Comparing the Big Six in Q4 2015

Last quarter, I provided an overview of how the “Big Six” consumer technology companies performed and I thought I’d do a similar review for this quarter. As a reminder, the big six are a mix of five of the largest consumer technology companies out there, plus one of the most important and fastest growing: Facebook. As a reminder, this data and the charts come from my quarterly decks service, which provides quarterly slide decks on each of these companies and others based on their financial results. You can sign up for it here.

Two major transitions coming for Microsoft

I wrote last week about tech company valuations and how the focus on market capitalization rankings is missing the point. However, there are a couple of interesting transitions in the financial performance of the companies themselves that seem imminent and which I think are interesting; both involve Microsoft. First of all, on the revenue side, it now looks likely that Google will eclipse Microsoft in trailing four-quarter revenue this year, as Microsoft’s reported revenue continues to shrink and Google’s continues to grow rapidly:

Revenue

As you can see, Apple continues to be way out in front in terms of revenue, at just under a quarter trillion dollars per year — though this number will take a dip for the first time in many years during the next few quarters. Samsung’s revenue has stabilized after a couple of years of decline, while Amazon and Facebook are both showing very strong revenue growth, though Facebook remains by far the smallest of our big six.

On operating profit (in dollar terms), Microsoft looks likely to dip below Samsung in the next few quarters:

Operating profit

Again, Apple is miles ahead of the rest, with around $70 billion in operating profit over the course of the past year, versus under $30 billion for all the others. Samsung spent some time ahead of Microsoft in 2012 and 2013, so this isn’t entirely new territory. But, this time, it will be the result of shrinkage at Microsoft and not just rapid growth at Samsung. Meanwhile, Google is gaining rapidly on both and may overtake Microsoft here soon, too.

Margins – Facebook retakes first, Amazon continues to lag

If we shift our focus slightly from operating profit dollars to operating margins, we see quite a different picture. After several quarters of declining margins thanks to big acquisitions of non-revenue-generating businesses, Facebook posted stronger margins in Q4 and re-took the lead among our group of six.

Operating margins

One of the most striking things about this chart is Apple, fundamentally a hardware company, is able to rival both Microsoft and Facebook (and exceed Google), with their software-centric business models. Samsung’s margins are recovering slightly, at the moment, though the improvement has, until recently, been driven by its semiconductor business rather than true consumer electronics (which have tended to have single digit operating margins for almost all companies). Meanwhile, both profit charts show Amazon’s recent improvements in profitability in stark context: in dollar terms, it generates less profit than Facebook, which has less than one-tenth its annual revenues and, in margin terms, it’s in last place by far.

Investment – Google paring back, Samsung ramping up

Another interesting metric to look at is capital intensity or, a companies’ investment in capital expenditures as a proportion of their revenues:

Capital Intensity

As you can see, Google has been paring back its capital expenditures fairly significantly over the past year, after a period of very heavy investment in data centers and other equipment. Data centers are still the largest component of this capital spend at Google but it appears the spend is slowing as its cloud business matures. On the other hand, Samsung has been expanding its capital investment despite its challenges on the revenue side, with capital intensity rising steadily over the past couple of years (it hasn’t yet released its full financial report for Q4, so no data point is shown for Samsung in that quarter). Microsoft’s spending has also been rising as it beefs up its cloud infrastructure, while both Apple and Amazon have seen flat to declining capital intensity, though in dollar terms their investment remains significant. Samsung continues to outspend all the other companies significantly in dollar terms.

Amazons’ hiring spree moderates, others mostly grow rapidly

Last quarter, I highlighted Amazon’s big jump in hiring in the quarter but, in Q4, hiring tapered off significantly as the company focused on putting all its new employees to work packing and shipping holiday purchases. It now has almost twice as many employees as Microsoft or Apple, which have very similar levels of total headcount:

Employees

When it comes to revenue per employee, the companies separate quite neatly into three groups:

Revenue per employee

Apple continues to be far ahead of the others, at almost $2 million per year, while Facebook and Google generate between $1 and $1.5 million annually per employee, and Microsoft and Amazon bring up the rear. Amazon is the only one of these companies that has a significant portion of its employees in very low-skill jobs with commensurately low wages. So it can afford to generate under half a million dollars per employee on average annually. Apple’s continued hiring over the past year, despite its relatively flat revenue growth, has caused a slight dip in this metric (which will accelerate next quarter) but it should level off in the next few quarters as revenue growth returns.

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Jan Dawson

Jan Dawson is Founder and Chief Analyst at Jackdaw Research, a technology research and consulting firm focused on consumer technology. During his sixteen years as a technology analyst, Jan has covered everything from DSL to LTE, and from policy and regulation to smartphones and tablets. As such, he brings a unique perspective to the consumer technology space, pulling together insights on communications and content services, device hardware and software, and online services to provide big-picture market analysis and strategic advice to his clients. Jan has worked with many of the world’s largest operators, device and infrastructure vendors, online service providers and others to shape their strategies and help them understand the market. Prior to founding Jackdaw, Jan worked at Ovum for a number of years, most recently as Chief Telecoms Analyst, responsible for Ovum’s telecoms research agenda globally.

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