Friday Grok: Dotcom results — very good news, with more to come

Apple, Amazon, Zinga and Facebook (despite the protests) surge

The dotcom sector is blitzing it. Apple, Amazon, Facebook and Zinga have all reported this week, and while commentary has been a little mixed around some of the results, the reality is that the view from the cockpit of the helicopter is spectacular.

Apple continues to beguile, surprise, frustrate and reward investors. Not long ago there was speculation that it would spike in value and become the world’s first trillion dollar company.

Such an forecast inevitably presages a decline and indeed Apple’s price went into rapid retreat for a short while as investors tested whether the tech sector’s prodigal son had perhaps become a little too toppy.

Grok’s view: Who the hell knows? But that doesn’t detract from its stunning result this week, driven by the rising tiger in the East.

Apple’s quarterly profit was extraordinary, coming in at $11.6 billion. Its profits exceed Google’s revenues.

But it’s the metrics underpinning the result that really tell the extraordinary story of an outfit that was dead in the water a little more than 15 years ago and came back to become the biggest company in the world. There’s been nothing else like it.

According to the <i>The New York Times</i>, “The company said it sold 35.1 million iPhones in the quarter, an 88 per cent increase from the period a year ago. It sold 11.8 million iPads, more than double the number it sold in the same quarter last year.”

Business Insider has a great selection of statistics on Apple in this infographic. Among the data, Apple’s cash flow for the last 6 months was 29 billion dollars, which, as the website points out, means the company is generating $7 million in cash per hour, every hour of every day.

And here’s the kicker, according to Business Insider. Apple’s iPhone company by itself is the most profitable company in the world. Kind of puts everyone else’s results into perspective.

That is really unfair, for instance to Facebook, which many forget is still a relatively young outfit on its way to a $100 billion valuation. Actually, it only valued itself at about $77 billion when calculating the Instagram takeover, the <i>Financial Times</i> noted.

Facebook’s revenues grew strongly for the quarter when compared to the same quarter a year ago, but that’s not the story the business press wanted to highlight. Instead, comparisons were made with the previous quarter, against which there was a decline. Cyclical variance between quarters is hardly unusual, but for Facebook this represented its first quarterly decline. It was likewise pinged for the hit to profitability — a function of higher expenses for engineering as it scales up infrastructure around the world.

Interestingly, Amazon has a similar result to Facebook in the sense that revenues were up and profits were down, but that didn’t stop investors piling in and driving the price up 14 per cent. The <i>Wall Street Journal</i> made an obvious but still an important point, “Investors, who have in the past groused over Amazon’s high spending, appear inured to the company’s expenditures and instead focused on its growth. In after-hours trading, Amazon’s stock jumped more than 14 per cent to $224 after ending at $195.99 at the 4pm market close.”

Finally, a company that gets less coverage in the business tech media — Zinga. The company is a gaming outfit that drives an usually high percentage of Facebook revenues and is itself largely anchored to the social media website.

Like Facebook, its revenues grew strongly compared to a year ago and its profits declined on heavy spending. But again, investors forgave it, as they did Amazon, driving its share price higher.

<i>The Australian>/i> (just Google the headline to get behind the paywall), in its report explained, “Zynga, which makes such casual gaming titles as FarmVille and Mafia Wars, has reported surging revenue as more users pick up its titles. The company generates the lion's share of its revenue from the Facebook platform, charging users real money for virtual goods used in its games. The company has worked to broaden its appeal beyond Facebook with the launch of its own website, though most players still use the social media platform, linking Zynga's share price to reports of Facebook's performance.”

Andrew Birmingham is the CEO of Silicon Gully Investments. Follow him on Twitter @ag_birmingham . He owns no shares in Apple, Amazon or Zinga, and won't be buying Facebook shares either. He owns Fairfax Media shares. Oh right, maybe he should have mentioned that earlier and saved you the trouble of his views. In his defence, he didn't buy them; they were thrust upon him in lieu of cash.

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