#WCOE in the Digital Economy, Q3 2020

AMD's Record-Setting Quarter

AMD delivered a blow-out quarterly result and outlook. The management is seeing a very healthy datacenter environment without any slowdown. The Xilinx acquisition makes sense. It's not about technology synergy between the two, but more about TAM expansion and complementary product portfolio + customers. We will judge the deal in three years by how successful they are in cross-selling and revenue synergy, especially in Xilinx's strong markets like communication and A&D.

If things work out, by the end of FY2021, AMD could be a company with 15B revenue, growing at 20%, with an FCF margin ~20%. 3B FCF generation and keeps growing, with net cash over 3B. By that time, they could be bigger than Intel in terms of market cap and start acquiring other datacenter related semi companies.AMD delivered a blow-out quarterly result and outlook. 

  • "Our business accelerated in the third quarter, resulting in record quarterly revenue, with net income and EPS more than doubling year-over-year"

  • "We set a record for quarterly client processor revenue and believe we gained client CPU share for the 12th straight quarter"

  • "In mobile, we set records for both quarterly notebook processor unit shipments and revenue as OEM sell-through doubled year-over-year. We have the strongest notebook processor portfolio in our history"

  • "We set a record for quarterly server processor revenue as sales grew a double-digit percentage sequentially and more than doubled year-over-year

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AMD Revenue by Segment

Twilio's Re-accelerating DBNER Highlights its Strengthening Value Proposition

Some takeaways from the earnings call:

  • "Our success is a testament to the value proposition that Twilio's platform offers businesses: digital engagement, software agility, and cloud scale." "The combination of Segment and Twilio means that we will be able to help any business make their customer engagement across every channel more personalized, timely, and impactful. This is an important step towards our vision of building the world's leading customer engagement platform." --- Jeffrey Lawson, CEO of Twilio

  • "We just saw a great performance kind of all around in terms of a number of our customers, segments, geography, products, …, two of the things that we have pointed out both at our Investor Day as well as today, we are continuing to see a reacceleration, if you will, in our Messaging business, and we feel great about the additional growth that we've been able to drive there." --- Khozema Shipchandler, CFO of Twilio

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Twilio's Dollar-Based Net Expansion Rate (%)

NXP Returning to Growth as Automotive Quickly Rebound

  • "The past quarter has been more than a little surprising. Our automotive business came back much more quickly than we thought it would do, and we've seen real strength in the industrial and mobile end markets"

  • "Our third-quarter revenue performance was significantly better than planned. Relative to our guidance, we experienced material improvement across all of our end markets. We are pleased that the third quarter was also a return to improved year-on-year revenue performance providing a solid position to build from going into 2021" --- Peter Kelly, CFO of NXP

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NXPI Revenue by End Markets ($ Million)

ServiceNow's Growth Is Bound to Re-Accelerate

The increasing importance of enterprise workflow automation helps the company grow the top-line, with a broader portfolio of products.

  • "Before I move to guidance, I want to give a brief update on the trends we are seeing in our business. Overall, we see strong momentum heading into the last quarter of the year. The highly affected industries we outlined earlier in the year, which represented about 20% of our business and include areas such as transportation, hospitality, retail, and energy, continue to see macro headwinds but remain steady customers of ServiceNow. We closed 6 new deals over $1 million in these affected industries. And while we do expect some headwinds in severely impacted industries like airlines, renewals of existing customers have remained very strong.”

  • "We've also seen very healthy payment terms and DSOs. Collections have been strong, …, and we expect that trend to continue into Q4."

  • "Our pipeline generation has remained robust, and our pipeline coverage ratio for the remainder of the year gives us confidence in our ability to deliver a strong finish to 2020." --- Gina Mastantuono, CFO of ServiceNow

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ServiceNow: Growth Measures (%, YoY)

Amazon's Hiring Spree

"We're able to meet the heightened demand in Q3 because we opened up more network capacity, particularly in our transportation network. First, we hired a lot more people to support the strong customer demand. We welcomed 250,000 permanent full-time and part-time employees just in Q3 and have already added about 100,000 more in the first month of Q4." --- Brian Olsavsky, CFO of Amazon

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Amazon Total Number of Employees

Amazon's Still Underappreciated Third-Party Seller Services

Amazon's "third-party sellers services," mostly fulfillment by Amazon (FBA), is now a $20.4 billion business growing at 55% YoY. What's more impressive is that its growth has been accelerating since FQ1'19 from 20% YoY. Amazon has spent heavily on building out warehouses: "assets acquired under operating leases" increased 175% YoY to $6.1B in Q3.

The company expected to grow fulfillment and logistics network square footage by approximately 50% this year, including significant additions to the fulfillment centers and transportation facilities. "The majority of these buildings opened in late Q3 and into Q4. About half of this square footage growth will be on the transportation side to the opening of more sorting centers and delivery stations."

