Gafanomics - Quarterly - Episode 4 (Q4FY19)

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Feb. 18, 2020

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Gafanomics - Quarterly - Episode 4 (Q4FY19)

  1. - Q4 2019 - - Q4 2019 -
  2. - Q4 2019 - Foreword 2 Jean-Christophe Liaubet Managing Partner at Fabernovel abernovel is pleased to release this new edition of “Gafanomics Quarterly”, our publication which offers you every quarter a transversal review of the earnings releases and strategic announcements of the disruptive Tech giants. This last quarter was somewhat special in our view, ushering in new times at several levels : a new fiscal year, a new decade and the accelerating change towards new value patterns. After a challenging Q3, the Tech segment outperformed all other sectors on the Street with an impressive cumulated market cap gain of more than $1,300bn for our sample of 20 firms (i.e. the equivalent of Microsoft market value or the annual GDP of Spain). This was underpinned by the robust quarterly delivery of most of the Tech leaders with a value pattern still favouring user and top-line growth pattern compared to margin expansion. Our sample of Tech disruptors posted a median revenue growth of 23% and 17% EBIT growth in Q4 19, with very similar figures for FY19. Is this outperformance set to last? Beyond their economic power, the Tech leaders face several challenges. Facing rising maturity and competition, they are increasingly criticized on their dark side and their Achilles heel: Corporate and Social Responsibility. Several of them recorded in the last months the departures of their founders (Travis Kalanick at Uber, Jack Ma from Alibaba, Larry Page and Sergey Brin at Google, Adam Neumann at WeWork). Softbank has seen the arrival of activist investors in their capital. The Green tide was the most striking new theme emerging from Q4 releases. Many tech players (Microsoft, Amazon, …) have started to communicate on the environmental impact. Greenwashing or strategic reality? Probably both. But we hope that the latter will prevail! Given their deep pockets, innovation culture and infrastructure power, Tech giants are probably among the few Corporates that can save the planet. The Coronavirus crisis has shown that software can help adapt in critical situation with new practices (more remote work) that can reduce carbon emissions. In a new world where transparency and responsibility will increasingly drive valuation, we are convinced that this Green horizon can be a structuring value path for GAFAM & Co but also an area where they can join forces with other Corporates. F
  3. - Q4 2019 - What is this document? A document published each quarter, two weeks after the financial quarterly publications of some of the largest tech companies in the world. Who should read it? Despite being based on some complex financial analysis, this document is designed to be understood by anyone with some sort of interest for business in general. Moreover, we think that it should be of particular interest for anyone having a managerial role (CEO, CFO, CDO, Project manager...) or being connected to the financial markets (investors, analysts, IR,...). What can you expect to learn from it? Our goal is to help people understand how today’s Disruptive Tech Giants (more than $10bn of market Capitalization and disruptive according to Fabernovel) are performing quarter after quarter and what lies behind this performance. Based on this analysis, we hope to give you the keys to follow their successful path - from the small quick-win communication best practice to the large business model revolution. Who is writing it? Financial analysts, strategists, technologists and designers from Fabernovel are combining their expertises to make this document as smart and thought-provoking as possible, so as to offer you the best reading experience and inspire you for your own future. 1. Strikin g facts Gafanomics - The Quarterly 3
  4. - Q4 2019 - 1 The last 3 months through our glasses. 4
  5. - Q4 2019 - 1.Thelast3monthsthroughourglasses. A positive performance for every disruptive tech company of our index Increase/decrease of Tech Giants market cap over 3 months In $Bn (on the left) and in % relative (on the right) to their own market cap 5 GAFAUS Tech Giants Analysis period: 07/11/2019 - 07/02/2020 USA Asia Europe Tech Giants +$1 339bn Market cap Change +26% Avg share price change +$1 085bn Market cap Change +29% Avg share price change +$589bn Market cap Change +16% Avg share price change
  6. - Q4 2019 - 1.Thelast3monthsthroughourglasses. Tech has been way above the other sectors this quarter 5 *Source: S&P 1200 Global, as of 7 February 2019 Considering the companies taken into account in our index are mostly Tech companies, our index is aligned with the outperformance of the Tech sector this quarter. 3 months performance of all sectors* Why is the Tech sector so high? We see 2 reasons explaining this trend An overall excellent quarter for most Tech companies, achieving better results than anticipated or, at least, giving good guidance. 1 2 A positive revision of all Tech multiples by around +20% on average for the companies considered, thanks to global confidence from the investors.
