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Benedict Evans’ recent presentation ‘The end of the beginning’ provides a thought-provoking view on the past, present and future of technology. According to Evans, the first chapter of the epic tech story is nearing completion. This is the chapter concerning access. With broadly three quarters of the worlds population connected to the internet, growth in access and adoption is likely to slow.

We’ve had a peek at chapter twousage – and it appears to be a long, involved and exhilarating chapter where existing characters evolve or disappear, and new intriguing characters are introduced. Storylines shift and new plots emerge.

The end of the beginning, Benedict Evans

Four of the key characters – a mix protagonists and antagonists alike – are outlined below. While we focus here on recent results and short-term outlook, each have the potential to significantly shape or alter the storyline over the medium-long term.


On 25 October 2018 Amazon reported a huge beat on earnings, reporting Q3 EPS of US$5.75 beating the consensus estimate by a significant US$2.66. 3Q sales (US$56.57B +29.3% Y/Y were a bit light, some US$540M short, but it was the subdued guidance for the fourth quarter (normally their biggest) that rattled investors. That said Amazon only missed 3Q18 revenue forecasts by 1%, beat gross profit by 2-4%, EBITDA by 10-18% and Operating Income by 75% (or by >$1.5bn).

Similarly, while the mid-point of 4Q revenue guidance is below forecasts, its earnings guidance is significantly above. Gross profit (the better top line measure) is expected to grow 30% y/y in 4Q18. Amazon has now shown significant profit for the last 3 quarters in a row, even as revenue and unit growth were slightly below expectations.

Nothing in this report changes the fact that Amazon is the market leader in eCommerce where online shopping in the U.S. is only 13% of adjusted retail sales (ex-gas, food, and autos). Analysts predict that eCommerce is likely going to a 30% share over time. Amazon will continue to take share of overall eCommerce, and its flexibility in pushing first-party vs. third-party inventory and its Prime offering both serve as major advantages.

Additionally, Amazon Web Services (AWS) is the leader in the public cloud and remains the global market share leader at 33 percent — followed by Microsoft Azure (13 percent) and Google Cloud Platform (6 percent), according to Synergy Research Group.

Amazon returned +49.55% (AUD) in the year to 1 November 2018.

Tencent (Hong Kong: 700)

Tencent shares have been pressured this year by a number of factors: a weak Chinese equity market (-20% YTD), concerns regarding a slowdown in the Chinese economy, and uncertainty over when the government will provide approvals for its newer online games. We believe that these market and macro headwinds are relatively short term in nature and that Tencent will negotiate a positive outcome with the government regarding gaming regulation in 2019.

Analysts also remain positive on Tencent because of its “jewel in the crown”- the fully integrated mobile user platform WeChat. Going forward, Tencent should be able to drive earnings growth by further monetizing its strengths in mobile advertising, mobile gaming, and mobile payments.

Tencent has also recently flagged a new strategic direction where the company hopes to build on the foundation of its successful consumer internet presence focusing on the industrial internet for various key industries.

Tencent returned -27.75% (AUD) in the year to 1 November 2018.

Alibaba (NYSE: BABA)

Alibaba reported solid Q2 earnings on 2 November 2018 which were well received by the market. Alibaba results beat on EPS (EPS of $1.11 beat by a significant $0.53) but missed on revenue by about 1% (Revenue of $12.4B misses by $140M) even with 54% Y/Y revenue growth.

FY19 guidance was a bit light with revenue from 375B to 383B yuan (consensus: 395.75B yuan), a 4% to 6% adjustment from the original revenue guide as pressure from the US-China trade war continues.

Revenue breakdown: Core Commerce, $10.6B (+56% Y/Y); Digital Media and Entertainment, $865M (+24%); Innovation Initiatives and Others, $155M (+20%) Annual active buyers numbered 601M (consensus: 576M). Mobile Monthly Average Users totalled 666M (consensus: 634M).

A good performance overall but over the near-term China macro may be a bit of a headwind.

Alibaba returned -9.69% (AUD) in the year to 1 November 2018.

Twilio (NYSE: TWLO)

On 6 November 2018 Twilio reported Q3 EPS of $0.07 which beat consensus by $0.05; Revenue of $168.9M (+68.0% Y/Y) beat by $17.28M. Huge upside Q4 guidance sees revenue from $183M to $185M (consensus: $160.6M) and EPS of $0.03 to $0.04 (consensus: $0.02).

Revenue breakdown: Base, $154.3M (consensus: $142.7M); Variable, $14.6M (consensus: $8.9M).

Other key metrics: Gross margin, 55.4% (consensus: 54.6%); 3Q ending active customers, 61,153 (consensus: 60,316).

Highlighting its continued traction with large enterprises, Twilio also announced new deals with a Fortune 500 Financial Services firm and a Fortune 500 Medical Testing company. It also referred to a “large [OEM] deal” with Medallia as part of which Twilio will be powering the SMS channel for Medallia’s new product.

Twilio also reported that it signed a number of Flex deals in Q3, including one with Lyft, even though the product has been generally available only for the last few weeks. The market was impressed and Twilio was up 35% the next day.

Twilio returned +248.84% (AUD) in the year to 1 November 2018.

You can invest in these companies directly through Macrovue’s Disruptive Technology Vue.

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual and does not constitute financial advice. Consider the appropriateness of the information in regards to your circumstances.

Past performance is not a reliable indicator of future performance.

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