Surging costs send shares of ecommerce challenger Pinduoduo down 17 percent

China’s new tech force Pinduoduo is continuing its race to upend the ecommerce space, even at the expense of its finances. The three-year-old startup earmarked some big wins from the 2018 fiscal year, but losses were even greater, dragging its shares down 17 percent on Wednesday after the firm released its latest earnings results.

The Shanghai-based company is famous for offering cheap group deals and it’s able to keep prices down by sourcing directly from manufacturers and farmers, cutting out middleman costs. In 2018, the company saw its gross merchandise value, referring to total sales regardless of whether the items were actually sold, delivered or returned, jump 234 percent to 471.6 billion yuan ($68.6 billion). Fourth-quarter annual active buyers increased 71 percent to 418.5 million, during which monthly active users nearly doubled to 272.6 million.

These figures should have industry pioneers Alibaba and JD sweating. In the twelve months ended December 31, JD fell behind Pinduoduo with a smaller AAU base of 305 million. Alibaba still held a lead over its peers with 636 million AAUs, though its year-over-year growth was a milder 23 percent.

But Pinduoduo also saw heavy financial strain in the past year as it drifted away from becoming profitable. Operating loss soared to 10.8 billion ($1.57 billion), compared to just under 600 million yuan in the year-earlier period. Fourth-quarter operating loss widened a staggering 116 times to 2.64 billion yuan ($384 million), up from 22 million yuan a year ago.

Pinduoduo is presenting a stark contrast to consistently profitable Alibaba, which generates the bulk of its income from charging advertising fees on its marketplaces. This light-asset approach grants Alibaba wider profit margins than its arch-foe JD, which controls most of the supply chain like Amazon and makes money from direct sales. Pinduoduo seeks out a path similar to Alibaba’s and monetizes through marketing services, but its latest financial results showed that mounting costs have tempered a supposedly lucrative model.

Where did the ecommerce challenger spend its money? Pinduoduo’s total operating expenses from 2018 stood at 21 billion yuan ($3 billion), of which 13.4 billion yuan went to sales and marketing expenses such as TV commercials and discounts for users. Administration alongside research and development made up the remaining costs.

Pinduoduo’s spending spree recalls the path of another up-and-coming Chinese tech startup, Qutoutiao . Like Pinduoduo, Qutoutiao has embarked on a cash-intensive journey by burning billions of dollars to acquire users. The scheme worked, and Qutoutiao, which runs a popular news app and a growing e-book service, is effectively challenging ByteDance (TikTok’s parent company) in smaller Chinese cities where many veteran tech giants lack dominance.

Offering ultra-cheap items is a smart bet for Pinduoduo to lock in price-intensive consumers in unpenetrated, smaller cities, but it’s way too soon to know whether this kind of expensive growth will hold out long-term.

China’s Qutoutiao is burning millions of dollars to take on TikTok parent

Chinese startup Bytedance is finding itself surrounded by challengers as its empire of new media products, including global video app TikTok and Chinese news aggregator Jinri Toutiao, gather steam. Tencent tried to play catch-up with a handful of new short-video services, and a Facebook clone of TikTok was reportedly in the making.

Less famous players also tried to take on Bytedance, but the costs of keeping up with the world’s most valuable startup are high. One company that’s made its mark is Qutoutiao, which is pronounced “chew-tow-ti-ow” and means “fun headlines” in Chinese.

Like ByteDance, the Shanghai-based company began as a news aggregator banking on personalized content often characterized by gossipy news and viral videos. By the time Qutoutiao debuted in 2016, Jinri Toutiao had more than 40 million daily users and was fast growing by feeding people what they wanted. Qutoutiao needed something more than just clickbaits and the solution was a costly scheme that rewards users with cash prizes for consuming more content and getting their friends to sign up.

qutoutiao

Screenshots of the Qutoutiao app, which is characterized by clickbait content akin to those on Jinri Toutiao

The startup was able to play the expensive game on account of sizable fundings. Before pushing ahead with an $84 million initial public offering in the U.S. last September, the firm had secured $242 million from backers including Tencent. All that capital arrived within two years since its launch, and much of the money went to acquiring and retaining users.

