Q3 Earnings Report: Snap, Facebook, Alphabet, Twitter, Spotify, Comcast, AT&T, Nielsen

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Cover image for  article: Q3 Earnings Report: Snap, Facebook, Alphabet, Twitter, Spotify, Comcast, AT&T, Nielsen

It's earnings call season, and there is quite a bit of news to digest. Unlike the same time last year, we've hit a lull of new streaming service introductions. So now it's an all-out war for eyeballs, attention, engagement and, of course, subscription revenue. For the social media world, the reality of tech's embrace of consumer privacy is here and, for now, it is starting to hit the bottom line of some of the biggest players. Most have issued lowered guidance moving ahead.

Here is a synopsis of the latest media company earnings calls:

  • The impact of Apple's iOS 14 privacy and tracking changes is being felt negatively across the board by all players with no real solution on the horizon. The exception is Apple, which has seen tremendous ad revenue growth in its App Store ad offering.
  • Major players are warning that economic factors, supply chain issues and inflation could impact Q4 advertising spend and therefore their revenue.
  • Augmented and Virtual Reality are beginning to emerge from the "Trough of Disillusionment" cycle into a growing sustainable business with several companies highlighting their advancements.
  • There is a full-on battle for younger consumers between TikTok, Snap, Facebook Reels and YouTube Shorts.
  • eCommerce is going through a video evolution with all platforms increasing their shoppable opportunities and live-stream shopping moving into heavy test phase to roll-out across many platforms, including Amazon and YouTube.
  • Spotify is on track to break €1 billion in revenue in 2021.
  • Comcast rolls out branded TVs with payment models like mobile phones.

Snap, Pop (no Crackle): That giant sucking sound you heard was the sound of media company prices going down as the impact of Apple's iOS 14 privacy alert changes and reporting restrictions are now becoming clear -- and having a direct negative impact on monetization. (Well, unless you are Apple, which is now raking it in on its advertising play within the App Store.)

Snap was the first out of the gate this earning season. CEO Evan Spiegel clearly spelled out the iOS issue saying, "Our advertising business was disrupted by changes to iOS and tracking that were broadly rolled out by Apple in June and July. While we anticipated some degree of business disruption, the new Apple-provided measurement solution did not scale as we had expected, making it more difficult for our advertising partners to measure and manage their ad campaigns for iOS."

Jeremi Gorman, Chief Business Officer addressed what is likely to be a large issue for many ad-supported apps around Apple's proprietary replacement platform for app ad reporting, SKAdNetwork (SKAN). Said Gorman, "The initial results we observed using SKAN were generally aligned with prior industry standard solutions, and we were among the first platforms to lean into this solution and push for widespread industry adoption. However, over time, we saw SKAN measurement results diverge meaningfully from the results we observed on other first- and third-party measurement solutions, making SKAN unreliable as a stand-alone measurement solution."

Making matters worse, the limitations of SKAN are hitting advertisers where it hurts, in attribution metrics. "Every advertiser has their own unique fine-tune perspective on the optimal parameters to measure ROI for their business, but SKAN requires them to use Apple's fixed definitions of advertisers' success," Gorman says. "For example, advertisers are no longer able to understand the impact of their unique campaigns based on things like time between viewing an ad and taking an action or the time spent viewing an ad. Additionally, real-time campaign and creative management is hindered by extended reporting delays and advertisers are unable to target advertising based on whether or not people have already installed their app."

Again, this issue is not just a Snap issue but an issue for the entire industry. While many breathed a sigh of relief when Google delayed cookie deprecation, it appears that the Apple changes are having a real and lasting impact on the in-app advertising ecosystem.

Fuel to the fire: Siegel continued with an economics 101 lesson saying, "This impact was compounded by the ongoing macroeconomic effects of the global pandemic with our advertising partners facing a variety of supply chain interruptions and labor shortages. This in turn reduces their short-term appetite to generate additional customer demand through advertising at a time when their businesses are already supply constrained. The ongoing magnitude and duration of these global supply and labor disruptions are inherently unpredictable." This gave Wall Street all it needed to head for the hills with Snap stock dropping 22% the day they announced earnings.

On a more positive note: Snap announced that they now reach over 500mm people globally and 75% of 13–34-year-olds throughout the U.S, Canada, U.K., France, Australia and the Netherlands. Daily active users are at 306mm.

