against specific content”

The Roku Channel’s Position As The “Lead-In” To TV Continues To Drive “Significant” Growth

• The Roku Channel was the #3 app on the platform by both reach and engagement for the third straight qtr
• Streaming Hours on The Roku Channel were up +80% y/y (accel from +75% y/y in Q2)
• The Roku Channel also hit an all-time high on Nielsen’s “The Gauge” ranking for August, representing 4.1% of all TV streaming time in the US
• Viewership callout – during the US presidential debate on Jun 27, The Roku Channel’s FAST offering achieved its highest day for both reach and engagement
• Continue to expand sports, news, and entertainment offerings on The Roku Channel
  • Launched the Roku Sports Channel in August, their always-on FAST channel that leads viewers through the wide variety of free sports content available on The Roku Channel
  • Also expanded talk series offerings with the addition of Good Morning Football: Overtime, a new extension series of NFL Network’s long-running Good Morning Football
  • Expanded partnership with Disney to include new FAST channels for Extreme Makeover: Home Edition, Nat Geo Sharks, Wicked Tuna, and ESPN the Ocho (US)
  • Launched 70+ FAST channels from Paramount, which includes programming for younger audiences like The Jersey Shore Channel and The Challenge Channel
• Highlighted that original content isn’t a significant investment and is not a material portion of overall The Roku Channel cost structure 
  • Most of the content on The Roku Channel is variable based, not fixed
• Thoughts on distributing The Roku Channel on non-Roku devices? It is available on various platforms, including Samsung, Amazon Fire TV, etc.; But looking at the economics of the biz it’s much more economical and much more profitable when it’s on Roku’s platform vs a 3P platform

International Expansion Is “Going Well” But Still Has A Way To Go Before Monetization Efforts Become Meaningful

• Focus is on “basically all of the Americas plus the UK” and Roku is “making good progress” in all those countries on active account or Streaming Households growth
• Countries are all in different stages of monetization but “they’re all fairly early in monetization”
  • Still primarily focused on growth of scale of households in those countries
• #1 streaming platform in US, Canada, and Mexico and “we’re growing strong in all of our focused countries” 
  • Have scale in Mexico and starting to focus on monetization; “Just getting started” and base is “relatively small” but expect to have “very strong” growth rates in Mexico
  • Seeing “meaningful” monetization in Canada
• Still building scale and engagement in Brazil, the rest of LatAm, and UK “and monetization will follow”
• Continue to expect to achieve 100mn Streaming Households in the next 12-18 months “and with that scale, we’ll ultimately monetize these international countries as well”

Updates On Other Platform Initiatives – Leveraging Roku Pay For Growth In Subscription Sign-Ups And Home Screen Monetization

• Similar to last qtr, streaming services distribution activities grew faster than Platform rev overall, due primarily to price increases for subscription-based svs on Roku’s platform 
  • Also saw a “meaningful” increase in advertising activities, despite the challenged M&E market, some of which was due to Roku performing “very well” in political spend; Also seeing “very positive” impacts from Roku’s deeper integration with The Trade Desk
• Continue to focus on growing the share of subscriptions billed through Roku Pay
  • The NBC Olympic Zone helped to drive Peacock sign-ups, and a “significant portion” were first-time subscribers
• Work on Home Screen is not just limited to advertising; Also focused on making the Home Screen more influential on what viewer watch and subsequently monetizing that viewing 
  • Efforts to created designated zones for specific sports in the Roku Sports Zone and surfacing sports events in the UI outside of the Sports Zone yielded positive results 
    • In Q3, households that started streaming from one of these Sports Zone features increased +68% q/q, and the # of Streaming hours attributed to these features doubled q/q
  • Video ads are the only ad offering available on the Home Screen but there’s other areas in advertising that leads to the Home Screen that are in the works

Progress In Devices Continues As Roku-Branded TVs Reached 1-Yr Milestone + New 2024 Roku Ultra Released In September

• “Very pleased” with the progress of Roku-branded TVs
  • But they are still just a small part of Roku’s OS distribution and will continue this way as Roku-branded TVs are only available in the US
• Sales of TV units powered by RokuOS were greater than those of the #2 and #3 selling TV operating systems combined
• Similar to last qtr, Roku OS was the #1 selling TV OS in Mexico and Canada, where they continue to grow scale
• Released the 2024 Roku Ultra in September – their “most powerful streaming player to date” 
  • “Premium” streaming players that comes bundled with the Voice Remote Pro (2nd edition), their most advanced remote”
  • Has a new quad core processor that delivers 30% faster performer, quicker streaming app launches and upgraded Wi-Fi 6 radio architecture
• Have broad retail distribution of Roku streaming devices (including Roku-branded TVs), including at Amazon, Best Buy, Sam’s Club, Target, and Walmart

Uber’s sequential deceleration in Mobility gross bookings in Q3 (to +16% y/y from +19% y/y in Q2) and Q4 gross bookings guidance coming in below Street estimates did not go over well with investors. Trips also posted a seq deceleration in Q3 of +17% y/y, which while above consensus, comes after six consecutive qtrs of 20%+ y/y trip growth.

That being said, the rest of the Co’s results came in above expectations. Adj EBITDA reached an all-time high, as did users and frequency. Drivers and couriers on the platform reached a new record of 7.8mn as well. Uber also delivered its first ever $1bn+ GAAP op income qtr. Updates were broad-based across the platform with several initiatives in the works, but mgmt emphasized that the core business remains the focus, as there continues to be “huge” opportunities to increase consumer penetration across geographies. In particular, non-core cities are growing faster than city centers, and new products, like teen accounts and lower-cost offerings, could be on the horizon as well. Uber also continues to double-down on its AV strategy, adding 5 more partners in the qtr and expanding its collaboration with Waymo to bring autonomous ride-hailing to Austin and Atlanta in 2025, which will include fleet management svs (will be a competitive advantage in the AV world).

On the Delivery side of the business, Uber outperformed on all metrics, with its adj EBITDA margin, in particular, continuing to step up and set a new record. Engagement is growing as order frequency has increased every year, and the Co’s Delivery business continues to benefit from cross platform, with ~1/3 of new audiences coming from the Mobility biz.

Also on the delivery side, DoorDash (which controls ~2/3 of the US meal-delivery market) also reported its quarterly results this week and posted strong results across all key metrics, as well as its first operating profit in four years. In a separate but related vein of benefits between mobility and delivery, DoorDash also announced a new partnership with Lyft to offer rideshare discounts to users who have its DashPass subscription svs. Both companies also continue to make strides in grocery and retail, with existing platform users being a key cohort driving activity, amongst other cohorts.

There is a whole lot to dive into… See below.

-> Uber’s shares fell -9.3% in reaction, the biggest drop since Oct 2022, erasing $15.2bn of its market cap, and Lyft closed the same day down -5.1%, in sympathy; That being said, DoorDash went the other direction and traded up +0.9% post its print; Uber ended the week down -5.6% but is still up +18.5% YTD, while DoorDash ended the week up +1.2% and is up +54.7% YTD

A Miss On Mobility Gross Bookings Dragged Down An Otherwise Strong Q3

• Total Gross Bookings missed by -0.7%: Grew +16% y/y or +20% y/y ex-FX (decel vs +19% y/y or +21% y/y ex-FX), with the shortfall coming in the Mobility segment
  • Trips beat by +0.3% Grew +17% y/y (decel vs +21% y/y in Q2) to 2.9bn or ~31mn trips per day on avg, driven by both Mobility and Delivery growth
    • Seq deceleration comes after six consecutive qtrs of y/y trip growth above +20%
  • Users reached an all-time high again: MAPCs (Monthly Active Platform Consumers) grew +13% y/y (a slight decel from +14% y/y in Q2) to reach 161mm (up from 156mn in Q2), driven by cont’d improvement in consumer activity for both Mobility and Delivery offerings
  • Frequency (monthly trips per MAPC) reached an all-time high: Grew +4% y/y (vs +6% y/y in Q2) to 5.9
• Adj EBITDA reached an all-time high and beat by +3.0%: Grew +55% y/y (decel vs +71% y/y in Q2)
  • Record adj EBITDA margin of 4.1% of Gross Bookings: Up from 3.9% last qtr and 3.1% in year-ago qtr; Y/Y margin expansion was driven by an improvement in rev margin and operating leverage across overhead costs
• Also delivered first ever $1bn+ GAAP op income qtr: Came in at $1.1bn (up +$667mn y/y and +$265mn q/q), which was a quarterly record; Income from operations improved y/y due to strong operating performance and lower SBC expense
• Yet another qtr of record FCF: $6.0bn in Q3

Q4 Guidance Was Underwhelming, As Gross Bookings Growth In Particular Was A Tad Softer Than Expects

• Q4 Gross Bookings guidance missed by -0.4% at the midpoint: $42.75bn-$44.25bn vs cons $43.68bn (implies +16-20% y/y growth ex-FX)
  • Outlook assumes an ~-2ppt currency headwind to total reported y/y growth, including an ~-5ppt currency headwind to Mobility’s reported y/y growth
  • Trips y/y growth expected to be similar to Q3:24 (which came in at +17% y/y)
    • Expect “a little bit of deceleration driven by…a little bit less benefit from pricing”
• Q4 adj EBITDA guidance was in-line w/ cons at the midpoint: $1.78bn-$1.88bn vs cons $1.83bn (implies +39-47% y/y growth)
• Remain on track to achieve FY guidance –
  • Gross bookings growth of +20% y/y ex-FX
  • Adj EBITDA growth of ~+60% y/y