  7. - Q4 2019 - 1.Thelast3monthsthroughourglasses. 7 Operational performance of disruptive Tech companies 20% 40% 60% 80% Q4 2019 Delivery S&P 500 Tech cos. Sales EBIT EPS Beat In line Miss 20% 40% 60% 80% 20% 40% 60% 80% Median 2020e financial revisionsSales EBIT Sales EBIT +23% +17% FCF +20% Except for Baidu and Samsung, all of our actors managed to improve their sales this quarter. EBIT growth was also impressive (+17% median growth) - best performance being achieved by Netflix (+113% YoY). Most actors also improved their cash flow (+20%YoY) and notably Facebook (+138% YoY). +0.5% +1.1% Q4 2019 Median operational growth YoY The share price increase of Tech Giants went along with positive revisions in terms of sales and EBIT margin for most of the companies of our list. Analysis period: 07/11/2019 - 07/02/2020
  8. - Q4 2019 - Microsoft Microsoft won the Joint Enterprise Defense Infrastructure (JEDI) contract, in order to modernize the US Army’s IT systems with its cloud computing service Azure. Amazon, which appeared favourite for this 10-year $10 billion contract, decided to take legal action to challenge the objectivity of the Pentagon. Uber Uber’s losses from operations were about $8.5bn in 2019 and $1bn in the fourth quarter. Nevertheless, Uber CEO Dara Khosrowshahi promised the company will be EBITDA profitable by Q4 2020, one year earlier than its original claim. 1.Thelast3monthsthroughourglasses. Alibaba set a new record for the single's day (the Asian black Friday) reaching over $38 billion in sales. To boost volumes, Livestream has been widely used: even Kim Kardashian took part in a live stream to promote her products. Alibaba Apple had further strengthening privacy protection by allowing its iPhone users to have greater control over the data their apps access. This initiative is helping Apple to enhance its image with online privacy advocates and to stand out from the rest of the GAFA: Apple doesn't need targeted advertising to make money. Apple 8 Google Google founders Larry Page and Sergey Brin leave the management of Google’s holding Alphabet. The two founders believe that “it’s time to assume the role of proud parents - offering advice and love, but not daily nagging”. Tencent Tencent took part for the first time in the financing of French startups: Lydia (€40M) and Qonto (€104M). The Chinese giant is multiplying its investments in Europe, after having invested in the neobank N26 and bought 10% of Universal Music from Vivendi. Striking facts among Tech leaders
  9. - Q4 2019 - Most impactful quarterly quotes Zoom Zoom on the impact of the Coronavirus “I had to shut down my phone, because, actually, almost everyone is calling us” Eric Yuan on CNBC, after a 15% stock jump due to record usage of the solution, related to the coronavirus. Name Tesla on spendings "We're actually spending money as quickly as we can spend it sensibly [...] There is no artificial holdback on expenditures. Anything I see that looks like it's got good value for money, the answer is yes, immediately. And despite all that, we are still generating positive cash. So, it doesn't make sense to raise money.” Elon Musk in the Q4 2019 earnings conference. Netflix on competition “You’ll hear some subscriber numbers but you can just bundle things so that’s not going to be that relevant. So the real measurement will be time - how do consumers vote with their evenings? What mix of all the services do they end up watching?” Reed Hastings to the New York Times. Facebook on communication and image “Because we wanted to be liked, we didn't always communicate our views as clearly, because we were worried about offending people. This led to some positive but shallow sentiments towards us and the company." Mark Zuckerberg in the Q4 2019 earnings conference. Google on AI "There are real concerns about the potential negative consequences of AI, from deepfakes to nefarious uses of facial recognition. While there is already some work being done to address these concerns, there will inevitably be more challenges ahead that no one company or industry can solve alone." Sundar Pichai in a Financial Times editorial.GoogleTeslaFacebookNetflix 9 1.Thelast3monthsthroughourglasses.
