Fabernovel 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.
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
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.
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
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.
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.
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