While New Products And International Are Gaining Traction, Uber Is “Not Taking Our Eye Off Our Core”

• Uber’s platform supported a record 7.8mn drivers and couriers in Q3, which broke the previous record of 7.4mn in Q2
• Drivers and couriers earned an aggregate $18.1bn (including tips), with earnings up +14% y/y or +21% y/y ex-FX (vs an aggregate $17.9bn in Q2, with earnings up +19% y/y on +23% y/y ex-FX)
  • Announced 20+ improvements to the earner experience in Q3, including nationwide launches of enhanced rider verification and the “Record my Ride” feature, greater service fee transparency, and a redesign of the Uber Driver app
• New product portfolio is now generating $20bn+ of annualized Gross Bookings, powering nearly a quarter of all first trips globally
• BUT “we are not taking our eye off our core, where we still have huge opportunities to increase consumer penetration”: Growth will come from –
  • Favorable long-term trends, such as the broad shift toward services spend and growing consumer preference for on-demand convenience
  • Geographic expansion, including expansion outside of urban cores, where Uber’s network is less dense and “remains a large and valuable opportunity”
• Non-core cities are growing faster than city centers across both Mobility and Delivery: Taking “a more active approach” to unlocking less dense suburban or secondary and tertiary markets, in both the US and abroad
  • “Think it will be a tailwind to our core business in terms of growth over the next two to three years and hopefully even more than that.”
• Uber One has now reached 25mn+ members, up +70% y/y 
  • Members generate 35% of combined Mobility and Delivery Gross Booking
  • Members also spend 3x+ what non-members spend every month
  • “Excited” about increasing adoption amongst the “strategically important” student cohort…
    • Expanded Uber One for Students to Canada, with more country launches coming this year
  • … But also focused on reinvesting in growth and expanding Uber’s suite of platform benefits, including Mobility, for members
• “Not really seeing any signs of consumers trading down” 
  • US gross bookings grew +17% y/y in Q3 (did not provide last qtr), and international “actually grew faster than that”
  • “Not seeing any signs of trade down in Delivery”
  • “Continue to see very strong spend on the corporate side as well…about 50% of our U4B business is premium”

Mobility Gross Bookings Was A Drag / Higher Insurance Costs In The US Is Driving Some Slowdown In Uber’s Largest Mkt, But Expected To Rise At A Slower Rate Going Forward

• Mobility gross bookings growth decelerated to +24% y/y ex-FX, down from +27% ex-FX y/y in Q2
  • Growth drivers: Supported by sustained audience and frequency growth, and a record adj EBITDA margin of 8% of Gross bookings
  • Gross Bookings grew across use cases, with strength in weekday and airport trips
  • On a geographic basis, growth was led by the UK, Argentina, and Germany through “robust” driver growth (including via fleets), and their suite of non-UberX products like taxis, motos (two-wheelers), and Reserve
• Mobility adj EBITDA margin grew seq to a record 8.0%, up from 7.6% in Q2 and 7.2% in the yr-ago qtr; Margin improvement y/y was primarily driven by better cost leverage from higher volume (similar commentary last qtr)
• Mobility take rate of 30.5% beat cons 29.5%
• US continues to be Uber’s largest market and is “the gift that keeps on giving” / Some headwinds from insurance cost increases but “pretty optimistic in general in terms of the US markets overall going forward”
  • US makes up “a little less than” 50% of total gross bookings, but 50%+ of profitability
  • Have seen “substantial” increases in commercial insurance costs over past 2 yrs and have passed on those increases to consumers 
    • Have seen “typical” elasticity from consumers as a result, which is as price goes up, transaction growth “slows down a bit”
    • “While the insurance cost will continue to go up, we expect them to go up at a lower rate” as market normalizes and they continue to implement more safety measures
  • Weekday growth is stronger than weekend growth 
    • “So people are definitely getting back to work… Uber for Business especially is very, very strong” (U4B growing +50% y/y ex-FX)
• Also focused on bringing in “entirely new segments of consumers” through new products to “significantly increase the size of our addressable audience”
  • Teen accounts are “highly incremental” and drive “strong” user retention, with trips up 40%+ q/q 
    • Now available in markets accounting for the majority of Gross Bookings
    • Continue to improve the product w/ new features like Guardian Booking (allowing parents to book trips for their teen from their own phone) and Uber One benefit sharing between parents and teens
  • Continue to make “good progress” on goal of bringing every taxi on Uber
    • Returned to Denmark in partnership with a local taxi partner, which is the third country over the past year to be unlocked via taxi partnerships
    • Launched first taxi integration in LatAm with Brazil’s largest taxi hailing app, providing access to 70,000 drivers nationwide
  • Among lower-cost offerings, recently launched Uber Shuttle service to airports and large venues and have seen “great word-of-mouth traction”
    • In New York, launched shuttles between transit hubs in Manhattan and LaGuardia Airport
    • Ran shuttles to and from the Eras Tour at Hard Rock Stadium in Miami
    • “Many” shuttles selling out with “very limited” marketing to date; Planning more airport and venue launches in the coming months

Strong Q3 For Delivery, With Seq Acceleration Across Almost All Metrics / Focused On Expanding And Deepening Delivery Reach

• Delivery gross bookings grew +17% y/y ex-FX for the fourth consecutive qtr, driven primarily by unit volume growth
  • Sixth straight qtr of Delivery MAPC y/y growth acceleration, with particular strength in the US, Canada, and Mexico
  • Order frequency also reached another all-time high
• Delivery adj EBITDA margin of 3.4% was another new record and continued step up from 3.2% in Q2 and 3.0% in Q1 and was also up from 2.6% in the yr-ago qtr; Margin improvements y/y was primarily driven by better cost leverage from higher volumes and increased ad rev (similar commentary last qtr)
• Delivery take rate of 18.6% beat cons 18.4%
• Key supply stats – 
  • Active merchant growth accelerated to +16% y/y (vs +13% y/y in Q2)
  • Category position across “the vast majority” of Uber’s top markets reached new highs, per 3P data cited by Uber
• Delivery MAPCs exceeded 50mn for the first time in September / Still have “massive oppty” to attract new users to Uber Eats and increase engagement among existing users
  • Continue to benefit from cross-platform: ~1/3 of new audience comes from Mobility biz and “it’s a lower-cost audience and obviously very much engaged with the platform”
  • Engagement for existing Eats consumers has grown consistently
    • Order frequency in last six annual cohorts has grown every year
  • Continue to invest in their tech to drive affordability, making it easy for merchants to fund their own offers on Uber Eats
    • Launched the Student Value Menu in the fall, a curated carousel of discounted items from popular brands on students’ home feeds, making it easier for them to find deals and save time and money
    • Helping key brands in the US spotlight national deals on NFL game days in parallel with Uber’s exclusive NFL partnership
• Continue to “strategically invest” in Grocery & Retail and making “great strides” in improving consumer conversion through expanded selection and discoverability
  • On selection: Added Spirit Halloween, H Mart, JD Sports, and more in the US & Canada; Launched 24-hr online grocery delivery with supermarket chain Co-op in the UK; Partnered w/ convenience chain Oxxo in Chile
  • On discoverability: Refining catalog integration, item availability, search functionality and merchandising capabilities
  • As they improve the product, are also cross-promoting more effectively, with 16% of Delivery users now ordering Grocery & Retail (up 200+ bps y/y and accel from +15% y/y in Q2)
• Deepening merchant relationships through Uber Direct (Uber’s white-label delivery product) 
  • Annc’d exclusive multi-year partnership with Darden Restaurants, beginning with Olive Garden later this yr
  • Also partnered with solutions providers including Vroom and Checkmate to enable more merchants to take advantage of Uber Direct

Freight Returned To Growth In Q3

• Freight gross bookings grew +2% y/y, up from flat y/y in Q2, driven primarily by an increase in revenue per load, partially offset by continued pressure from category-wide headwinds
• Expanded last-mile capabilities in Q3 by integrating with Uber Direct to power same-day and scheduled delivery options for shippers through Uber Freight’s Parcel Transportation Management System (PTMS)
• Launched “new, industry-first” Design Partner Program, which enables Uber to enhance its AI capabilities and tools by leveraging insights from the ~40 participating shippers who collaborate with Uber’s team to create new transportation services and products

Steady Pace Of Progress With Advertising – “We Think We Are Midway Along This Journey”

• “Pleased” w/ progress made in scaling and adding new capabilities to ad biz, which grew ~+80% y/y 
  • Expect that advertising can get to 2%+ of Delivery gross bookings, and currently “right in between 1% and 2% at this point”
• Continued to improve ad tech suite to drive better ad formats and measurement functionalities in Q3
  • On ad formats: Piloted First Impression ad format, which allows advertisers to temporarily “take over” the home feed to promote new products or offers
  • On measurement: Rolled out new capabilities for CPG advertisers, including sales reporting and category position estimates
  • For the Mobility business: Began to integrate Uber’s exclusive partnership with T-Mobile Advertising Solutions, which will bring JourneyTV offering to 50k+ vehicles across the US, enabling advertisers to utilize the insights, geo-targeting, and reach made possible through Uber’s scale and first-party data
• SMB CPC business “continues to grow at very, very high rates” and progress “really, really well”
  • Able to increase the # of monetizable impressions per user session with “little or no penalty” to the user experience b/c “the ads are really targeted”
• Within CPC biz, penetration with enterprise is “generally a little bit lower” than SMB advertisers, but “that is growing quickly as well” 
  • Tools that they’re building for enterprises are “a bit more sophisticated” in terms of tracking, targeting, etc.
• “Really focused” on sponsored listing product – “We’re very, very early in the development of that product”
  • “This is for groceries. These are…the Cokes and Pepsis of the world who can advertise on our grocery product in order to increase their share in our marketplace”
• “Pretty excited” about mobility advertising and are “really kind of restricting that space to very, very high-quality advertisers”
  • Click-through rates are 2-3x that of industry avgs, “so the advertising is getting the attention of the riders”
• “Very pleased with how the ad team and tech teams are delivering, and we think we are midway along this journey and have plenty of room for growth ahead of us in all three areas, whether it’s CPC or sponsored listings or Mobility solutions”