  10. - Q4 2019 - What happened this quarter? 1.Thelast3monthsthroughourglasses. 1 Second consecutive quarterly profit. Tesla is profitable for the second consecutive quarter, driven by strong demand, mainly from new buyers that did not hold a prior reservation. This performance is all the more encouraging given that Tesla spends nothing on advertising. 3 Launch of Tesla Cybertruck. Elon Musk announced in November the launch of its electric pickup, the Tesla Cybertruck. This utility vehicle with a futuristic look has seduced the public, while leaving financial analysts perplexed, many of whom think that this model will remain a niche product. Tesla claims that it has already registered 150,000 bookings. The first models will be delivered at the end of 2021. 2 Production is speeding up. In Q4 2019, 112,000 vehicles were delivered (+23% YoY), thanks to an increase in factory production rates. The Fremont Factory is expanding and should be able to produce 500,000 units per year of Model 3 and Model Y, and has already started production of the new Tesla Model Y. Gigafactory 3 in Shanghai has delivered its first Model 3 and Gigafactory 4 in Berlin should open mid-2021. 10 EPS +14% Performance Q4 2019 Vs. Analysts expectation Growth YoY Revenue $7.4Bn EBITDA $1175M EPS $0.58 Revenue +6% EBITDA +15% Revenue +2% EBITDA +13% EPS -28% Tesla vehicles delivery (thousands) Our TOP - Tesla is unstoppable
  11. - Q4 2019 - 1.Thelast3monthsthroughourglasses. What happened this quarter? 1 Highest quarterly revenue ever. In Q4 2019, Apple reported quarterly revenue of $91.8bn (+9% YoY), an all-time record. EPS soared well beyond analysts’ expectations, with also an all-time record at $4.99 (+19% YoY). 3 Record quarter for Services & Wearables. Both Wearables and Services, seen as Apple’s growth drivers, posted record performances. Wearables, Home & Accessories (Apple Watch, AirPods, etc.) passed the $10 bn revenue, a 37% increase YoY. Services (App Store, Apple Music, Apple Pay, Apple TV +, etc.) posted their best ever performance, at $12.7 bn (+17% YoY). 2 The iPhone shows its resilience. While iPhone sales have been slowing down in recent years (-14% revenue in 2019), the release of the latest iPhone 11, more affordable than its predecessors, has boosted sales in the last quarter. The Group’s driving force (c.60% of Apple revenues) has shown its resilience, generating $56bn in Q4 2019 (+7.6% YoY). Net Income $22.2Bn EPS $4.99 EPS +19% Net Income +10% Net Income +11% Revenue +9% Revenue +4% EPS +10% 11 Performance Q4 2019 Vs. Analysts expectation Growth YoY Revenue $91.8Bn Our SURPRISE - Apple’s record quarter Apple Sales split
  12. - Q4 2019 - 1.Thelast3monthsthroughourglasses. 12 1 Youtube ad revenues lower than expected. In two years, YouTube advertising revenue jumped by more than 85% to reach $15 bn in 2019, but many analysts were expecting it to reach $20 bn. According to peers multiples, YouTube’s valuation should be around $150 bn. More or less the same as Netflix plus Spotify. What happened this quarter? 3 Cloud computing: marathon is just starting Alphabet announced $2.6 bn cloud revenues for Q4 (+53% YoY). Cloud (as well as Youtube) is expected to be one of the new drivers of growth for Alphabet. Thus, the company intends to keep investing heavily in this sector. While the race is not over yet, Amazon and Microsoft remain a long way ahead. 2 Alphabet’s diversification decreased its EBIT margin. Google's ad revenues are increasing (+17%), but at a declining rate. Indeed, Google is looking for new long-term growth drivers (cloud, health, banking) that require huge investments impacting its operating margin worsened (from 24% in Q4 ‘17 to 20% in Q4 ‘19). The market was therefore more sensitive to this decline in margin than to Google's long-term strategy. Google ad revenue ($M) and growth YoY Our FLOP - Alphabet is doing good, but below expectations Performance Q3 2019 Vs. Analysts expectation Growth YoY Revenue $46Bn EBIT $9.2Bn Net Income $10.7Bn Revenue +17% EBIT +14% Net Income +19% Revenue -2% EBIT -7% Net Income 22%
  13. - Q4 2019 - 1.Thelast3monthsthroughourglasses. 13 GAFA improve financial communication to sustain their share price Alphabet Alphabet showed mixed results this quarter, beating consensus on EPS, but missing it on revenues. Alphabet had 3 reasons for disclosing Youtube and Cloud business figures: 1 Analysts were requiring Alphabet to be more transparent towards its model. 2 Youtube and the cloud have a growing importance in Alphabet’s revenues. 3 To divert attention from Google’s disappointing revenues. The stock fell by only 3.6% in after-hours. Amazon For the second time ever, Amazon disclosed its number of prime subscribers (150 million vs. 100 million in April 2018). This indicator, followed by most investors, illustrates how efficient Amazon’s strategy is and reassures by the visibility offered by the subscription model. The share price was up 7% after the announcement.