In its fourth quarter, sales and marketing expenses soared 463 percent to almost $200 million. Revenues climbed 484 percent to $440 million in 2018, but the increase was tempered by the firm’s skyrocketing net loss, which widened to $283 million compared with $14.3 million just a year ago.

qutoutiao loss

So far the spending spree appears to be paying off. In the three months ended December 31, monthly active users nearly tripled to 93.8 million, the company claims in its latest financial results. People spent an average of 63 minutes on the firm’s services each day over the quarter, doubling from about 30 minutes in the year-earlier period.

Bytedance’s Jinri Toutiao is still ahead by a large margin with 2.4 billion MAUs in 2018, although that’s the result of six years in operation. TikTok, on the other hand, has collected over 1 billion downloads worldwide. But Bytedance, too, is hemorrhaging money over its ambitious global vision. It lost a staggering $1.2 billion last year, The Information reported earlier citing sources.

Small-town base

In the long run, Qutoutiao vows to improve its margins by “controlling user engagement expenses,” chief executive and founder Tan Siliang, who previously worked at Yahoo China and games publisher Shanda as a senior engineer, told analysts last week on a conference call. “As our user base continues to expand, our user acquisition expenses as a percentage of revenues will decline.”

The company is also aiming high. Last week, Tan said in an internal meeting that he believes “Qutoutiao will quickly rise to become a Top 10 internet company in China by 2019,” multiple Chinese outlets reported. To that end, the boss plans to double the company size by adding 2,000 staff this year, a move that contrasts with large-scale layoffs that have recently shaken up Chinese tech heavyweights like NetEase.

We’ve reached out to Qutoutiao for comments on the reports and will update the story when we hear back.

What’s also notable about Qutoutiao is its overwhelmingly small-town base, areas that China’s tech giants increasingly covet as markets in large urban centers reach saturation. The company says 70 percent of its users live in cities that are Tier 3 and below, far and remote from megacities Beijing, Shanghai and the likes.

“[Small-town residents] used to rely predominantly on TV for news. Now with Qutoutiao, they could obtain much more timely, personalized and diverse news and information and, as a result, become frequent readers,” said Tan on the call. “The Qutoutiao app has total installations of about 300 million so far, which still has considerable further penetration potential given a 1 billion population that live in Tier 3 and below cities.”

Like Bytedance, Qutoutiao has branched out to other media forms. It also runs Midu, an e-book app that has collected 5 million users by providing a more thoughtful alternative to its clickbait-filled news app. More recently, the company trailed Bytedance’s to test out a short video service, which hasn’t officially launch but will make a big push in the second quarter. And the startup is ready to splurge if the app grows large enough to face off TikTok.

“On the short video side, it is hard to give an estimated budget on the marketing side because it really depends on how popular or what kind of traction it receives with users,” said chief financial executive Wang Jingbo during last week’s conference call. “In case it has very strong traction with users such as TikTok, we will definitely be spending much more on the marketing side.”

JD.com shares take off despite slowing revenue growth

Shares of JD.com, the Chinese e-commerce service that rivals Alibaba, are on the rise today after the online retailer announced better than expected results for Q4 2018, bucking uncertainty around tech companies in China.

The company reported net revenue of RMB 134.8 billion ($219.6 billion) for the final quarter of last year. Despite representing the slowest growth rate year-on-year since JD went public five years ago (22.3 percent), the figure beat analyst predictions of $19.149 billion. JD.com also beat on earnings per share.

That combination saw its Nasdaq share price rise by as much as 14 percent in pre-market trading, Reuters reports. The stock is up around five percent at the time of writing, according to Yahoo Finance data.

JD.com went public on the Nasdaq in 2014

Chinese startups are weathering challenging economics in the country. Apple recently cut its quarterly revenue forecast on account of China’s slowdown, while domestic Chinese tech companies have gone further and cut costs.

Some of those include Didi laying off 15 percent of its staff and NetEase making reductions across multiple units, while JD.com itself is reportedly parting with 10 percent of its management team as part of downsizing.