Lots Coming Up With Autonomous Vehicles – “Stay Tuned”

• Announced five new AV partnerships – Cruise, Coco, Wayve, WeRide, and Avride
  • Now have 14 AV partners across Mobility, Delivery, and Freight
  • Expect see deployments of other autonomous partners on the Uber network outside the US in 2025
• Expanded partnership with Waymo to bring autonomous ride-hailing to Austin and Atlanta in early 2025 / As part of the expanded partnership, Uber will provide fleet mgmt svs via a 3-P fleet ops partner
  • Ride will only be available through the Uber app
  • Fleet mgmt svs will include vehicle cleaning, repair, and other general depot operations
  • Fleet mgmt is a “unique capability” Uber has developed through its “deep, existing” partnerships with professional fleet operators
  • Have built dedicated tools, technology and APIs to support and streamline fleets’ interface with Uber that will be “invaluable” in an AV world
  • 15%+ of Uber’s global Mobility supply hours come from fleets
• Competitive dynamics from Waymo operations in SF? 
  • Waymo has a category position “in the high single-digits or low double-digits”
  • Aren’t seeing any effect in terms of their consumers one way or the other
  • Price is generally at “a bit” of a premium to X
  • “But we’re very happy to kind of extend our partnership with them and really start to build together in cities like Atlanta and Austin. And hopefully, that will be the dominant way forward for that partnership going forward”

M&A Chatter – “Uber’s Bar For M&A Has Never Been Higher”

• “We remain extraordinary disciplined, and I want to emphasize that all opportunities are reviewed with a rigorous value creation mindset”
• “It’s going to have to be both of strategic value and financially accretive”
• Strategy for partnership vs acquisition when entering a new vertical or market? “If we can’t uniquely add value, if it can’t be a core focus of the company we’ll look to partner”

Also In The Last-Mile/Delivery Sector, DOORDASH Reported This Week…

• • Posted solid Q3 beats across the board 
    • Revenue – Beat by +1.7%: Grew +25% y/y (accel from +23% y/y in Q2)
      • Due primarily to the y/y increase in Marketplace GOV
    • Adj EBITDA – Beat by +3.9%: Grew +55% y/y (accel from +54% y/y in Q2)
      • Adj EBITDA reached an all-time high
      • Adj EBITDA was 2.7% of Marketplace GOV, up from 2.2% in Q2 and 2.1% in Q3:23
    • Total Orders – Beat by +0.4%: Grew +18% y/y (decel from +19% y/y in Q2)
      • Driven by growth in consumer and growth in avg consumer engagement
    • Marketplace GOV – Beat by +1.2%: Grew +19% y/y (decel from +20% y/y in Q2)
    • Contribution Profit – Beat by +1.8%: Grew +45% y/y (accel from +33% y/y in Q2)
    • Generated positive GAAP net income for the first time as a public company

• Also beat on Q4 guidance at the mid-pts 
  • Adj EBITDA – Beat by +1.1% at mid-pt: $525mn-$575mn vs cons $543.8mn
  • Marketplace GOV – Beat by +0.8%: $20.6bn-$21.0bn vs cons $20.64bn
• Expect revenue growth to continue to outpace GOV growth, but not at a fixed rate each qtr, as investments will adjust based on strategic opportunities
  • Driven by ad growth, platform efficiencies, and Dasher cost improvements, with Q3 particularly benefiting from improvements in ads and Dasher cost leverage
• Not operating the biz towards a specific gross margin %age, but rather trying to maximize overall profit dollars over the long-term
• Users are still growing at a DD-rate and reached an all-time high / Order frequency continues to be an all-time high / Seeing order rate growth across both new and mature consumer cohorts 
  • Order rate increased y/y within all of DoorDash’s more mature consumer cohorts, with growing contributions from non-restaurant categories in each cohort
  • New DoorDash consumer cohorts demonstrated initial order rates that were “slightly higher” than avg initial order rates from cohorts in H1:24 and avg initial order rates from cohorts across 2022 and 2023
• Reached an all-time high of 18mn+ subscribers to DashPass in Q3 (have shared the same # of 18mn+ since end of 2023)
• Announced partnership with Lyft: DashPass membership now includes discounted Lyft rides and free Priority Pickup upgrades, while Lyft riders will receive a free 3-month DashPass trial
  • Benefit for DoorDash? Many Lyft riders are DoorDash customers; Some are DashPass subscribers, but “a lot” are not; “Great opportunity” to continue to add engagement to the DashPass program and add new DashPass members
  • Benefit for Lyft? Will get access to “the largest local commerce platform that sees the highest frequency program of its kind when it comes to consumer membership programs”
  • Generally follow an 80%-20% partnership philosophy: Focused primarily on building and enhancing products for local commerce (80%) while strategically forming partnerships (20%) to add value for members
• Restaurant biz growth has been “very stable over the last few quarters”, while grocery, new verticals, and international are growing “much faster” than the restaurant biz
• International is seeing similar top- and bottom-line progress in intl mkts as they did in the US
  • Q3 was “strong”, and the year has been “very strong”
  • Intl biz continues to show “strong progress” while remaining gross profit positive
    • Growing “substantially faster” than peers
    • Gaining share in nearly every market
  • Able to achieve fixed cost leverage as they expand into new markets using the same team and tech stack across regions
    • Although delivery is hyperlocal, and they need to build audiences in each market, DoorDash’s tech, products, and expertise are leveraged across locations
    • Similar to the US, scale drives efficiency, but still early in intl markets; Investing in product to strengthen cohort retention and order frequency
• Have made “tremendous progress across the board” on Grocery / Strength of cohorts across new and existing continues to be “very strong” 
  • Seeing increasing frequency and wallet share in consumer spend on monthly grocery bills across cohorts
  • As customers get used to ordering groceries on DoorDash, they tend to order more items each subsequent visit
  • Majority of volume still comes from existing cohorts, and continue to see “good amount of retention as well as overall wallet share increase”
  • Still attracting “a healthy amount” of new customers from diverse demographics, including suburban areas, and many now start with grocery as their first DoorDash experience, adding net new consumers to the platform; New customers in grocery and non-restaurant delivery are also choosing DoorDash first over other platforms
  • Don’t need to rely on big basket sizes to make economics work – “We can afford what others may not be able to”: Have the lowest cost structure when it comes to delivery and logistics; Have been successfully introducing itself to consumers and grocers through smaller basket purchases, revealing a larger market potential
    • “We’re trying to build the business for all baskets”
    • Similar to European shopping habits, seeing that customers are starting to adopt a pattern of making multiple smaller purchases throughout the week, followed by a larger weekly basket
  • Continue to also make platform progress, including adding larger grocers like Wegmans, improving inventory reliability, and expanding selection
  • Progress on grocery price parity in the mid-to-long-term? Aiming to match in-store prices with some retail partners already achieving parity, while also focusing on reliable, fast delivery to meet customer expectations on price, convenience, and accuracy
• Update on DashMart? “We’re quite excited about the potential that DashMarts bring both individually, but more so as in partnership with retailers and merchants, and that’s kind of what I expect going forward” 
  • “Think on its own, DashMarts have just continued to grow, take share and do really, really well. But that wasn’t where DashMarts would end per se”
  • Have ongoing partnership discussions with various retailers to leverage DashMart’s infrastructure
  • Collaborations have begun in Canada with Loblaws and are expanding in the US and other countries, allowing retailers to reach customers outside their typical operating hours and geographic boundaries
• On DoorDash Commerce – “Hundreds of thousands” of bizs are now part of the platform
  • “A lot of these physical businesses now are using products like DoorDash Drive or Storefronts or some of the other products that we’ve talked about in order to become digital powerhouses in their own rights and with their own customers.”
• Actively exploring potential of autonomous delivery and highlighted that its “actually quite different” from autonomous ride-hailing
  • Complexity of loading and unloading items for delivery presents unique challenges compared to transporting passengers
  • Adopting a first-principles approach to develop technology and operations for successful autonomous delivery systems and engaging in conversations with potential partners

AI has been propelling growth in the public cloud sector to new heights in recent quarters, and investors were keen to see if that trend continued this week, as Amazon, Microsoft, and Google reported their latest earnings. For the most part, the public cloud providers did not disappoint, with each posting a sequential acceleration in top-line growth and stronger than anticipated operating margins. The only real blemish was AWS’ slight revenue miss relative to consensus estimates. Unsurprisingly, the group highlighted that AI continues to be a major catalyst behind the growth in their public cloud businesses, and future capital investments will scale to support demand for AI-related workloads. This also points to higher competition for resources moving forward, meaning that securing a reliable supply of CPUs, GPUs, and other server equipment will become increasingly important in the battle for public cloud market share. Microsoft was already prompted to temper its expectations for Azure growth next quarter due to supply challenges…

See below for more details.