  14. - Q4 2019 - 1.Thelast3monthsthroughourglasses. What happened this quarter? 1 Vision Funds wipes SoftBank Group’s profits. SoftBank group profits were totally wiped out by the poor performance of its Vision Fund ($2.8bn losses in Q2). While Masa blamed WeWork and Uber, the recent performance of the Vision Fund concerned investors about the once promised $108Bn Vision Fund II. Can it really be considered bad news? 3 Huge discount attracting activist investor. SoftBank shares have long traded at a huge discount (more than 50%) to their underlying asset value. Elliott Management, with a $2.5bn stake in the company, is pushing it to take steps to boost shareholder value through share buybacks. The “tide is changing” (Son) as Sprint merger is approved and VF1 will return to profit at Q4, SoftBank hopes to catch up with the huge discount it trades at. 2 Sprint - T-Mobile merger approval raises hopes. 7 years after the purchase of Sprint, the merger with T-Mobile is finally approved and SoftBank can hope to create its telco heavyweight to challenge AT&T and Verizon. While Sprint stock rose by 70%, SoftBank stock closed up nearly 12% ahead of its quarterly earnings. When everything goes wrong, better hope your core business holds firm. EBIT $1.9bn Net Income $506m Net Income -92% EBIT -42% Net Income -30% Revenue -3% Revenue +1% Net Income -55% 14 Performance Q4 2019 Vs. Analysts expectation Growth YoY Revenue $22.4bn Our bumpy ride - SoftBank Softbank Share price over 3 years (yens)
  15. - Q4 2019 - 1.Thelast3monthsthroughourglasses. Valuation represents the total value of the assets of a company, or the sum of its market capitalization and its net debt. Sales expectations are anticipated by financial analysts according to market outlook and growth perspectives. The EV/Sales multiple reflects the level of confidence investors have in a company’s ability to create future value. To assess the stock performance of a company, we usually refer to the evolution of its valuation. The valuation of a company during the quarter and after the publication of its results is driven by two distinct factors: 1. The evolution of its sales or earnings expectations; 2. The expansion of its multiples. The equation below uses Sales as a breakdown of valuation and details the meaning of each item. Valuation Sales EV/Sales 15 Tech Giants financial valuation analysis
  16. - Q4 2019 - Sales 2020e revision (07/11/2019 - 07/02/2020)Share price increase Share price decrease 1.Thelast3monthsthroughourglasses. EV/Sales 2020e expansion (07/11/2019 - 07/02/2020) 16 Tesla - deculping investor confidence
  17. - Q4 2019 - While analysts do not believe Uber can improve its Sales by 2020, the company gave investors a view on its profitability (expected in 2021). This is a major announcement as the company was never profitable and some investors even doubted the business model of the company (and its possibility to be profitable). The announcement highly impacted Uber’s valuation. Uber Sales 2020e revision (07/11/2019 - 07/02/2020)Share price increase Share price decrease 1.Thelast3monthsthroughourglasses. EV/Sales 2020e expansion (07/11/2019 - 07/02/2020) Good valuation Examples 17 Good Sales Apple surprised this quarter with higher-than-anticipated sales, not only from its business services segment but also from the iPhone. Thus, analysts expect higher sales for 2020 due to the attractivity of the iPhone and the services related to Apple devices sales. Apple Still, a fantastic quarter for all other players
  18. - Q4 2019 - 2 2010 - 2020: What changed over the last decade in the Tech industry? 18
  19. - Q4 2019 - As of today10 years ago WhatchangedoverthelastdecadeintheTech industry? In 10 years, Tech has invaded the top 10 of the biggest market caps 19 Top 10 TechTop 10 Global Top 10 TechTop 10 Global #1 #2 #3 #4 #5 #6 #7 #8 #9 #10 #1 #2 #3 #4 #5 #6 #7 #8 #9 #10 PetroChina Exxon Mobil Microsoft Bank of China Apple BHP Walmart Berkshire Hathaway GE China Mobile Microsoft Apple Alphabet IBM Cisco Oracle HP Intel Samsung Qualcomm Saudi Aramco Apple Microsoft Amazon Alphabet Facebook Alibaba Berkshire Hathaway Tencent Visa Apple Microsoft Amazon Alphabet Facebook Alibaba Tencent Visa Samsung Intel
  20. - Q4 2019 - WhatchangedoverthelastdecadeintheTech industry? Share price performance - A very unequal growth among GAFAM 20 $161Bn x7$23.3Bn $260Bn x7$36.3Bn $71Bn x14$5.1Bn $280Bn x11$24.5Bn $125Bn x2$57.5Bn Revenue 2019 GrowthRevenue 2009 0 500 1000 1500 169 1029 177 1394 104 52 1055 246 1422 605 January 1, 2010 January 1, 2020 Facebook’s share price is calculated starting May 2012 (IPO date) x6 x8 x6 x20 x6 -12% +10% -58% +78% +166% Share price vs. revenue growth Share price January 1, 2010 vs 2020