Snap reported that while overall content consumed continues to grow, the percentage of consumer user-generated content is falling, indicating that professional or brand content being distributed via Snap is the driver.

Snap continues to be the single most scaled augmented reality platform to date with over 200 million people engaging with AR each day. Snap presented new use cases such as "allowing people to try on clothing, beauty products and accessories with partners Ralph Lauren, MAC Cosmetics and Zenni Optical." Snap also highlighted an AR case study with Ulta Beauty which allowed unique makeup try-on experiences driving a 4.5x higher ROAS compared to its campaign optimized per impression.

Revenue generated in Q3 was $1,067 billion, up 57% and crossing the $1B mark in quarterly revenue for the first time.

Facebook (errr … Meta):

[Note: The following represents the highlights of their Q3 earnings call. This call preceded the keynote at Facebook Connect and their name change to Meta. We'll cover that in the next Media Minute.] So, it's been a very bad, incredibly horrible, fairly disturbing, terrible, not so great week for Mark Zuckerberg. And things just seem to be getting worse. As I write this it appears the FTC is opening an inquiry into whether it violated a 2019 settlement with the agency over privacy concerns. Congress handed over redacted versions of documents turned over by Frances ("the whistleblower") Haugen's legal team to twelve media organizations that have been having a field day analyzing and publishing anti-Facebook stories. To dispel rumors, there is no truth, yet, that the Facebook Files will be the subject of Aaron Sorkin's sequel to The Social Network -- although given Jesse Eisenberg's career lately, I'm sure he's up for it.

Despite everything we learn about their misdeeds, both consumers and advertisers continue to forgive and embrace the platform. In Facebook's Q3 2021 quarterly earnings call, Zuckerberg directly addressed the Facebook Files. "Good criticism helps us get better, but my view is that what we are seeing is a coordinated effort to selectively use leaked documents to paint a false picture of our company," he said. "The reality is that we have an open culture where we encourage discussion and research about our work so we can make progress on many complex issues that are not specific to just us. We have an industry-leading program to study the effects of our products and provide transparency to our progress because we care about getting this right. When we make decisions, we need to balance competing social equities, like free expression with reducing harmful content or enabling strong encrypted privacy with supporting law enforcement or enabling research and interoperability with blocking down data as much as possible." Zuckerberg repeated a call that he has made many times for legislated regulation.

Looking forward, he stated Facebook's near-term focus: "Our three product priorities remain our focus on creators, commerce and building the next computing platform." Doubling down on the Metaverse.

About the Metaverse, Zuckerberg expects an entire digital economy to grow. "You'll need digital clothes, digital tools, and different experiences," he asserted." We're building multiple generations of our VR and AR products at the same time, as well as the new operating system and development model, the digital commerce platform, content studios, and of course, the social platform."

With Tik Tok, Snap and iMessage representing a real challenge to future growth (iMessage being a threat to WhatsApp), Zuckerberg announced that Facebook will be investing heavily in the expansion of Reels, their TikTok video knock off, stating that "we are retooling our teams to make serving young adults our North Star" -- a real shift in direction that he stated would have a direct impact on some products.

One thing that could slow Facebook down is the cost to advertise on the platform, which is getting more expensive with the average price per ad increasing 22% and the eCPM increasing 62% year over year.

Q3 revenue at Facebook was up to $29B, which, as an aside, is bigger than El Salvador's annual GDP in 2020. Sheryl Sandberg echoed Snap's statements about the impact of Apple's privacy changes. "As a result, we've encountered two challenges," she declared. "One is that the accuracy of our ad targeting decreased, which increased the cost of driving outcomes for our advertisers. And the other is that measuring those outcomes became more difficult. This means real-world conversions like sales and app installs are higher than what's being reported for many advertisers, especially small advertisers. We're making good progress fixing them. We think we'll be able to address more than half of the under-reporting by the end of this year and we'll continue to work on this into 2022."

Other nuggets:

Sixty percent of video revenue now comes from mobile-first video, meaning videos that are shot vertically or under 15 seconds. Over two billion people per month now watch videos that are eligible for industry MAV, which are ads shown before, during, or after videos.