Amazon AWS’ Top-Line Came Up A Bit Short, But Op Margins Stood Out

• AWS rev growth improved slightly seq but fell a bit short of forecasts: Q3 AWS rev rose +19.1% y/y (vs +18.7% y/y in Q2) but missed cons by -0.2%; AWS’ ARR now stands at $110bn (after exiting Q2 at a $105bn+ run-rate)
  • There’s been a “significant re-accel of AWS growth for the last four qtrs”: “AWS continues to be customers’ partner of choice”, given that it has the “broadest functionality, the strongest security and operational performance, and the deepest partner community”
  • “Cos are focused on new efforts again” and are “modernizing their infrastructure from on-premise to the cloud”: In addition to saving money, allowing for quicker innovation, and raising the productivity of “scarce engineering resources”, shifting data to the cloud enables “gen AI at scale”
• The Co has been making “rapid progress” in “building a substantial AI biz”: Highlighted that “AWS’ AI biz is a multibillion-dollar rev run-rate biz that continues to grow at a triple-digit y/y percentage” and that it “is growing more than three times faster at this stage of its evolution [than] AWS itself grew”
  • Delivering more AI capabilities for customers has been a key part of the strategy: AWS has released nearly twice as many ML and gen AI features as the other leading cloud providers combined over the last 18 months
  • Each of the three layers of AWS’ AI offering has been “progressing rapidly”: There’s “significant interest” in Trainium 2 chips and Amazon SageMaker at the bottom layer, teams have been using multiple models within Bedrock at the middle layer, and demand for Amazon Q has been “strong” at the top layer
• AWS op income growth decel’d seq but was still better than anticipated: AWS op income grew +49.8% y/y in Q3 (+74.0% y/y), beating cons by +14.1%; Noted a “cont’d focus on cost control, including a measured pace of hiring, a focus on driving efficiency in [the Co’s] infrastructure, and reducing costs across the biz”
  • An increase to the estimated useful lives of servers starting in Jan contributed ~+200 bps to the y/y margin increase: Q3 AWS op margin expanded +775 bps y/y to 38.1% (vs 35.5% in Q2), beating cons’ 33.2%
• 2024 CapEx is expected to be ~$75bn: See Theme #3 for more details
• Key client wins: Include ANZ Banking Group, Booking.com, Capital One, Fast Retailing, Itaú Unibanco, National Australia Bank, Sony, T-Mobile, and Toyota; Also highlighted a partnership w/ NVIDIA called Project Ceiba, where NVIDIA chose AWS’ infrastructure for its R&D supercomputer

Microsoft Azure “Took Share” In FQ1, But Supply Challenges Are Expected To Slow Growth In FQ2

• Azure rev growth incr’d seq and exceeded expectations: Azure rev growth of +33% y/y in FQ1 (vs +29% y/y in FQ4) was better than cons’ +29.4% y/y; Ex-FX, Azure rev incr’d +34% y/y (vs +30% y/y in FQ4), outpacing cons’ +31.5% y/y and benefiting from an in-period rev recognition
  • Microsoft has been “seeing cont’d growth in cloud migration”: The Co saw increases in both the number of $10mn+ contracts and $100mn+ Azure contracts signed during the qtr, as “demand continues to be higher than [its] available capacity”
  • Consumption trends were “healthy” and in line w/ the Co’s expectations: Otherwise, upside in the Co’s Azure growth was “primarily due to some rev recognition benefits”
  • Azure Arc now has 39,000+ customers across every industry: This represents more than an +80% y/y increase and compares to ~36,000 exiting FQ4
• AI svs had an even greater contribution to Azure growth: AI svs contributed ~+12 pts to Azure growth (vs ~+8pts in Q2); In contrast, the non-AI contribution to Azure growth was down seq by ~-1pt and “in-line w/ expectations in total and across regions”
  • The AI biz is on track to surpass $10bn+ in ARR next qtr: This will make it the fastest biz in Microsoft’s history to achieve this milestone
  • Azure OpenAI usage has more than doubled over the past six months: Both digital natives and established enterprises have been moving applications from testing to production
  • “Azure AI is also increasingly an on-ramp to [Microsoft’s] data and analytics svs”: As devs have built new AI apps on Azure, the Co has seen an accel of Azure Cosmos DB and Azure SQL DB hyperscale usage
    • BUT metrics on Azure AI’s uptake were sparse: Last qtr, the Co reported that Azure AI customers were up nearly +60% y/y to 60,000+, w/ avg spend per customer continuing to rise
• FQ2 Azure rev is projected to decel seq due to supply challenges: Anticipates FQ2 Azure growth of +31% y/y (+32% y/y ex-FX) and pointed to “supply push-outs” from third-parties as the main reason for the predicted seq slowdown
  • Underlying consumption trends are expected to be flat seq: The Co sees “stable” consumption growth from FQ1 to FQ2, w/ a similar seq contribution from AI svs due to capacity constraints
  • H2:FY25 rev growth is still expected to accel over H1: The Co has “confidence” it will receive a “good influx of supply” of GPUs and CPUs in H2, many of which were supposed to be delivered in H1
• Microsoft Cloud gross margin remained down y/y but was “slightly better than expected”: Microsoft cloud gross margin percentage decr’d -2pts y/y to 71% (vs 69% in Q2) but slightly outpaced the Co’s internal expectations due to an “improvement in Azure”; The y/y decline was driven by efforts to scale AI infrastructure
  • FQ2 gross margin is forecasted to be ~70%: This would mark another -2pts y/y decline, given the impact of scaling AI infrastructure
• CapEx was in line w/ the Microsoft’s expectations: Including finance leases, CapEx grew +78.6% y/y to $20bn in FQ1 (vs $19bn in FQ4) to support the Co’s cloud and AI offerings
  • ~50% of the Co’s cloud and AI-related spend continues to be for long-lived assets: These will support monetization over the next 15+ years, even when the CapEx cycle begins to taper off
    • The remaining spend is primarily for servers: Including both GPUs and CPUs to serve customers “based on demand signals”
  • Microsoft now has data centers in 60+ regions around the world: Annc’d new cloud and AI infrastructure investments in Brazil, Italy, Mexico, and Sweden during the qtr
  • CapEx is expected to increase seq in FQ2: Given the cloud and AI demand signals that the Co is currently seeing
• Key client deals: 
  • Azure Arc: American Tower, CTT, L’Oreal
  • Azure OpenAI: Bajaj Finance, Hitachi, KT, LG, GE Aerospace, Grammarly, and Harvey
  • Azure Cosmos DB and Azure SQL DB: Air India, Novo Nordisk, Telefonica, Toyota Motor North America, and Uniper
  • Microsoft Fabric: Chanel, EY, KPMG, Swiss Air, and Syndigo

Google Cloud Delivered “Very Strong Results”

• Google Cloud rev accel’d seq and topped estimates: Q3 Google Cloud rev of $11.4bn incr’d +35.0% y/y (vs +28.8% y/y in Q2 and +28.4% y/y in Q1) and beat cons by +4.3%
  • Google Cloud Platform (GCP) once again grew at a higher rate than cloud overall: This reflected “accel’d growth in GCP across AI infrastructure, gen AI solutions, and core GCP products”
  • Growth in Google Workspace was also “strong”: Primarily driven by increases in avg rev per seat
• “The biz’s real momentum and overall oppty is increasing as customers embrace gen AI: Google’s “tech leadership and AI portfolio are helping [it] attract new customers, win larger deals, and drive +30% deeper product adoption w/ existing customers”
  • Customers are using Google Cloud products in five different ways to “realize measurable biz benefits”: Including reduced cost, greater customer engagement, faster response times, and better rev conversion
    • AI infrastructure: Google’s offering is differentiated w/ “leading performance, driven by storage, compute, and software advances as well as leading reliability and a leading number of accelerators”
    • Enterprise AI platform: Highlighted utilization of Vertex and that Gemini API calls have incr’d by nearly +14x in a six-month period
    • Using the Co’s AI platform alongside its data platform, BigQuery: Customer outcomes that combine AI w/ data science led to an +80% uptick in BigQuery ML operations over a six-month period
    • AI-powered cybersecurity solutions: Customer adoption of Google’s Mandiant-powered threat detection has incr’d by +4x over the last six qtrs
    • The new Customer Engagement Suite: This was introduced in Q3 to broaden the Co’s applications portfolio; 75% of the offering’s daily users say it improves the quality of their work
• Op income significantly exceeded expectations: Op income of $1.95bn (vs the prior yr qtr’s $266mn and $1.17bn in Q2) beat cons by a material +77.3%
  • Op margin expanded substantially seq: Q3 op margin incr’d to 17.1% (vs 11.3% in Q2), driven by strong rev performance across Cloud, AI products, core GCP, and Workspace, as well as ongoing efficiency initiatives; Addt’l scale will present more oppties to expand margin
• 2025 CapEx will increase to a lesser degree than 2024 on a y/y basis: See Theme #2 for more color
• Key client wins: Highlighted AI-driven cloud deals w/ LG AI Research, Snap, Lloyd’s of London, BBVA, Deloitte, and Volkswagen of America; Also touted a multi-billion dollar strategic partnership w/ Vodafone spanning across Google Cloud, AI, Android ads and digital svs

Booking kicked off the earnings cycle for the online travel industry this week, and after warning of a normalization in the travel market and lowering its FY24 guidance on the prior Q2 earnings call (see Theme #10 from 8/2/24 Weekly), the company’s Q3 results conveyed a much more optimistic tone to investors. Headline numbers broadly exceeded consensus estimates, as a +4.6% beat on gross bookings flowed into a similar +4.6% outperformance on revenue, as well as a wider +8.8% surprise to the upside on adj EBITDA. A re-acceleration in the company’s gross bookings growth, which jumped back up to +9.0% y/y after a sluggish +4.4% y/y gain in Q2, was primarily driven by a wider than anticipated booking window and rebounding underlying demand in Europe. Booking’s sequential improvement in growth in room nights in the region was more than enough to offset slight slowdowns in growth in its other core operating regions, including the US, where Booking still managed to outgrow the market. Moving forward, Asia will be a top priority, given expectations that it will be the company’s fastest growing region over the next five years. In Booking’s other travel verticals, airline ticket volumes and rental car days were both stronger than expected in Q3, supported by “strong growth” across the company’s platforms. Alternative accommodations were also a bright spot, with y/y growth in the business accelerating sequentially to +14% from +12% in Q2.