  21. - Q4 2019 - Top 10 acquisitions since 2010 WhatchangedoverthelastdecadeintheTech industry? 21 Tech Giants M&A - Number of deals since 2010 Linkedin ($26.2Bn - 2016) WhatsApp ($22Bn - 2014) Whole Foods ($13.7Bn - 2017) Motorola Mobility ($12.5bn - 2012) Skype ($8.5Bn - 2011) GitHub ($7.5Bn - 2018) Nokia ($7.2bn - 2014) Nest Labs ($3.2Bn - 2014) Beats Electronics ($3Bn - 2014) Source: Factset as of 07/02/2020 24 S&P 500 (average) 117253 86 8492
  22. - Q4 2019 - WhatchangedoverthelastdecadeintheTech industry? 22 2010s also had their share of failures
  23. - Q4 2019 - WhatchangedoverthelastdecadeintheTech industry? 23 Focus of the decade - The interface wars Device/sensor OS/AI Meta-platform Platform Service/product The 2010s have been the decade of the interface wars. While Mobile became the dominant interface with 3.5billion users, providing strategic positions for Apple and Google, other giants created new interfaces. We witnessed the rise of the voice (Amazon), and also AR/VR (Facebook) enabling Amazon and Facebook to secure a direct relationship with their customer and have the possibility to become one of the new dominant platforms. AR/VRVoiceMobile Apps VR headset Oculus Facebook VR Games Chat game media ∞ ∞ ∞ ∞ ∞ ∞ ∞ Alexa skills
  24. - Q4 2019 - 1 WhatchangedoverthelastdecadeintheTech industry? Focus of the decade - The cloud war An enterprise revolution. Though it dates back to the 2000s, cloud computing clearly took off during the 2010s. Public clouds completely changed how companies organize their IT, enabling any type of company to be gain access to a more secure, scalable and powerful IT infrastructure, while bringing flexibility and lower costs. No wonder tech giants wanted to power this revolution. From platforms to infrastructures. All 3 giants have emerged as platforms on top of the existing infrastructure (telecom networks, computers, OS). Now, Microsoft, Amazon and Google are leveraging their extensive scale, their deep pockets, to become the computing infrastructure on which other businesses can be created and scaled. By becoming the roads and railways of the digital economy, they make themselves irreplaceable and secure their fair share, of future growth. The race for leadership. Amazon was the first mover into the cloud market and benefited from the first wave of early adopters like startups created out of the cloud, and that had tremendous growth over the decade. Today, as large companies are shifting to cloud services, Microsoft is reaping the rewards of this second wave, while Google mostly bets on market growth rather than market share. $44Bn* $35Bn $9Bn 21% 36% 53% Annualized cloud revenue rate Growth YoY Share of revenues (FY 2019) 31% 13% 6% Sources: Factset, *Fabernovel estimates (based on Microsoft Q2 2020 and Microsoft “Intelligent Cloud” segment) 3 2 Worldwide Hosting & Cloud Market Size, 2010-2020 Cloud Services on the Rise: 7% of Total Market in 2010, 30% in 2020 0 $20,000 $40,000 $60,000 $80,000 $100,000 $120,000 $140,000 $160,000 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Source: DH Capital +21% CAGR
  25. - Q4 2019 - WhatchangedoverthelastdecadeintheTech industry? In the meantime, new entrants arrived, disrupting their market 25 $17 vs $748 $38 vs $212 $26 vs $37 $68 vs $216 $24 vs $17 $72 vs $50 $26 vs $23 $45 vs $41 4345¥ vs 5380¥ x44 x5,6 x3,2 x1,4 x0,7 As of 07/02/2020 Today x1,2 x0,9 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
  26. - Q4 2019 - WhatchangedoverthelastdecadeintheTech industry? A minute on the Internet in 2019 vs in 2009: the rise of apps 26 3.8m request vs 1.5m. 347,222 scrolls vs nothing. 1m views vs nothing. 41.6m messages sent vs <0.7m 188m emails sent vs 171m. 87,500 people on Twitter vs 18,960. 1m logging in vs 1,5k. 4.5m videos watched vs 695 000. 2.1m snaps taken vs nothing. 1.4m swipes vs nothing. 390,030 apps downloaded vs 5,312. 694,44 hours watched vs Netflix had just launched its online streaming service. 60 sec A minute on the Internet in 2019 VS a minute in 2009 Estimated data created on the Internet in one minute? Source: Lori Lewis & Officially Chad dia Visual Capitalist, Fabernovel estimates
  27. - Q4 2019 - Facebook Cambridge Analytica data scandal. 87M of personal data collected. WhatchangedoverthelastdecadeintheTech industry? 27 The biggest scandals Google abuse of dominance. $8.3bn fine from 2017 to 2019 for anti-competitive practices. Amazon working conditions. How Amazon treats its warehouse workers like robots. Apple planned obsolescence The tech giant admitted it slowed down older iPhones.