Facebook is hosting daily live shopping experiences of companies large and small -- brands like Walmart, Macy's, Benefit Cosmetics and Paintbox Nails -- to educate shoppers and share exclusive deals.

In North America, Daily Active Users grew by 6 million or 7% year-over-year to reach 96 million. And Europe DAU grew by 8 million or 11% year-over-year to reach 80 million.

Facebook now reaches 1.93 billion active users daily, up six percent or 110 million compared to last year.

Q3 ad revenue was $28.3 billion, up 33 percent or 32 percent on a constant currency basis. On a user geography basis, year-over-year ad revenue growth was strongest in Rest of World at 50 percent. Europe, North America and Asia Pacific grew 35 percent, 31 percent and 28 percent, respectively. Europe, Asia Pacific and Rest of World benefited from currency tailwinds, though to a lesser degree than in the prior quarter.

Alphabet

Google Search now allows Google Lens users to search both words and images.

Google Maps now offers eco-friendly routing which lets drivers choose a more fuel-efficient route. They have also added a wildfire layer to give drivers the information needed to make quick alternate route decisions.

The Pixel 6 and Pixel 6 Pro phones that run on the AI-driven Tensor chip are priced aggressively at $599 for Pixel 6 and $899 for the Pro. (Editorial note: It's the first phone that might pull me out of Samsung Galaxy in years.)

Alphabet has improved accessibility features on Android 12 which now allows users to control the phone through gestures and strengthens user control over privacy and location-based data.

YouTube has surpassed 50mm music and premium subscribers.

Retail was the largest contributor to year-over-year growth in the ad product. Media and entertainment and travel were also strong.

Google has added functionality to allow local businesses to show which inventory they have in stock and when to pick them up.

Alphabet is leaning into commerce on YouTube with shoppable live stream "experiments" with Sephora, Target and Walmart.

Consolidated revenues were $65.1B, up 41%. YouTube advertising revenues $7.2B up 43%. Network advertising was up to $8B, up 40%.

Twitter

Q3 advertising growth increased 41% year over year. Overall revenue was $1.28B for the quarter. More than half of the ad revenue year-to-date has come from services and digital goods.

CEO Jack Dorsey sees the greatest growth potential to be personalization and relevance. They are doubling down on machine learning and AI will be implemented across every product surface.

Twitter recently sold MoPub to Applovin to focus on direct response, SMB and commerce roadmaps.

In Q3 Twitter launched products including Ticketed Spaces, Tips, Super Follows and Narrowcasting with communities. It also started paying creators in Bitcoin.

Olympic-related tweets of video content received over 1B views.

As regards the Apple privacy change: "It's still too early to assess the long-term impact of Apple's privacy-related iOS changes, but the Q3 revenue was lower than expected and we've incorporated an ongoing modest impact into our Q4 guidance."

Twitter is continuing to grow its Topics and Interests, which currently has 12,000 topics in 11 languages.

Twitter Carousel, where you can have up to six swipe-able, edge-to-edge images or videos in a single tweet, have improved click-through by 20%.

Although Twitter did say that the Apple privacy changes impacted revenue, they seem to be a bit more bullish on Apple's alternative reporting system, SKAdNetwork. Apple's privacy-first system to report app installs and ad activity on an aggregate base, has according to Twitter opened up new inventory where they hadn't previously been able to report to advertisers on how their campaign performed. Also, Twitter claims it can now show 30% more iOS users ads and report on an anonymized aggregated basis.

Spotify

Spotify currently has 381 million monthly active users, of which 220 million are ad-supported (161 million paid, no-ad subscribers). This is a 19% increase from the same quarter a year ago.

Spotify had its biggest ad revenue quarter ever in Q3, of €323 putting them on track to break €1 billion in revenue in 2021.

Spotify's global user base is fairly evenly distributed with 24% of monthly users in North America, 22% in Latin America, 34% in Europe and 21% in the rest of the world.

Spotify recently unveiled the Spotify Audience Network for advertisers in Australia, Canada and the U.K., which allows advertisers to target audiences within podcast environments on and off Spotify based on demo, geo and audience segmentation targeting.

There are now 3.2mm podcasts on Spotify -- up from 185,000 three years ago.