JD.com’s revenue growth reached an all-time low as a public company in Q4 2018

Against that backdrop, beating expectations was enough to trigger investor interest despite the slowing growth of JD.com’s business. The final quarter of the year is typically its most lucrative in terms of revenue, thanks to the Singles’ Day shopping festival. That said, the company carded an overall quarterly net loss of RMB 4.8 billion, or $700 million, in Q4.

JD.com’s annual performance saw revenue rise 27.5 percent in 2018 to reach RMB 462.0 billion ($67.2 billion) with a loss of RMB 2.5 billion, $400 million. In 2017, the business eeked out a net income of RMB 116.8 million, which converted to $18 million at the time.

On the technology side, JD.com has invested heavily in drones, unmanned delivery and automated warehouses with a preference to play the ‘long-game’ on cutting-edge tech over making short-term investment spurts.

However, it has been plagued by scandal after CEO Richard Liu was arrested in the U.S. on suspicion of alleged sexual misconduct. Ultimately, Liu was not charged after authorities admitted that it was not possible to prove beyond a reasonable doubt the charges brought against him.

Box fourth quarter revenue up 20 percent, but stock down 22 percent after hours

By most common sense measurements, Box had a pretty good earnings report today, reporting revenue up 20 percent year over year to $163.7 million. That doesn’t sound bad, yet Wall Street was not happy with the stock getting whacked, down more than 22 percent after hours as we went to press. It appears investors were unhappy with the company’s guidance.

 

Part of the problem says Alan Pelz-Sharpe principle analyst at Deep Analysis, a firm that watches the content management space, is that the company failed to hit its projections, but he points out the future does look bright for the company.

Box did miss its estimates and got dinged pretty hard today, however the bigger picture is still of solid growth. As Box moves more and more into the enterprise space, the deal cycle takes longer to close and I think that has played a large part in this shift. The onus is on Box to close those bigger deals over the next couple of quarters, but if it does then that will be a real warning shot to the legacy enterprise vendors as Box starts taking a chunk out of their addressable market,” Pelz-Sharpe told TechCrunch.

This fits with what company CEO Aaron Levie was saying. “Wall Street did have higher expectations with our revenue guidance for next year, and I think that’s totally fair, but we’re very focused as a company right now on driving reacceleration in our growth rate and the way that we’re going to do that is by really bringing the full suite of Box’s capabilities to more of our customers,” Levie told TechCrunch.

On the positive side, Levie pointed out that the company achieved positive non-GAAP growth rate for the first time in its 14 year history with projections for the first full year of non gap profitability for FYI 20th of the year that it just kicked off.

The company was showing losses on a cost per share of .14 a share for the most recent quarter, but even that was a smaller loss than the .24 cents a share from the previous fiscal year. It would seem that the revenue is heading generally in the correct direction, but Wall Street did not see it that way, flogging the cloud content management company.

Chart: Box

 

 

Wall Street tends to try to project future performance. What a company has done this quarter is not as important to investors, who are apparently not happy with the projections, but Levie pointed out the opportunity here is huge. “We’re going after 40 plus billion dollar market, so if you think about the entirety of spend on content management, collaboration, storage infrastructure — as all of that moves to the cloud, we see that as the full market opportunity that we’re going out and serving,” Levie explained

Pelz-Sharpe thinks Wall Street could be missing the longer-range picture here. “The move to true enterprise started a couple of years back at Box, but it has taken time to bring on the right partners and infrastructure to deal with these bigger and more complex migrations and implementations,” Pelz-Sharpe explained. Should that happen, Box could begin capturing much larger chunks of the $40 billion addressable cloud content management market, and the numbers could ultimately be much more to investor’s liking.

Box fourth quarter revenue up 20 percent, but stock down 22 percent after hours

By most common sense measurements, Box had a pretty good earnings report today, reporting revenue up 20 percent year over year to $163.7 million. That doesn’t sound bad, yet Wall Street was not happy with the stock getting whacked, down more than 22 percent after hours as we went to press. It appears investors were unhappy with the company’s guidance.