On the profitability side of the equation, Booking’s efforts to find efficiencies throughout its business and investments in reducing fixed costs have been starting to translate into tangible benefits. A combination of marketing leverage and lower than expected fixed OpEx were responsible for the company’s strong beat on Q3 adj EBITDA. Looking into Q4, Booking still anticipates a slight sequential slowdown in gross bookings due to predictions of a shortening booking window. Nonetheless, the full year metrics should still land at a better spot than the company originally issued at the beginning of the year.

Net-net, Booking’s results assuaged fears about a deterioration in the travel market and suggested that the setback the company experienced in Q2 was just a temporary aberration. In the longer term, gen AI-powered tools and features remain key drivers, and the call included several updates on Booking’s ongoing efforts to further incorporate the technology into its business. See below for more details on our main takeaways from Booking’s Q3 print… and stay tuned next week for our key takeaways on Expedia and Airbnb’s Q3 prints.

-> Booking shares was up +4.8% in reaction to the print and ended the week up +9.2%; YTD, Booking stock is trading up +33.9%

Booking’s Headline Results Reflected “The Cont’d Resilience Of Leisure Travel Demand” & Beat The Street

• Headline numbers broadly surpassed expectations: Rev incr’d +8.9% y/y in Q3 (vs +7.3% y/y in Q2) and beat cons by +4.6%, w/ gross bookings also closing +4.6% ahead of cons; Adj EBITDA rose +11.6% y/y (vs +6.6% y/y in Q2) and ended +8.8% above cons; Adj EPS topped cons by +8.0%

Q3 Gross Bookings Benefited From An Improvement In Underlying Demand In Europe

• Q3 gross bookings growth improved seq and beat estimates: Gross bookings rose +9.0% y/y in Q3 (vs +4.4% y/y in Q2) and topped cons by +4.6%; The ~1% difference between gross bookings and room nights growth reflected a ~+2% tailwind from higher flight bookings, partly offset by a -1% drop in constant current accommodation ADRs.
  • Room nights growth accel’d seq and exceeded expectations: Q3 room nights were up +8.1% y/y (vs +7.1% y/y in Q2) and finished +3.0% ahead of cons; Benefited from a y/y expansion in the booking window, which was unexpected, as well as an improvement in trends in Europe
    • The Co “clearly” saw a re-accel of growth in Europe starting in Aug: Europe room nights incr’d ~+hsd% y/y (vs ~+msd% y/y in Q2) After July was adversely impacted by “events”, there was a “general underlying improvement” in demand in the region
    • Growth in Asia decel’d seq: Q3 Asia room nights grew +ldd% y/y (vs ~+mid-teens% y/y in Q2); Despite this, the Co remains “optimistic” about growth prospects in Asia, expecting it to be its highest-growing region over the next five yrs; Agoda’s localization efforts have been bearing fruit
    • US room nights growth ticked down seq: US room nights incr’d ~+lsd% y/y in Q3 (vs ~+msd% y/y in Q2); Still, data indicates that Booking is “growing a bit faster than the mkt overall” in North America, as brand investments and other initiatives have been paying off
    • Growth in RoW was also a bit slower seq: Q3 RoW room nights rose ~+msd% y/y (vs ~+hsd% y/y in Q2)
  • Airline ticket bookings growth jumped seq and were higher than anticipated: Q3 airline ticket bookings were up +38.7% y/y (vs +27.7% y/y in Q2) and beat cons by a wide +13.0%, driven by “strong growth” in Agoda’s flight biz and the growth of Booking.com’s slate offering
  • Rental car days also surprised to the upside: Rental car days grew +16.2% y/y in Q3 (vs +10.0% y/y in Q2), topping cons by +5.3%; Benefited from “strong growth” at Booking.com
  • The Co’s mix of merchant bookings reached new heights: Merchant gross bookings accounted for 65% of total gross bookings in Q3 (vs 56% the prior yr qtr and 58% in Q2)

BUT Q4 Guidance Was A Tad Mixed With Higher Bookings But Lower Adj EBITDA

• Projected Q4 room night growth is ~on-par w/ the Street’s expectations: Sees room night growth of ~+6-8% y/y in Q4 (vs +8.1% y/y in Q3), vs cons’ +6.9% at the mid-pt
  • Key assumptions – 
    • “Comps get a little easier”: Given lapping the start of the conflict in the Middle East
    • The impact of 1x events will “even out”: As a result of the “really short-term impact” of events such as the hurricanes, the Co doesn’t account for these in its outlook
    • There’s been a “continuation of strength”: Particularly from Aug and Sept into Oct
    • The booking window will be “less extended” in Q4 than in Q3: There may have been some pull-forward of bookings from Q4 into Q3
• Q4 gross bookings growth was higher than Street forecasts: Anticipates gross bookings growth of ~+7-9% y/y in Q4 (vs +9.0% y/y in Q3), which topped cons by +110bps at the mid-pt; Growth is projected to be +1% ahead of room nights growth due to higher expected growth in flight tickets
  • Constant currency ADRs are expected to be ~flat y/y
• The outlook for rev growth is better than the Street anticipated: Expects a rev growth range of +7-9% y/y in Q4 (vs +8.9% y/y in Q3), beating cons’ +6.4% at the mid-pt
• BUT adj EBITDA guidance was a bit disappointing: Sees adj EBITDA btw $1.6-1.65bn, which missed cons by -1.5% at the mid-pt; Adj EBITDA growth is expected to outpace rev growth primarily due to mkting leverage from the Co’s growing direct mix

The Alternative Accommodations Biz Continues To Show Its “Incrementality”

• Alternative accommodation room nights growth accel’d seq: Grew +14% y/y in Q3 (vs +12% y/y in Q2 and +13% y/y in Q1) and comprised ~35% of global room nights, a +2% y/y increase (but down from ~36% in Q2)
  • Efforts to provide more choices for travelers have cont’d: Total alternative accommodation listings of 7.9mn at the end of Q3 marked a +10% y/y increase (vs +11% y/y in Q2)
    • And there are still more opportunities to grow alternative accommodations, particularly in the US: Pointed to a lack of inventory during the Hamptons this summer as an example
  • The alternative accommodations biz has been bringing in “incremental” customers: The Co believes the biz has “brought in people that would not have come otherwise” and people that would have gone to another site but went to Booking instead b/c it offers alternative accommodations
  • Booking has outgrown the largest player in the mkt 12 of the last 13 qtrs: The Co’s alternative accommodation currently runs at ~two-thirds the size of its largest competitor

Color On Efforts To Drive More Direct Biz Was Relatively Similar Seq

• Strengthening direct relationships w/ travelers remains a priority: The Co’s mix of total room nights through the direct channel has been in the mid-50% range over the last four qtrs; When excluding B2B, this mix rises to the low-60% range (no change from comments last qtr)
  • Mobile app mix incr’d seq: In Q3, the mobile mix of total rom nights was in the mid-50% range (vs a low-50% range in the prior yr qtr and ~53% in Q2); A “significant majority” of the Co’s bookings continue to come through the direct channel
• The Co continues to make progress in enhancing the Genius offering – 
  • Genius has been expanding into other travel verticals outside of accommodations: This has resulted in travelers booking more components of their trip w/ Booking and delivered more value to partners as they receive incremental bookings
  • The mix of room nights booked by level 2 & 3 Genius members was in the mid-50% range over the last four qtrs: This percentage “cont’d to increase y/y” during the qtr
• Growth in Connected Trips (a trip that includes 1+ vertical) decel’d further seq: Connected Trip transactions incr’d by “over +40% y/y” in Q3 (vs ~+45% y/y in Q2 and “just over +50% y/y” in Q1) and cont’d to represent a ~hsd% share of the the Co’s total transactions

Greater Scale Is Leading To More Oppties To Find Cost Efficiencies

• Booking took a “disciplined” approach to mkting spend: Marketing expenses grew +6.4% y/y in Q3 (vs +7.7% y/y in Q2), w/ seq declines being driven by a higher direct mix and higher performance mkting ROIs, partially offset by incr’d spend in social media channels
  • The Co has been “continuously optimizing” its incremental mkting spend: This ensures “incremental ROIs are really the highest that are possible”
    • Higher spending on social platforms have delivered “good results”: Booking has been “pleased” w/ ROIs thus far; The level of spend is still “relatively small”, though a “meaningful part” of the y/y increase in the Co’s mkting expense is due to spend on social media
  • Mkting leverage is expected to continue in Q4: As a result of cont’d growth in Booking’s direct channels
    • Merchandising is projected to be ~flat y/y as a percentage of gross bookings in Q4
• Fixed OpEx was up seq but lower than the Co expected: On adj basis, fixed OpEx was up +7% y/y in Q3 (vs +5% y/y in Q2) and were lower than Booking anticipated, “due primarily to lower IT expenses”, some of which is expected to shift into Q4, as well as lower G&A expenses
  • Booking has “tremendously slowed down hiring”: Headcount was up ~+3% y/y in Q3, which is well below the ~+13% y/y increase in the prior yr qtr; The Co is being “more efficient” and “very careful” w/ hiring
  • AI also represents a “clear oppty to find efficiencies”
  • The Co “absolutely” sees oppties for op leverage in 2025 & 2026: Thinks “there’s still a long way to go” in terms of finding efficiencies