The third-party sellers' services' scale has surpassed all other logistics giants globally, whether it's the 1st party or 3rd party business model.

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Amazon Third-Party Seller Services Growth
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Amazon's Heavy Spending on Warehouses ($, BIn)
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Amazon 3rd-Party Seller Services vs. Other Logistics Giants

Delayed iPhone 12 Launch Weighs on Revenue

"Greater China is the region that was most heavily impacted by the absence of the new iPhones during the September quarter." --- Tim Cook, CEO of Apple

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iPhone Revenue & Y/Y Growth
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Apple's China Revenue & Y/Y Growth

Online Advertising Recovering, Google Trailing Facebook

Judging by the YoY incremental growth of the advertising business at Google and Facebook.

  • “So overall, we're pleased at the degree to which advertisers really have reactivated their budgets in the third quarter. And they're reacting in part to, I think, evidence that consumers are showing strong demand across nearly all verticals. It's everything from home and garden to computer to work from home.” - Ruth Porat, CFO of Alphabet

  • The acceleration in advertising revenue growth from Q2 to Q3 was largely driven by strong advertiser demand resulting from the accelerated shift from off-line to online commerce that we saw in connection with the pandemic. We are seeing particular strength among small- and medium-sized businesses." --- Dave Wehner, CFO of Facebook

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YoY Incremental Advertising Dollar ($, Billions)

5G Transition Starts to Drive Smartphone Semiconductor Growth Acceleration

Qualcomm, Skyworks, and Qorvo all reported their earnings last week, delivering a consistent message: smartphone semiconductor growth is accelerating, thanks to 5G.

  • "We're seeing a different set of drivers for revenue growth than units. It's driven by 4G to 5G transition, driving more RF front-end content." -- Akash Palkhiwala, CFO of Qualcomm

  • "In Mobile Products, the transition of 5G is fueling a shift from discrete products to higher-value content, including integrated modules in flagship and mass-market 5G smartphones." -- Robert A. Bruggeworth, CEO of Qorvo

  • "We have very strong content increase and content gain as 5G being introduced in the phones, it's adding a lot more complexity. It's adding new bands, which are being layered on top of the existing 2G, 3G, 4G technology and that adds a lot of complexity." -- Kris Sennesael, CFO of Skyworks

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5G Driving Smartphone Semiconductor Growth Acceleration

Qualcomm Becoming One of the Largest RF Suppliers in the World

"In fiscal '20, we delivered $2.4 billion of RF front-end revenue, up 60% year-over-year. Qualcomm is now one of the largest RF suppliers with design wins across all our premium-tier smartphone customers and with a long-term road map to continue to grow our RF leadership as 5G is adopted in other industries." -- Steven Mollenkopf, CEO of Qualcomm

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RF-Front End Revenue ($M)

AliCloud Near Breakeven With Huge Growth Potential

  • "AliCloud’s revenue grew 60% primarily driven by growth in the Internet, finance and retail industry customers' contribution, and the penetration rate of AliCloud among China -- Chinese-listed companies continued to increase, and ARPU growth accelerated, too." -- Maggie Wu, CFO of Alibaba

  • "Alibaba Cloud is expected to turn profitable by the end of this fiscal year. We believe cloud computing is a fundamental infrastructure in the digital area, but it is still in the early stage of growth. We are committed to further increasing our investments in cloud computing." -- Daniel Zhang, CEO of Alibaba

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AliCloud Revenue (RMB, BIn) and Operating Margin

T-Mobile: Blockbuster Subscriber Net Adds

T-Mobile also delivered a strong quarter even after retiring the Sprint brand, during which It added 2.04 million new customers (vs. estimate of 839K). Here are some key takeaways from Mike Sievert, CEO of T-Mobile, in the earnings call. 

  • "We delivered the biggest subscriber growth in our history, with over two million total net additions. This is our 23rd consecutive quarter leading the industry, and this quarter, we delivered more than AT&T and Verizon combined. We've now surpassed 100 million total customers, and we're pulling further ahead of AT&T as the nation's number two wireless provider."

  • "Churn went down with the best year-over-year churn performance in our industry for postpaid phones.”

  • "We expect to realize over $1.2 billion of synergies in 2020, way ahead of our plans, and we're only a few months."

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U.S. Carriers' Post-Paid Net Adds (Thousand)

U.S. 5G Deployment Update

Carriers all beat expectations amid pandemic, and they expect 5G to help them expand the total addressable market going forward.

1. Verizon: "Ultra Wideband" and "MEC." According to Hans Vestberg, CEO of Verizon: 

  • “We  continue our expansion on the Ultra Wideband, and we took a leapfrog with 19 more cities, and we are now 55 cities for mobility with 43 stadiums and 7 airports.”