 

Part of the problem says Alan Pelz-Sharpe principle analyst at Deep Analysis, a firm that watches the content management space, is that the company failed to hit its projections, but he points out the future does look bright for the company.

Box did miss its estimates and got dinged pretty hard today, however the bigger picture is still of solid growth. As Box moves more and more into the enterprise space, the deal cycle takes longer to close and I think that has played a large part in this shift. The onus is on Box to close those bigger deals over the next couple of quarters, but if it does then that will be a real warning shot to the legacy enterprise vendors as Box starts taking a chunk out of their addressable market,” Pelz-Sharpe told TechCrunch.

This fits with what company CEO Aaron Levie was saying. “Wall Street did have higher expectations with our revenue guidance for next year, and I think that’s totally fair, but we’re very focused as a company right now on driving reacceleration in our growth rate and the way that we’re going to do that is by really bringing the full suite of Box’s capabilities to more of our customers,” Levie told TechCrunch.

On the positive side, Levie pointed out that the company achieved positive non-GAAP growth rate for the first time in its 14 year history with projections for the first full year of non gap profitability for FYI 20th of the year that it just kicked off.

The company was showing losses on a cost per share of .14 a share for the most recent quarter, but even that was a smaller loss than the .24 cents a share from the previous fiscal year. It would seem that the revenue is heading generally in the correct direction, but Wall Street did not see it that way, flogging the cloud content management company.

Chart: Box

 

 

Wall Street tends to try to project future performance. What a company has done this quarter is not as important to investors, who are apparently not happy with the projections, but Levie pointed out the opportunity here is huge. “We’re going after 40 plus billion dollar market, so if you think about the entirety of spend on content management, collaboration, storage infrastructure — as all of that moves to the cloud, we see that as the full market opportunity that we’re going out and serving,” Levie explained

Pelz-Sharpe thinks Wall Street could be missing the longer-range picture here. “The move to true enterprise started a couple of years back at Box, but it has taken time to bring on the right partners and infrastructure to deal with these bigger and more complex migrations and implementations,” Pelz-Sharpe explained. Should that happen, Box could begin capturing much larger chunks of the $40 billion addressable cloud content management market, and the numbers could ultimately be much more to investor’s liking.

Uber reports $3B in Q4 revenue, rising operating losses

Ahead of its anticipated initial public offering this year, Uber reported a net loss of $865 million in the fourth quarter. That figure, however, was aided by a tax benefit that saved the company from reporting a $1.2 billion net loss in the period. On an adjusted, pro-forma basis, Uber’s net loss in the final quarter of 2018 was a slimmer $768 million.

The figures are an improvement of sorts. The firm reported a pro-forma net loss of $939 million in the preceding, third quarter of 2018, but also reported a smaller pre-tax net loss of $971 million. Regardless, Uber’s stiff losses continued in the quarter.

Meanwhile, Uber’s adjusted EBIDTA losses came in at $842 million, an increase of 88 percent year over year, and an increase of 60 percent from the third quarter. In that preceding quarter, Uber’s adjusted EBIDTA losses came in at $527 million. These increased losses can be attributed to increased competition and significant investment in bigger bets like micromobility and Elevate, for example.

In Q4 2018, Gross bookings (the amount collected before it pays drivers) went up 11 percent quarter over quarter, to $14.2 billion, while revenue increased 2 percent quarter over quarter to $3 billion.

Year over year, Uber’s gross bookings increased 37 percent and revenue increased 24 percent. But as a percentage of gross bookings, revenue declined to 21.3 percent. These numbers exclude the impact of SEA and Russia.

  • GAAP Revenue: $3.0 billion
  • Up 24 percent YOY
  • Up 2 percent QOQ
  • Revenue as a percentage of gross bookings declined 190 basis points to 21.3 percent

Compared to the entire fiscal year of 2017, Uber’s gross bookings increased 45 percent, to $50 billion in 2018. That resulted in a GAAP revenue increase of 43 percent, from 2017 to $11.3 billion. Losses also improved (decreased) from $2.2 billion in adjusted EBITDA losses in 2017 to $1.8 billion in 2018. That’s still a lot of money, but it does show overall positive signs that Uber is moving in the right direction.