Booking Believes It Has The “Pole Position” In Gen AI

• Booking’s scale provides it w/ an advantage in AI: Highlighted that “gen AI is hard stuff” and that having the “resources, people, and capital to be able to drive forward experiments” is something that not all competitors can bring to the table
  • AI has been an “important tool” in the Co’s mkting efforts: It has helped w/ targeting and resulted in “addt’l advertisement effectiveness” and “higher incremental ROI”
  • “This type of tech is really transformational”: However, it’s “difficult” to know how this will “translate into dollars and cents”, given that “it’s still very, very early” and the Co still has “much more to learn about consumers” and “how they ultimately want to interact w/ this new tech”
• Learnings from last yr’s AI trip planner launch are leading to new applications of gen AI:
  • Booking.com has been incorporating gen AI into customer svs functions and using it to provide a better experience for travelers; This, in turn, results in “better svs” for partners, as they are receiving more targeted customers
  • Priceline launched Penny Voice in Oct: This enables the Penny chatbot to engage in verbal convos w/ travelers and assist them w/ trip planning; Eventually, Penny will be able to anticipate needs based on preferences and past interactions
  • 120+ gen AI use cases have been implemented at Agoda: These been used across customer svs, software development, content generation, product, finance, and HR functions
  • OpenTable recently integrated an AI voicebot: This helps participating restaurants answer their phones and manage reservations

Booking Has “A Lot Of FCF Generation”

• FCF growth accel’d seq and significantly outpaced expectations: Q3 FCF incr’d +76.5% y/y (vs +44.6% y/y in Q2) and topped cons by a wide +97.9%; This was offset by ~$2bn of returns to shareholders via repurchases and dividends as well as a $1.1bn payment for debt that matured in Sept

It was an eventful week for the interactive entertainment space, as EA and Roblox both released their Q3 results. EA was the first to print and reported mixed headline numbers. The Co’s net bookings topped consensus estimates by +1.9% but non-GAAP gross and operating margins both fell short of expectations by -30bps. Investors looked past the slight margin miss, given that EA’s top-line beat reflected an outperformance by the Co’s core sports franchises as well as the “incredibly successful” launch of College Football 25, which was the best-selling HD title in N. America through September. Engagement and overall spend in the EA’s American football community both more than doubled on a y/y basis following the release, and the Co has plans to “continue the momentum well into the future” by creating “the preeminent football fan platform” in the country across both the NFL and college. In contrast to the strength that EA has been seeing in sports, the Co’s recent efforts to reinvigorate Apex Legends haven’t met the same degree of success. “Systematic change” will be required to turnaround the franchise moving forward, though details on what exactly this means were opaque.

Despite the underperformance from Apex Legends, the overall momentum across the rest of EA’s portfolio prompted it to raise FY25 guidance. Notably, some of the main assumptions underpinning the new outlook include: 1) the American football business surpassing $1bn+ in net bookings; 2) the global football (soccer) business growing net bookings over a “record prior year”; and 3) BioWare’s Dragon Age: The Veilguard being a significant driver of EA’s business in Q3, given its “breakout potential”. Another thing to monitor will be the soft launch of the EA SPORTS App in Spain, which represents “just the beginning” of the Co’s plans to bring more sports to more regions and remove friction from the “broader fan experience”. Looking out towards the longer-term, EA is “building conviction” that it can achieve the targets laid out at its recent investor day (see Theme #2 Weekly 9/20/24 for more), including “significantly” outperforming the market and realizing “material margin expansion” through FY27.

Turning to Roblox, there was a lot for investors to like in the Co’s Q3 print, as it posted what it deemed to be “the best… financial quarter” in its history, with headline numbers that broadly surpassed expectations. Net bookings and adj EBITDA exceeded consensus forecasts by +9.6% and +49.6%, respectively, while FCF finished an even better +75.8% ahead of Street’s estimates. Notably, DAUs and hours engaged accelerated across all of its main operating regions during the quarter, and there were several positive trends behind this outperformance. Along with some of the experiences on Roblox continuing to go viral, developers have been publishing more content updates at a “faster cadence”, LiveOps events have been attracting new users, and spending growth on the platform has grown “wider and flatter” across its top 100 experiences. Still, despite the “fantastic” top-line growth seen in Q3, Roblox was hesitant to set a higher bar for its Q4 guidance, wanting to see “more time and consistency” in its results before doing so. In the longer-term, the Co reiterated that it is striving to capture 10% of the world’s gaming software market, and its investments in AI will be integral to reaching that goal. Advertising and shopping on the Roblox platform will become more “incremental” pieces of the puzzle moving forward as well.

-> EA shares rose +2.4% in reaction to earnings and closed the week up +4.2%; Roblox shares jumped +19.9% in response to earnings and finished the week up +22.1%; YTD, EA stock is trading up +10.6%, and Roblox stock is up +12.5%

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

EA’s Headline Numbers Reflected A Top-Line Beat But An Underwhelming Performance On Margins

• EA – FQ2 headline results were MIXED: FQ2 net bookings incr’d +14.2% y/y (vs FQ1’s -20.0% y/y) and beat cons by +1.9%; However, non-GAAP gross margin of 78.7% (vs FQ1’s +80.3%) missed cons’ 79.0%, and non-GAAP op margin of 31.5% (vs FQ1’s 11.3%) fell short of cons’ 31.8%
  • Live Services & Other (60% of net bookings) – BEAT: Net bookings grew +10.5% y/y in FQ2 (vs -7.1% y/y in FQ1) and beat cons by +10.4%; The “breadth” of EA’s portfolio as well as the “overperform element” of sports franchises drove the upside
  • Full Game (40% of net bookings) – MISS: FQ2 net bookings were up +20.4% y/y (vs -58.1% y/y in FQ1) but missed cons by -3.5%; The turnaround in y/y growth was driven by the “successful expansion” of EA’s American football ecosystem

EA – There Were Some Puts & Takes In The FQ3 Outlook…

• FQ3 net bookings guidance was lower than the Street anticipated: Forecasts a net bookings range of $2.40-2.55bn in FQ3, which at the mid-pt represents a +4.6% y/y increase but missed cons by -2.2%
  • Drivers: Growth will be “largely driven” by the launch of Dragon Age and “cont’d growth” in the EA SPORTS FC franchise
  • BUT there will be a ~-3% combined headwind: From the impact of the sunsetting of mobile titles and the performance of the Co’s catalog
• GAAP EPS is expected to be down from the prior yr qtr: Anticipates GAAP EPS between $0.85-1.02, marking a -12.6% y/y decline at the mid-pt
  • Breakdown: Expects net rev of $1.75-2.25bn, cost of rev between $450-480mn, and OpEx of ~$1.1-1.5bn

…But “Strong Momentum” Enabled EA To Raise FY25 Guidance

• FY25 net bookings guidance was raised by $150mn at the mid-pt: Sees net bookings between $7.50-7.80bn (vs prior $7.30-7.70bn), topping cons by +0.4% at the mid-pt
  • EA is on track to maintain ~+msd% y/y growth for live services: Despite the underperformance from Apex Legends
    • The American football business is projected to exceed $1bn+ in net bookings in FY25
    • Global football is expected to grow net bookings over a record prior yr
  • FX is expected to have a minimal impact on net bookings: If rates remain unchanged
  • The revised range implies a seq accel in FQ4 net bookings over FQ3: Given that a new title launch is slated for FQ4
• FY25 GAAP EPS is now expected to be +$0.41 higher at the mid-pt: Forecasts GAAP EPS of $3.82-4.33 (vs prior $3.34-4.00)
  • Net rev guidance was raised by +$250mn at the mid-pt: Anticipates a net rev range of $7.4-7.7bn (vs prior $7.1-7.5bn)
  • Cost of rev is expected to be between $1.53-1.56bn
  • OpEx is now projected to be +$85mn higher at the mid-pt: Expects OpEx of ~$4.445-4.515bn (vs prior $4.35-4.44bn)
• The outlook for cash from operations incr’d by +$25mn at the mid-pt: Anticipates cash from operations between $2.075-2.275bn (vs prior $2.050-2.250bn), though this was -2.0% below cons at the mid-pt

EA – Longer-Term Targets Outlined At EA’s Recent Investor Day Were Reiterated

• EA is “building conviction” that it can “significantly outperform the mkt” for net bookings growth through FY27: Based on the “strong momentum” in its biz exiting H1:FY25
• “Material margin expansion” is still expected from FY25 through FY27: Driven primarily by “incr’d scale” and despite the Co’s plans to “continue to invest in the future”