  28. - Q4 2019 - 3 How Tech Giants address climate emergency?
  29. - Q4 2019 - 3.HowTechGiantsaddressclimateemergency? 29 Digital: from paper saver to major polluter * For more details, see our study: The Augmented Infrastructure: Digital for Climate? Fabernovel x Ardian Evidence of ozone depletion in Antarctica Emergence of first environment bodies (ministries, official agencies, Earth summit,...) First denunciation of the impact of the internet on the environment. 1970s 2010s 4.0% digital VS 2.8% air traffic sending a 1Mo email is equivalent to turning on a 60 watt light bulb for 25 minutes. Example Share of global GHG emissions*
  30. - Q4 2019 - 3.HowTechGiantsaddressclimateemergency? 30 Why do we have to act fast? Several biases contribute to the increase in energy consumption. Addition, not substitution The infrastructure of the digital economy does not replace the traditional one, it adds-up. Immaterial asset Users believe digital assets to be intangible, their impact to be neutral and their resources to be infinite. Rebound effect Finally, optimization can create an inverted effect: asset optimization can lead to further use, increasing again the energy consumption. Evolution of global energy consumption of digital between 2010 and 2025, as a proportion of total world energy consumption. 0,0% 1,0% 2,0% 3,0% 4,0% 5,0% 6,0% 7,0% 8,0% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Andrae&Edler - 2015 EXPECTED Andrae&Edler - 2015 WORST CASE TSP- 2018 EXPECTED UPDATED Source: The Shift Project 2018, as of Andrae & Edler 2015
  31. - Q4 2019 - Mastering their reputation and avoid polemics. Have meaning and engage their clients and talents. Anticipate regulations rather than being subjected to them. Get access to the increasing number of sustainable investment funds. Seize diversification opportunities into safe and promising green markets. 3.HowTechGiantsaddressclimateemergency? Like governments and individuals, companies are expected to react 31 Minimizing their impact Quickly, companies have been asked to curb their gas emissions and switch to greener sources of energy. Building a sustainable future Pressure is growing for companies to do more and actively contribute to make the world greener. 2 1 Efforts which come with benefits
  32. - Q4 2019 - Minimizing environmental impact. 32 3.1
  33. - Q4 2019 - Minimizingenvironmentalimpact. 33 Greenpeace puts the cat among the pigeons Catalysing an energy revolution.
  34. - Q4 2019 - 2040 Amazon Carbon Neutral. 34 2010 Greenpeace first alerts on GAFA energy consumption. 2012 Apple claims its willingness to be powered by 100% green energy. 2017 Google reaches 100% renewable energy. 2016 First data center entirely powered by a wind farm in Texas by Facebook. DeepMind enables Google to cut its data centers energy need for cooling by 40%. 2019 DeepMind manages to predict the production of a wind farm. 2013 First data center with hydropower by Facebook. 2030 Microsoft Carbon Negative. Net Zero carbon for 50% of Amazon’s shipments + 100% renewable energy across all business operations. 2020 Facebook will reach 100% renewable energy. It was not long before GAFAM took actions 2015 Apple invests in 15,000 hectares of forest in the US. Minimizingenvironmentalimpact.