“Last year was our strongest yet, and Q4 set another record for engagement on our platform,” Uber CFO Nelson Chai said in a statement. “In 2018, our ridesharing business maintained category leadership in all regions we serve, Uber Freight gained exciting traction in the US, JUMP e-bikes and e-scooters are on the road in over a dozen cities, and we believe Uber Eats became the largest online food delivery business outside of China, based on gross bookings.”

Other key stats for Uber’s Q4 2018:

  • Gross cash: $6.4 billion in unrestricted cash($4.8 billion at end of Q3 2018, $4.4 billon in Q4 2017)
  • Adjusted EBITDA margin: -5.9 percent of gross bookings (Q3 2018 was -4.1 percent)

IAC-owned publishing company Dotdash grew revenue by 44 percent last year

Holding company IAC just released its fourth quarter earnings report, which includes positive numbers for Dotdash, the rebranded company formerly known as About.com — revenue increased 32 percent in the quarter (to $40.2 million), and it was up 44 percent (to $131 million) for the fiscal year.

This comes after big layoff announcements from BuzzFeed, Vice and Verizon Media Group (which owns TechCrunch).

Unlike those companies — and unlike The New York Times, which actually seems to be doing well — Dotdash isn’t really a news publisher. Instead, it focuses on the same kinds of evergreen, informational and how-to content that you used to find on About.com, now divided up across more vertically focused brands like Verywell (health and wellness) and The Spruce (home improvement).

Still, it’s worth highlighting a media business model that seems to be working. IAC attributes the improved financials (adjusted EBITDA was $21.4 million for the year, compared to a loss of $2.8 million in 2017) to “strong advertising growth across several verticals,” as well as affiliate commerce revenue.

Dotdash has a disarmingly simple approach centered on quality content, site speed, and respectful monetization,” said IAC CEO Joey Levin in the letter to shareholders. “The company doesn’t buy traffic nor rely heavily on social networks. Dotdash’s brands simply help people to answer questions, solve problems and find inspiration when they’re searching for answers. Our readers come with specific intent, enabling us to connect advertisers to consumers based on stated interests using high-performing ads in a safe online environment.”

Levin added that Dotdash properties saw a total of 87 million unique visitors in December, compared to 51 million for About.com before the rebrand and new strategy.

Dotdash is also providing guidance for 2019, predicting revenue growth of 10 percent for the first quarter and 20 percent for the whole year, with adjusted EBITDA of $30 million to $40 million for the year.

Turning to other IAC properties, ANGI Home services (which owns Angie’s List) saw Q4 revenue increase 25 percent to $279 million, while Vimeo’s revenue increased 28 percent to $44.2 million.

In total, IAC brought in $1.10 billion in revenue for the quarter, a year-over-year increase of 16 percent, and beating analyst estimates of $1.07 billion. Adjusted EBITDA increased 40 percent, to $268 million.

Google’s still not sharing cloud revenue

Google has shared its cloud revenue exactly once over the last several years. Silence tends to lead to speculation to fill the information vacuum. Luckily there are some analyst firms who try to fill the void, and it looks like Google’s cloud business is actually trending in the right direction, even if they aren’t willing to tell us an exact number.

When Google last reported its cloud revenue, last year about this time, they indicated they had earned $1 billion in revenue for the quarter, which included Google Cloud Platform and G Suite combined. Diane Greene, who was head of Google Cloud at the time, called it an “elite business.” but in reality it was pretty small potatoes compared to Microsoft’s and Amazon’s cloud numbers, which were pulling in $4-$5 billion a quarter between them at the time. Google was looking at a $4 billion run rate for the entire year.

Google apparently didn’t like the reaction it got from that disclosure so it stopped talking about cloud revenue. Yesterday when Google’s parent company, Alphabet, issued its quarterly earnings report, to nobody’s surprise, it failed to report cloud revenue yet again, at least not directly.

Google CEO Sundar Pichai gave some hints, but never revealed an exact number. Instead he talked in vague terms calling Google Cloud “a fast-growing multibillion-dollar business.” The only time he came close to talking about actual revenue was when he said, “Last year, we more than doubled both the number of Google Cloud Platform deals over $1 million as well as the number of multiyear contracts signed. We also ended the year with another milestone, passing 5 million paying customers for our cloud collaboration and productivity solution, G Suite.”