  • “We now have 5 Mobile Edge Compute centers together with Amazon. We also announced that Microsoft is now joining also on the mobile edge compute as well, with a focus on the private side of the 5G Mobile edge compute.” 

2. T-Mobile: "2.5 GHz." According to Mike Sievert, CEO of T-Mobile: 

  • “We now have 2.5 GHz deployed in over 400 cities and towns, covering over 30 million Americans. And we're targeting more than 1,000 cities and towns, covering 100 million people with our mid-band high-capacity 5G coverage by year-end."

3. Accelerated Capex for 5G roll-out. 

  • “And importantly, we also accelerated Capex spending, as Neville and team are running at full speed ahead on our synergy-driven network build." -- Mike Sievert, CEO of T-Mobile

  • "We expect our full-year Capex to be at the upper-end of our $17.5 billion to $18.5 billion guidance." -- Matthew Ellis, CFO of Verizon

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Selected Carrier's Capex Spending ($, Million)

Square: Is Cash App Business Account the New Growth Engine?

"Cash App Business GPV, which is composed primarily of Cash for Business volumes as well as a small piece from peer-to-peer funded by credit card, Cash App business GPV was $2.9 billion, as you noted about 9% of Square's total reported GPV and we see transaction revenue here about $81 million, both of those metrics were up more than 300% year-over-year in the quarter. We monetize Cash of Business at 2.75% of volumes." -- Amrita Ahuja, CFO of Square

"What's different about Cash of Business, of course, it's all digital and allows those sellers to manage their business through peer-to-peer transactions through their cash tag and it also provides them higher weekly limits and relevant tax reporting forms." -- Jack Dorsey, CEO of Square

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Square Cash App for Business GPV ($, Million)

PinDuoDuo: Online Agriculture Becomes the Next Growth Driver

$PDD delivered a better-than-expected quarterly result last week, lessening investors' concerns about the balance of growth and profitability. The management still prioritizes investment in growth areas, particularly in "DuoDuo Maicai," its online fresh grocery platform.

  • "Post-pandemic, we have noticed that consumer habit of grocery shopping in a wet market or supermarket are shifting. Many of our users have shifted to online channels for their daily staples. Pinduoduo has also become China's largest online platform for agricultural products by enabling direct selling from farms to the dining table." -- Chen Lei, CEO of PDD

  • "We see a bright future for agriculture in China. We generated RMB136 billion of GMV in this category in 2019 and expected it hit RMB250 billion this year. Consumers have come to identify PDD as the go-to-platform for agriculture goods." -- David Liu, VP of Strategy

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Fresh Grocery Market: So Large, So Under-penetrated

Tencent vs. Alibaba: Virtual Economy Surpassing Real Economy?

Tencent posted a blockbuster growth of gaming revenue in 2020, after two years (2018 to 2019) of sluggish performance due to stringent government regulation. The total gaming revenue grew 42% in the latest quarter, and the mobile gaming revenue topped 60% YoY growth for three consecutive quarters. The channel renegotiation boosted gaming profitability even further.

Tencent gaming is now three-quarters of the size of Alibaba's core eCommerce business (Taobao+Tmall) but growing twice as fast. So here is the question: as a society, are we closer to the inflection point where the virtual economy is larger than the real one?

  • "We have been in the process of negotiating the kind of revenue shares to what we think are more sustainable levels, and that has and will continue to flow through over time into our game margins." - James Mitchell, Chief Strategy Officer of Tencent

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Tencent's Mobile Gaming Business
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Tencent Gaming vs. Alibaba eCommerce ($, BIn)

Disney: Transforming Into a Streaming Business With Theme Parks

Some highlights from $DIS's recent quarterly result: DTC business continued to grow, suspending dividends to support streaming investments, and the intra-company content licensing reached a $6B annual run rate.

  • "We launched Disney+, and it has quickly exceeded our highest expectations. Disney+ had more than 73 million paid subscribers, far surpassing our expectations in just its first year." -- Bob Chapek, CEO of Disney

  • "As part of that commitment and given limited visibility due to COVID and our decision to prioritize investment in our DTC initiatives, the Board has decided to forego payment of a semi-annual dividend in January 2021." -- Christine McCarthy, CFO of Disney

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Disney: # of OTT Subscribers (millions)
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Disney: Intra-company Content Licensing ($, BIn)

Datadog: Land and Expand, Rinse and Repeat

"Our powerful land-and-expand model continues to be driven by both usage growth of existing products as well as the cross-selling to our newer solutions. In the third quarter, we saw continued strength in our platform strategy, with over 70% of our customers using 2 or more products and about 20% of our customers now using 4 or more products, up from only 7% a year ago. Continued product traction is being driven by adoption in the initial land as well as strong cross-selling." -- David M. Obstler, CFO of Datadog

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Datadog: Land...
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Datadog: ...and expand

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