  35. - Q4 2019 - 35 How GAFA are gradually converting to renewable energies Intermittence The production of energy is intermittent due to the nature of renewables (solar and wind). This requires higher flexibility of the grid in order to match supply and demand, as well as the ability to predict the production and actively manage demand. Multiplication & Decentralisation Energy producers are more numerous and decentralized. This requires a distributed and bi-directional management of the grid, enabled only by smart solutions. Changing the energy mix comes with challenges. Yet, one after the other, GAFA have taken rapid actions. Evolution of the share of renewables used by GAFA (%) Minimizingenvironmentalimpact. Sources: Alphabet, Apple, Facebook and Amazon sustainability reports 2019
  36. - Q4 2019 - Building a sustainable future. 36 3.2
  37. - Q4 2019 - To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society. Larry Fink, BlackRock CEO 37
  38. - Q4 2019 - Buildingasustainablefuture. 38 Increasing pressure coming from all stakeholders Talents InvestorsConsumers
  39. - Q4 2019 - Efforts must be initiated on the entire value chain 39 Direct greenhouse gas emissions solely related to industrial / service activity. Indirect company emissions, such as those induced by electricity consumption. The company's consumption of electricity does not emit greenhouse gases, but the production of this electricity does. The broadest scope, it includes emissions throughout the life cycle of a product or company, in particular emissions related to the company's suppliers, employees and customers transports, but also from the supply chain, recycling and the end of life of the company's products... Source: CIB Carbon Footprint Report Buildingasustainablefuture.
  40. - Q4 2019 - GAFA are multiplying initiatives on all scopes 40 SCOPE1&2SCOPE3 For end customers Nest thermostats by Google have saved more than 29 billion kWh of energy. Project sunroof : a platform to help households to install solar panels. For other stakeholders Google assisted the energy transition legislation in Taiwan. Thanks to its Artificial Intelligence “Deepmind”, Google data centers use half the average amount of energy. Google has purchased 26 million MWh of renewable energy: it's the annual consumption of a country like Ireland. In total, Google has invested $2.5B in renewable energy. For end customers 70% decrease in average product energy use. For other stakeholders: Apple has a Supplier Clean Energy Program to which 44 suppliers have committed. Clean Energy Portal (2017): an online platform to help suppliers identify green energy solutions. Sustainable and efficient Data centers: 5.7 million cubic meters of water saved in 2018 thanks to the efficient cooling method. The roofs at Menlo Park headquarters now support a combined 3 megawatts of solar energy projects. For other stakeholders Over 50% of our Menlo Park employees use an alternative commute option instead of driving alone. By creating new energy tariffs in collaboration with local utilities, they help other businesses to purchase more clean energy as well. 100 000 electric delivery vehicles ordered. To reach 100% renewable energy (2030), they invest in large-scale wind and solar projects. Sustainable packaging. For other stakeholders Invested $100 million in reforestation projects. In 2017, Amazon signed the Fuel Buyer’s principles: commitment to working with service providers to accelerate the transition to low-carbon commercial transportation solutions. Apple has reduced carbon emissions by 64% since 2011 in this scope. Direct ownership in over 600 megawatts. This is among the largest direct investments in renewable energy by a non-energy company. Buildingasustainablefuture.
  41. - Q4 2019 - 41 [Focus] Microsoft’s plan to be carbon negative by 2030 Neutral is not enough to address the world’s needs” - Brad Smith, Microsoft President 2012 Microsoft turns carbon neutral 2020 Extension of the internal carbon tax to all the divisions. 2021 New procurement processes and tools to incentivize suppliers to reduce their 3 scopes emissions. 2025 100% supply of renewable energy. 2050 Remove all the carbon the company has emitted directly or indirectly since it was founded in 1975. 2030 Remove more carbon than the company emits in a year for all 3 scopes. Why is it innovative? Unprecedented ambitions to lead the way. 1 2 Buildingasustainablefuture. Setting “net zero” as the new standard - To remove as much as you emit. 3 Compensate for past emissions.
  42. - Q4 2019 - [Focus] Microsoft’s plan to be carbon negative by 2030 Using 100% renewable electricity by 2025. Electrification of the global campus operation vehicle fleet. 42 Transparency on the carbon impact of services and products: the Microsoft Sustainability Calculator. Extension of its internal carbon taxes for all its divisions and its supply-chain partners. Climate Innovation Fund with $1 billion to accelerate the development of carbon removal technology. Development and use of negative emission technologies: carbon capture and storage, direct air capture. Signature of the UN 1.5-degree Business Ambition Pledge. Microsoft’s pathway to carbon negative by 2030 1975 1980 1990 2000 2010 2020 2030 15M 10M 5M 0M -5M -10M Net carbon emissions Microsoft main initiatives planned Scope 1 Scope 2 and 3 Avoided emissions offset Carbon removal Buildingasustainablefuture.