OK, it’s not an actual dollar figure, but it’s a sense that the company is actually moving the needle in the cloud business. A bit later in the call, CFO Ruth Porat threw in this cloud revenue nugget. “We are also seeing a really nice uptick in the number of deals that are greater than $100 million and really pleased with the success and penetration there. At this point, not updating further.” She is not updating further. Got it.

That brings us to a company that guessed for us, Canalys. While the firm didn’t share its methodology, it did come up with a figure of $2.2 billion for the quarter. Given that the company is closing larger deals and was at a billion last year, this figure feels like it’s probably in the right ballpark, but of course it’s not from the horse’s mouth, so we can’t know for certain.

Frankly, I’m a little baffled why Alphabet’s shareholders actually let the company get away with this complete lack of transparency. It seems like people would want to know exactly what they are making on that crucial part of the business, wouldn’t you? As a cloud market watcher, I know I would. So we’re left to companies like Canalys to fill in the blanks, but it’s certainly not as satisfying as Google actually telling us. Maybe next quarter.

Alphabet revenues are up 22% but the stock is still dropping

Despite delivering a Q4 earnings revenue beat, Google parent company Alphabet’s stock is seeing a bit of a drop.

The massive search company reported revenue of $39.3 billion, up 22 percent year-over-year with an EPS of $12.77. Alphabet stock dropped more than 2 percent in after-hours trading.

The company’s beat of analyst estimates would have been a miss if not for a $1.3 billion unrealized gain “related to a non-marketable debt security.” Alphabet didn’t detail this further, but it kind of skews the earning beat based on what analysts actually had reason to expect.

Advertising revenues were up 20 percent YoY in Q4 to $32.6 billion. “Other” revenues (Cloud, hardware) were reported at $6.49 billion, up 31 percent year-over-year. “Other Bets,” which includes ventures like Waymo, Fiber and Verily, saw losses climb sharply to $1.3 billion with revenue sitting at $154 million, short of Wall Street estimates.

A number that analysts were increasingly looking closely at, traffic acquisition costs, climbed to $7.4 billion in Q4 up 15 percent year-over-year and up 13 percent from last quarter.

Samsung posts fourth-quarter profit drop, warns of weak demand until the second half of 2019

Samsung Electronics reported its largest quarterly profit decline in two years during its earnings report today. As the Galaxy maker warned in its earnings guidance earlier this month, its results were hurt by slower-than-expected demand for semiconductors, which had bolstered its earnings in previous quarters even when smartphone sales were slow.

Samsung’s forecast was also dour, at least for the first half of the year. It said annual earnings will decline thanks to continuing weak demand for chips, but expects demand for memory products and OLED panels to improve during the second half.

The company’s fourth-quarter operating profit was 10.8 trillion won (about $9.7 billion), a 28.7 percent decrease from the 15.15 trillion won it recorded in the same period one year ago. Revenue was 59.27 trillion won, a 10.2 percent drop year over year.

Broken out by business, Samsung’s semiconductor unit recorded quarterly operating profit of 7.8 trillion won, down from 10.8 trillion won a year ago. Its mobile unit’s operating profit was 1.5 trillion won, compared to 2.4 trillion won a year ago.

Smartphone makers, including Samsung rival Apple, have been hit hard by slowing smartphone sales around the world, especially in China. Upgrade cycles are also becoming longer as customers wait to buy newer models.

This hurt both Samsung’s smartphone and chip sales, as “overall market demand for NAND and DRAM drop[ped] due to macroeconomic uncertainties and adjustments in inventory levels by customers including datacenter companies and smartphone makers,” said the company’s earnings report.

Samsung expects chip sales to be sluggish during the first quarter because of weak seasonality and inventory adjustments by its biggest customers. The company was optimistic about the last two quarters of 2019, when it expects demand for chips and OLED panels to pick up thanks seasonal demand and customers finishing their inventory adjustments.