EA – Commentary On Key Franchises – American Football Was The Clear Standout

• The performance of American football exceeded EA’s expectations: Both engagement and overall spend in the community more than doubled y/y during the qtr
  • MVP Bundle was “one of the biggest selling single products in the packaged goods realm… this yr”: This “underscores the power of an aggregated community and an expanded ecosystem of experiences”
    • College Football 25 was the best-selling HD title in North America through Sept: “The impressive launch… has become one of the biggest moments in American sports entertainment so far this yr”
    • Ultimate Team also contributed to upside: Highlighted as one of the connected modes between the titles that has been driving engagement
  • There has been “incredible engagement” in EA’s American football community: Total hours played were up +140% y/y in FQ2: Fans have been playing both Madden and College Football 25
    • The Co has also seen “incredible success” in expanding its audience: New players to the community more than doubled y/y and represented ~25% of the player base
    • Former players are also re-joining the community: ~25% of the base consisted of lapsed players that returned to the community in FQ2
  • EA has plans “to continue the momentum well into the future”: Expects to continue adding new connections, more modalities, more creative tools, and new community spaces “beyond the field of play”
    • “The bigger oppty… is really to become kind of the preeminent football fan platform in this country” across NFL and College: EA is working w/ partners, leagues, and players to do that moving forward
• EA SPORTS FC “delivered in line” w/ the Co’s expectations: EA SPORTS FC titles saw y/y live svs net bookings growth during the qtr and remain on pace to increase on a y/y basis in FY25 following a “record prior yr”
  • EA SPORTS FC 25 saw a “successful launch”: The “strength” from FC 24 carried into the launch of the rollout of FC 25
    • Spender conversion and monetization metrics improved y/y: In addition to Rush and Ultimate Team content, both FC Mobile and FC Online saw net bookings growth from incr’d monetization
  • The new “deeply social” Rush game mode is a “major step forward” for the franchise: The new format is “loved by both old and new players” and is the preferred way to play FC by over half of veteran players
    • The mode is driving “deeper engagement for longer”: Along w/ contributing to more Ultimate Team engagement, matches between friends have more than doubled y/y b/c of Rush; This has had a “positive impact on monetization”
  • “EA SPORTS FC is the largest franchise in the Western world”: On a TTM basis, the franchise is reaching +130% more players worldwide, including w/ FC Mobile and FC Online
• Apex Legends net bookings “fell short” of EA’s expectations –
  • Recent structural changes didn’t provide an uplift…: Season 22 launched w/ “significantly more new features for casual and seasoned players”, and freemium access was extended across the first half of the season’s Battle Pass; However, this didn’t result in the “lift in monetization” that was expected
    • … Though spending conversion did return to levels consistent w/ previous seasons: Following the second half release of the Season 22 Battle Pass on Sept 17
  • Lower engagement levels are now expected for the rest of FY25: The franchise isn’t expected to start growing again until EA “get[s] through the latter parts of early 2026 and beyond”
    • “Systematic change” is necessary to revamp the franchise: Will invest in “meaningful systematic innovation… that fundamentally changes the way the game plays” as well as in “the growth of [the Co’s] season-oriented content”
    • There are no plans to launch a new Apex title: EA doesn’t want its Apex player base to lose their progress in the current game or the investments they’ve already put into the ecosystem
• The Sims franchise surpassed EA’s expectations: EA saw “strong player demand” for its content catalog, as “incr’d engagement throughout the qtr” and weekly challenges, such as the Reaper’s Reward Gameplay Event, drove a +6% y/y increase in weekly active users
  • Focused updates, new experiences, and UGC are expected to drive growth moving forward – 
    • The Life & Death Expansion Pack for Sims 4 was released on Oct 31: Early indicators show that the expansion is “trending ahead of Episode 16”
    • The Sims 4 Creator Kits will roll out in Nov: The new UGX product was designed and built by community creators
    • MySims: Cozy Bundle will launch on Nintendo Switch in Nov
    • The Sims movie also remains in the works w/ Amazon MGM Studios: Representing an oppty for the Sims to become “an even bigger cultural icon”

EA – Addt’l Color Other Recent Launches + Upcoming Titles

• Dragon Age: Veilguard has “breakout potential”: EA has “storied IP” in Dragon Age, a “storied studio” in BioWare, and has spent “extra time” to ensure that it created a rich world, w/ interesting characters and a compelling story
  • There is “limited competition for this category of game”: “Given some of the moves that have happened across the broader industry”
  • “The critical reviews have been incredibly strong”: Still, the Co cautioned that “it’s too early to predict the outcome” and has maintained its original assumptions for the title to this point
• NHL 25 launched in Oct: This iteration has “enhanced gameplay powered by new tech called ICE-Q that delivers the most authentic hockey experience to-date”
• “You should expect more key developments and news around [EA’s] massive online communities… in the “coming qtrs”: Including updates regarding Battlefield and SKATE

EA – Details Regarding The Upcoming EA Sports App Rollout

• EA is planning to soft launch the EA SPORTS App in Spain: The limited release will focus on European football and will benefit from the Co’s partnership w/ La Liga
  • “Global football is just the beginning”: The Co plans to introduce more sports in more regions in the future via a “scaled released cadence”; Will use data from each release to help “define deeply engaging future features
    • The rollout will be on a “phase-by-phase” basis: The Co will be “very thoughtful and deliberate” about how it rolls out the EA SPORTS App to the EA SPORTS audience that “numbers in the hundreds of millions”
  • There’s an “incredible oppty” to “remove friction” from the “broader fan experience”: People typically leave the Co’s platform after games to talk about them on social and then watch highlights on another platform; EA will look to “bring all of those things together for [its] fan community”

EA – Capital Allocation Notes

• EA returned a ~similar amount to shareholders seq: The Co returned $426mn to shareholders in FQ2 through buybacks and dividends, representing a +13.3% y/y increase
  • Previous guidance implies returns to stockholders will dip in H2:FY25: Given that EA has returned $851mn FYTD and had guided for $1.5bn for yr at its recent Investor Day

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

Roblox – Reported Its “Best” Financial Qtr In History, W/ “Fantastic Top-Line Growth”

• Roblox – Headline results beat on all fronts: Q3 net bookings were up +34.4% y/y (vs +22.4% y/y in Q2) and surpassed cons by +9.6%; Rev grew +28.9% y/y (vs +31.3% y/y in Q2) and beat cons by +4.6%; Adj EBITDA, including the impact of deferred rev, of $223.4mn (vs $114.4mn in Q2) was +49.6% above cons
  • Roblox has made “incredible progress” in driving “really significant growth in FCF”: FCF jumped +266.4% y/y and closed a wide +75.8% ahead of cons, as the Co has been cont’ing to “drive operating leverage” and turning that into FCF

Roblox – Q4 Guidance Incorporated Some Conservatism, Given The Co’s Desire For A Longer Track Record

• Q4 net bookings growth guidance reflected a decel seq but still outpaced Street estimates: Expects net bookings between $1.336-1.361bn, implying a +19.7% y/y increase and topping cons by +0.6% at the mid-pt; Despite the +34% y/y increase in Q3, the Co wants “more time and consistency” before adjusting its targets
• Adj EBITDA is forecasted to improve seq when including the effect of deferred rev: Sees an adj EBITDA range of $10-30mn (vs $55mn in Q2) when excluding adjustments for changes in deferred rev; When including the $320mn expected net change in deferrals, adj EBITDA is projected to be $340mn at the mid-pt
• FCF is projected to decline seq: Anticipates FCF between $100-115mn (vs $218mn in Q3, $112mn in Q2, and $191mn in Q1), w/ net cash & cash equivalents from operating activities of $170-185mn offset by CapEx of $70mn

Roblox – Also Provided More Details Around Its Other Long-Term Goals

• The Co has “enormous headroom” to grow within the global gaming software mkt: Roblox initially issued its target of having 10% of the world’s gaming software mkt rev flowing through Roblox in Sept; The Co currently has less than 3% of share of the gaming mkt, which it estimates to be worth $180mn
  • There’s oppties for “enormous growth” in underpenetrated genres: Roblox is aiming to double its mkt share in sports & racing, triple it in shooters (including battle royale formats), and double it in open-world and RPG genres; The Co already has “great traction” in simulation, roleplay, and action

Roblox – Q3 User Metrics Saw Accelerating Growth Across All Regions

• Q3 growth in both DAUs and hours engaged accel’d seq and were higher than anticipated: DAUs incr’d +26.6% y/y in Q3 (vs +21.4% y/y in Q2) and finished +5.5% ahead of cons; Hours engaged were up +29.4% y/y (vs +24.3% y/y in Q2) and beat cons by +6.3%
  • US & Canada – BEAT: Q3 DAUs rose +26% y/y in Q3 (vs +21% y/y in Q2) and topped cons by +7.4%; Hours engaged grew +28% y/y (vs +23% y/y in Q2)
  • Europe – MISS: DAUs were up +15% y/y in Q3 (vs +14% y/y in Q2) but slightly missed cons by -0.5%; Hours engaged incr’d +17% y/y (vs +16% y/y in Q2)
  • APAC – BEAT: Q3 DAUs jumped +37% y/y (vs +31% y/y in Q2) and topped cons by +6.8%; Hours engaged rose +45% y/y (vs +39% y/y in Q2)
    • Growth in Japan and India was spotlighted: 
      • Japan DAUs incr’d +59% y/y in Q3 (vs +56% y/y in Q2), w/ hours engaged up +69% y/y (vs +66% y/y in Q2)
      • India DAUs were up +55% y/y (vs +57% y/y in Q2), and hours engaged grew +57% y/y (vs +60% y/y in Q2)
    • Rest of World – BEAT: DAUs incr’d +30% y/y in Q3 (vs +22% y/y in Q2) and topped cons by +5.7%; Hours engaged rose +29% y/y (vs +22% y/y in Q2)