  43. - Q4 2019 - Is this enough? 43 3.3
  44. - Q4 2019 - 2019 cash on balance sheet & net cash flow in USB bn We expect them to invest more because of their financial power 44 Environmental Protection Agency Average annual budget since 2001 Sources : Factset: cash and cash equivalents + marketable securities, EPA reports 120 101 55 55 134 $471bn $ 72 bn / year Total GAFAM $ 8 bn / year 0,1 10 34 1414 vs Isthisenough?
  45. - Q4 2019 - And yet, their business models do not encourage them to act The more customers GAFAM get and the more those customers use their products, the more value GAFAM are able to capture. Isthisenough? VALUE CREATION VALUE CAPTURE 1 Google search engine is valuable: one-click access to any information. 2 Capturing users’ data optimizes Google’s search engine. 3 Businesses use Google AdWords to engage with final users. 4 Businesses index content: Google search becomes more valuable.
  46. - Q4 2019 - 46 Conclusion Contradictory stakeholders… requiring new models. Isthisenough? New products’ design? Give back mechanisms? Consumers’ education? It is down to GAFAM to find the right equilibrium. CONSUMERS - Digital addiction TALENTS - Not ready to compromise their way of life INVESTORS - Asking for short-term profitability +Asking for more responsible employers. +Requiring companies to meet ESG standards. +Willing to consume more responsibly.
  47. Credits Jérémy joined Fabernovel as a Senior Strategist. He is specialized in quantitative finance and data analysis, especially for tech companies. After graduating from CentraleSupelec he followed his interest in finance at ESCP Europe, and then worked for Exane BNP Paribas in Equity Research. He now works on several projects including financial research at Fabernovel, financial modelling and ecosystem modelling. Jérémy Taïeb Project Leader Agathe Martin Value Director Having worked for 5 years as an Equity Analyst at Exane BNP Paribas in London, Agathe joined Fabernovel to launch a strategic and financial advisory offer, aiming at helping companies to articulate, pilot and value their transformation strategies. She notably contributes to the production of strategic studies for clients in various sectors (from Financial services to logistics) and involving various technologies (AI, blockchain,…). She graduated from ESSEC and holds a Master of International Business from the Queen’s University in Kingston (Canada). Marc Hallynck Junior Analyst Baptiste Martin Junior Analyst Baptiste is passionate about economics and digital issues. As part of his EDHEC program specialized in economic and digital transition support, he spent 6 months in Seoul, one of the world's most dynamic innovation hubs. After working at Allianz France in the financial analysis team, Baptiste joined Fabernovel as a Project Manager. He aims at helping large corporations develop their entrepreneurial and digital spirit. Marc is Junior Analyst at Fabernovel. Before joining the team, he has spent 6 months at Société Générale as a financial analyst for mid and large cap companies. He has interest in new technologies and healthcare. He previously worked for an e-health startup to broaden its vision of the sector’s issues. He is a double degree student at EDHEC Business School and at Haas School of Business at UC Berkeley.
  48. - Q4 2019 - Thank you 48 CONTACT Jean-Christophe LIAUBET Partner +33 6 08 86 24 88
  49. - Q4 2019 - Glossary Market cap: Total dollar market value of a company's outstanding shares of stock. It is calculated by multiplying the total number of a company's outstanding shares by the current market price of one share. EBIT: Earnings before interest and taxes (EBIT) is a measure of a firm's profit that includes all incomes and expenses (operating and non-operating) except interest expenses and income tax expenses. EBITDA: Earnings before interest, taxes, depreciation, and amortization is an accounting measure calculated using a company's earnings, before interest expenses, taxes, depreciation, and amortization are subtracted. FCF: Free cash flow (FCF) is a measure of how much cash a business generates after accounting for capital expenditures such as buildings or equipment. EPS: Earnings per share are the amount of net income from shares divided by the total number of shares outstanding. Net income: Net income (NI) is calculated as revenues minus expenses, interest, and taxes. It is an indicator of a company's profitability. IPO: Initial public offering, the first sale of a company's shares to the public. 49