New product features from Spotify include:

  • Blend: Allows two users to merge their music into one shared playlist
  • Enhance: Spotify Premium users can now add personalized recommendations to their playlists
  • Episodes for You: Episodic podcast level recommendations
  • What's New: A feed that gathers all new releases from artists and shows that you follow

Spotify has formed a partnership with Delta Airlines which allows passengers to discover Spotify-curated music and podcasts within Delta's in-flight entertainment system.

Spotify has added support for Roku's voice assistant as well as enhanced features on its Roku app.

Because users are logged on most of the time, Spotify did not see a huge impact from the Apple iOS privacy changes.

Amazon

Very little of Amazon's earnings call focused on the ad business. However, they did say that ad revenue represents a significant majority of "other" revenue, which grew 49% year over year in Q3. Amazon also indicated that they are not seeing any pullback in advertising spend due to supply chain issues.

Amazon held a Fall Upfront-like event called Amazon Unboxed which highlighted new advertising opportunities on various platforms, including their live streaming community property, Twitch.

Comcast

Comcast had over 300,000 net additions for broadband in Q3, beating expectations. Advertising revenue at NBCUniversal was up 78% driven largely in part by $1.8B in revenue from the Tokyo Olympics.

On a global basis, Comcast does about 5 billion entertainment streams a week on 75 million devices.

The biggest news for Comcast is their move into direct integration into television hardware. While they've had their Xfinity Flex streaming OTT device in both the U.K. and the U.S., they have introduced actual televisions (in conjunction with manufacturers like Chinese company Hisense) with direct live tv and app streaming capability embedded into the hardware under their respective brands (Sky in the U.K. and "X" (short for Xfinity) in the U.S.

Earlier in October in the U.K., Comcast released a branded smartTV called "Sky Glass" which may be paid for in installments, like a smartphone is with your wireless service. It eliminates the need for a satellite dish and a set-top box. It is also the world's first TV to be certified as carbon neutral.

In the U.S. Comcast has released "XClass" in partnership with Hisense TVs and is distributing them at select Walmarts and Walmart.com. It is a smart TV loaded with numerous "free" apps, in addition to easy access to live TV (subscription required) via an app. XClass TVs include a 12-month subscription to Peacock. XClass 50" sets are priced at $348.

AT&T (Warner Media)

AT&T currently has 5.7mm ATT Fiber customers with 3.4mm on one gig per second downstream plans.

AT&T is still bundling HBOMax numbers with HBO which makes it a bit difficult to tell the success/scale of HBOMax on its own merits. In Q3, AT&T reported that global subscribers to HBOMax/HBO is 69.4 million up 45.2 million in the past year. Domestic subscribers are at 45.2 million up 7.1 million in the past year.

Total WarnerMedia revenues were $8.4B up 14% driven by HBO Max direct-to-consumer subscription and content licensing. Advertising revenues were $1.4B, down 12.4% versus year ago due to the timing of the NBA season and lower political ad spend this year.

HBO Max experienced strong (+25%) growth in Latin America, Spain and the Nordics.

Although the DirecTV sale has closed, Warner Media continues to represent DirecTV inventory and there is a rev-share arrangement.

Nielsen

Nielsen had quite a bit to answer to the Street as they lost their MRC accreditation which may explain why CEO David Kenny opened with a lengthy diatribe on Nielsen's path forward. With its cross-platform measurement Nielsen ONE as a current priority, Kenny stated that they will adhere to the standards and measurement integrity put forth by the World Federation of Advertisers and the Association of National Advertisers.

Kenny directly addressed the MRC situation. "We are in continuous dialogue with the MRC, and we've also engaged an external firm to support our efforts toward remediating outstanding issues," he said.

In terms of panel size, Kenny said that Nielsen is on track to reach 41,600 homes by Q1 2022. Streaming meters have tripled since January to 18,000.

Kenny claimed that Nielsen has the ability to measure 75% of connected TV media spend and approximately 90% of total video digital spend across computer, mobile and connected TV.

Just over 50% of viewing took place on broadcast and cable while streaming alone grew to 37% in the 18-54 demo. (Nielsen Gauge, September 2021)

Revenue was up 6.6% on an organic basis with 4.4% growth in Audience Measurement and 12.5% growth in Outcomes & Content.

But Wait! That's Not All ...

Look for further earnings recaps next week.

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