• Roblox highlighted some factors that drove its outperformance – 
  • The Co’s dev community is publishing “more significant content updates” vs last yr: Believes this is “further driving DAUs”
  • Experiences on Roblox’s platform are also “continuing to go viral”: Q3 saw experiences like RIVALS, a team-based shooter, and Dress to Impress, a dress-up experience, “really go viral around the world”
  • There’s also been a “distribution of experience and spending on the platform”: Highlighted that spending growth was “wider and flatter” and “more evenly distributed among the top [100] experiences in Q3”; There have also been “a lot of new entrants” into the top 25
    • The NFL’s experience is rapidly gaining popularity: It was the 32nd highest experience by spend upon launching on Sept 13, and its ranking is “continuing to rise in Oct”
  • LiveOps events have been “attracting new users” and the cadence of LiveOps events “is going to be higher than once per qtr”

Roblox – Growth In Other Q3 KPIs Also Reflected A Broad Outperformance

• Age 13+ DAU growth stepped up seq: Q3 age 13+ DAUs of 53.6mn were up +34% y/y (vs +26% y/y in Q2); Age 13+ users comprised 60% of total DAUs (vs 58% in Q2)
  • Under age 13 DAU growth also ticked up seq: Under age 13 DAUs of 34.5mn grew +16% y/y in Q3 (vs +15% y/y in Q2)
• Monthly unique payer (MUP) growth was also stronger seq: MUPs rose +30% y/y in Q3 (vs +22% y/y in Q2)
• Avg daily bookings per DAU topped estimates: Q3 avg bookings per DAU of $12.70 incr’d +6.2% y/y (vs +0.8% y/y in Q2) and beat cons by +5.2%; The Co is “starting to see the benefit of changes in the economy and monetization”, as they sometimes “take a while to flow through”
  • “Everything contributed to the monetization improvements this qtr”: Including “growth on all platforms, growth in all geos, growth in all ages, [and] growth in all gender[s]”; Console helped as well but is a “relatively small part of the biz”
• The non-console biz grew +28% y/y: Non-console bookings represented 92% of total bookings, while console bookings accounted for just 8%
  • Roblox still has yet to lap PlayStation comps: When Co launched on the console in Q4:23, this roughly doubled the size of its console mkt
  • “Xbox is growing very quickly”: Believes it “should grow like all the other platforms are growing” in 2025

Roblox – Advertising & Shopping Remain Key Growth Initiatives

• Highlighted “three big systems that are… cont’ing to improve on the platform” – 
  • “The first is traffic”: Continues to see growth in three mechanisms that are live, including paid sponsored titles, organic discovery, and curated ads on the home page, which are complementing teleport traffic ads;
    • The Co has also introduced search advertising as well: “Creators are now starting to bid against that”; It is a “robust future mechanism” for both brands and devs that are launching experiences to buy traffic
  • “The second is video”: Roblox is live w/ video and is “moving to support rewarded video as well as experience”, which is “cont’ing to do well”
  • “Our Shopify partnership… complement[s] the growth… of our current economy”: The partnership allows devs and brands to sell in-game and physically
• “Brands and ads will be incremental [to monetization] down the road”:

Roblox – AI Investments Drove Higher Personnel Expenses / Price Optimization Experiments Are Starting To Bear Fruit W/ Devs

• DevEx ratios were lower seq: Q3 DevEx fees of $231.5mn were up +36% y/y (vs +26% y/y in Q2), w/ a payout ratio of 20.5% (vs 21.8% in Q2)
  • Some key learnings from Roblox’s experiments w/ price optimization for devs – 
    • Prices were more often reduced than incr’d: The optimizer “generally” pointed to reducing prices rather than raising them to drive overall rev for individual devs
    • “It is not a zero-sum game”: Roblox believes “that every dev can optimize their prices independently without pulling from one and pushing to the other”
• Personnel expenses were higher on a y/y basis: Q3 personnel expenses incr’d +3% y/y (vs ~flat y/y in Q2), as higher infra, trust, and safety costs, R&D, and sales & mkting costs offset lower G&A expenses
  • Investments in AI drove higher y/y infra, trust, and safety costs: Infra, trust, and safety costs rose +4% y/y in Q3 (vs -8% y/y in Q2), as the Co has been “migrating more and more of [its] safety infrastructure to AI where possible”, which it sees as the “responsible” thing to do+
    • Trust & safety systems have been “getting better” b/c of AI: This will enable the Co to launch in Dec paid access experiences, “where at $49.99 devs will be earning 70%”

Roblox – Other Highlights

• “Safety and civility systems are shipping and improving constantly”: Emphasized that this occurs “several times a month rather than step changes”; Roblox anticipates “several more releases before the end of next yr around verifiable parental consent, improvements to filters, and more”
• The Co expects to see AI-powered 3D generation incorporated into its platform next yr: “Ultimately, users on our platform will design clothing by describing it and seeing it magically appear in 3D and then get to wear it and put it on their avatar”

• iPhone drove Apple’s FQ4 performance, while sales heading into the holiday season are expected to be lighter than the Street estimated
  • Top-line revenue beat of +0.4% was entirely driven by iPhone, as all other segments missed: Was a Sept qtr rev record and grew +6% y/y (accel vs +5% y/y in FQ3)
    • Set Sept qtr rev records in the Americas, Europe and the Rest of Asia Pacific, as well as in the US, Brazil, Mexico, France, the UK, Korea, Malaysia, Thailand, Saudi Arabia and UAE
    • Set all-time rev record in India
  • Products rev accel q/q: Grew +4% y/y (accel from +2% y/y in FQ3)
    • iPhone grew in every geographic segment and set a new Sept qtr record: Up +6% y/y (accel from -1% y/y in FQ3)
    • Mac: Up +2% y/y (in-line w/ FQ3)
    • iPad: Up +8% y/y (decel from +24% y/y in FQ3)
    • Wearables, Homes, and Accessories: Down -3% y/y (decel from -2% y/y in FQ3)
  • Services set an all-time rev record: Up +12% y/y (decel from +14% y/y in FQ3)
    • Reached all-time rev records across “most” of their categories
  • FQ1 guidance came in a bit light
    • Expect Dec qtr total Co rev to grow low- to mid- single digits y/y vs cons +6.8%
      • Expect Services rev to see double-digit growth at a rate similar to FY24
    • Gross margin: 46-47% vs cons 45.9%
    • OpEx: $15.3-15.5bn vs cons $15.25bn
    • OI&E: ~-$250mn, excluding any potential impact from the mark-to-market minority investments
  • Just the beginning of Apple Intelligence
    • Made first set of Apple Intelligence features available in the US in English on iPhone, iPad, and Mac: Initial features include system-wide writing tools, a more natural and conversational Siri, a more intelligent photos app, notification summaries and priority messages
      • Getting “a lot” of positive feedback from developers and customers.
      • In the first three days since its release, 18.1 adoption is twice as fast as year-ago qtr’s 17.1 adoption
    • Addtl features coming in December, including “even more” powerful writing tools, a new visual intelligence experience that builds on Apple Intelligence and ChatGPT integration, as well as localized English in several countries, including the UK, Australia, and Canada
    • Will then have more languages and features available in April 2025
  • Vision Pro availability expansion: Bringing Vision Pro to Korea and UAE
  • New store openings: Opening 2 new stores in the qtr and will open 4 new stories in India

-> Separately, but related, in a filing on Friday, satellite provider Globalstar announced that Apple will invest up to $1.5bn in the Co to fund the expansion of its iPhone communication svs; Under the funding agreement, Apple will commit $1.1bn in cash and also purchase 20% equity in Globalstar for $400mn; Globalstar said it will allocate 85% of its network capacity to Apple; Back in 2022, Apple partnered with Globalstar for a feature that would allow Apple users to send emergency messages from remote areas (link/link)

-> Apple fell -1.3% in reaction to its print and ended the week down -3.7%; YTD, the stock is up +15.8%

• Reddit posted a blowout qtr and issued higher than expected Q4 guidance
  • Q3 revs grew +68% y/y and beat cons by +11%
    • Ad revs grew +56% y/y, driven by higher user growth, more efficient ad load, and expansion of conversation placement ads; Performance revenue from mid and lower-funnel objectives drove more than half the growth, accounting for ~ 60% of total ad rev
  • Adj EBITDA beat cons by +60%; Highlighted strong cost leverage and moved to profitability y/y
  • DAUs were up +47% y/y to 97mn (+6.6% seq) and beat cons: Upside came internationally
    • Conversation page views grew by +40% y/y
  • ARPU grew +14% y/y and beat cons by +10.5%, w/ upside in both the US and internationally
  • Q4 guided above cons:
    • Mid pt of rev was +21% above cons (implies +54-60% y/y growth)
    • Adj EBITDA was +35% above cons
  • Focus areas looking ahead – 
    • Improve the search experience: Significant investments and improvements are planned for 2025 but monetization will happen thereafter
    • Continued investment in ad delivery, formats, and measurement products
    • International expansion: Reddit aims to expand its machine translation efforts to 30+ countries by 2025
    • Pursue additional data licensing deals that appropriately value Reddit’s content (but will balance external partnerships with internal prodict development)
    • The Co is focused on maintaining its commitment to scaling profitably while continuing to be the go-to place for conversations and community on the internet

-> Reddit rallied +42.0% on the back of the strong results//guidance and ended the week up +38.9%; Since its IPO in Narch, the stock is up +232.3% (vs its IPO price of $34/shr)