The Sunday Brief

Connecting technology, telecommunications, and the internet

Value Creation – Long-term charts, Fab Five vs. Telco Top Five (Feb 2)

by | Feb 3, 2024 | TSB

This was a big earnings week. Six of the ten stocks we track, including each of the Fab Five, reported earnings this week. As the opening pic shows, there appears to be a lot of divergence between Apple (hardware forecast risk), Google (cloud and AI growth risk) and the remainder of the Fab Five. In fact, investors were downright jubilant with Meta/ Facebook earnings and the stock popped above the trillion-dollar market capitalization mark this week (and bolstered the wealth of CEO Mark Zuckerberg by $28 billion on Friday alone – CNBC article here).

We have updated share counts but will not have final numbers until everyone has released their annual reports (which should be by mid-February if last year’s release schedule is any indicator). We do have clarity, however, on net debt balances for each of the Fab Five. Below is a schedule that indicates the cash, marketable securities, short and long-term debt (note – this is included as a separate tab in the Excel spreadsheet available for download at the end of this and every Interim Brief):

Versus last quarter, cash is down (due to Microsoft’s purchase of Activision Blizzard) and debt is flat (Amazon’s decrease is offset by increases at Microsoft and Apple). Not a lot to get excited about with the quarter-over-quarter changes.

What is more interesting, however, is the annual change. Cash is up a lot (+$69-70 billion), thanks to higher short-term interest rates (5.2-5.5%). Marketable securities investments are down $40+ billion. Debt is up, but nearly all of that difference is related to the Activision Blizzard purchase. We find the change in cash for Amazon to be highly interesting (net debt change of $26 billion in 12 months) – that’s a lot more than the projected funding need for the now failed iRobot purchase. Wonder how they are contemplating to use that cash?

Finally, we are going to discuss cable earnings next week, but want to caution investors who are hyperventilating over Charter’s earnings report on Friday. As we reported in several Briefs, cable faces slower a slower growth profile. This does not mean that they will have dramatically fewer customers in five years, but this does mean that they have a terrific opportunity to integrate content, wireless expertise, and dense fiber infrastructure into a differentiated product. Just as investors overreacted on December 13, 2022, when they announced the costs of their rural broadband builds (Bloomberg article here), they got a little crazy yesterday. We will go deep next week explaining why this is not a broadband apocalypse but is nonetheless a wakeup call to the industry that action is needed – quickly.

File is below. Have a terrific remainder of the weekend. And GO CHIEFS (and Davidson Basketball)!


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