Gafanomics - The Quarterly - Episode 1 (Q1FY19)

Foreword
Jean-Christophe
Liaubet
Partner
at FABERNOVEL
ince 2006, FABERNOVEL has been decrypting the strategies and models of the digital native leaders of
the new economy through its GAFANOMICS studies : GAFAM, unicorns, Chinese giants.
After expanding our expertise with the launch of a new-generation financial advisory practice last year, we are
pleased to initiate today « GAFANOMICS - The Quarterly ». This new publication will offer you every quarter a
transversal review of the earnings releases and strategic announcements of the disruptive Tech giants.
While the new economy has ushered in new rules for value creation, we aim with this product at analysing with
our « FABERNOVEL glasses » (combining the financial, strategic and technological view of our experts) the "alpha"
drivers of leading Tech companies and their development strategy.
We see two main interests for such a read-across.
First, more than ever software is eating the world, in terms of usage but also value, as witnessed by the all-time
high valuations reached by the GAFAM. Beyond the vertiginous figures, the new value patterns that they
introduced are striking, decorrelating value creation from short term profitability and crystallizing a rising share of
optionality in valuations. Some see a new bubble but the recent investment in Amazon announced by Warren
Buffett's Berkshire Hathaway, the master of "value investing", confirms in our view that something is changing in
the "algorithm" of the value of the smart investors.
Second, the Tech giants models are increasingly challenged and brought "down to earth" by issues that many
large Corporates have to cope with : slowing growth due to rising maturity and fiercer competition, louder dissent
against their potential antitrust violations and Corporate & Social Responsibility issues that we see as the main
Achilles heel of their model.
At a time when valuation drivers are set to change further and agility at scale is the key competitive edge, will they
be able to show again an inspiring way to tackle these challenges and continue their ascending path? Stay tuned.
S

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 expertise 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

1
The last 3 months through our
glasses

Analysis period: 31/02/2019 - 31/05/2019
Market capitalization increase
+$104Bn
GAFAM contributIon to the increase
90%
Global share price change
-1%
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
USA
Asia
Europe
1.Strikingfacts Share price performance of disruptive tech companies

20% 40% 60% 80%
1.Strikingfacts Operational performance of disruptive Tech companies
Q1 2019
Delivery
S&P 500
Tech cos.
Sales EBIT EPS
Beat In line Miss
20% 40% 60% 80% 20% 40% 60% 80%
Average 2019e financial revisions
Sales
EBIT
+7%
-0.5%
Q1 2019 Average operational growth YoY
Sales
EBIT
+16%
+3%
FCF +25%
The visible gap between revenue growth and EBIT is justified mainly by the willingness
of technology companies to invest more and more in their growth.
Overall, companies manage to generate more cash. Nevertheless, companies like Uber
or Netflix tend to burn a lot of cash.
While companies deliver better than expected on the top line, the investment strategy
often impacts the operating margin of some of the biggest tech companies.
Other groups like Facebook decreased their margins expectations due to provisions for
an incoming fine.

Tech stocks continue to overperform...
Stock markets evolution*
Tech
+19%
1.Strikingfacts Global macro trends : A slowing economic growth context
… however, they begin to show signs
of slowing growth.
Facebook Amazon Apple Netflix Google
… helped by easier financial
conditions...
The Fed explained that it won’t raise
rates this year due to an economic
slowdown in North America.
“The fact that the Fed threw in the towel
on a 2019 rate hike was particularly dovish”
- Joe Manimbo, Western Union’s Senior Analyst.
The dovish defines an economic period in which there is a decline in
interest rates. Dovish period boosts growth and revives the economy,
but could also increase inflation.
Non-tech
+7%
*Source: Factset, 19/02/2019 - 19/05/2019.

We are also
very mindful
of what the
risks are.
Jerome Powell,
FED’s president

1.Strikingfacts Global macro trends : Major geopolitical threats
Stock markets evolution since
US tariff increase
-1%
USA
-6%
China
NASDAQ Hang Seng
Tech stock markets evolution
since US restrictions on Huawei
USA-China Tech Cold War
Since March 2018, the US and China have embarked on a trade war based on
tariff increases on US and Chinese goods, creating volatility in equity markets.
The US has also imposed restrictions on Huawei due to accusations of unfair
trade practices and economic espionage. Restrictions that will have
repercussions on many other tech companies: Google, Intel, Apple etc.
Due to volatility, a total valuation of $1.2Tn has been lost in different
markets since the announcement of the US tariff increases.
Brexit
The resignation of the country’s Prime
Minister, Theresa May, may leave the
value of the British pound at risk.
USA-Mexico
The US plans to charge an initial 5%
tariff on all Mexican imports, a rate that
will rise on a monthly basis until it
reaches 25% unless Mexico agrees to
a deal that will slow down illegal
immigration.
*Source: Factset, as of 31st May 2019
-7% -5%
Apple
Google
-2%
Intel

Samsung
Samsung had to postpone the release date of its Galaxy Fold, after manufacturing defects, and automatically cancelled
the pre-orders. Samsung had announced its foldable phone on February 20th
, four days before Huawei with the Huawei
Mate X.
Tesla
Tesla announces Tesla Networks, a ride-hailing offer with its Tesla autonomous vehicles, allowing its users to rent them. A
new offer that could compete with the R&D work of Google, Uber or Lyft in autonomous vehicles.
Amazon
Amazon improves its Prime delivery offer to a maximum delay of one-day shipping, in order to boost its e-commerce
activity and to widen the gap with the e-commerce strategy of Walmart. In response, Walmart offered free one-day delivery
on up to 220,000 items on its online store for orders over $35.
Apple
Apple announces new services, including subscriptions to video streaming (which will compete with Netflix or the new
player, Disney), video games and news platforms, and the launch of a credit card in partnership with Goldman Sachs.
Google
Google launches Stadia, its cloud-based game service accessible via Google Chrome, to compete with the recent
partnership between Microsoft and Sony, the two historical players in the video game that have unified their forces to
develop a cloud gaming activity, via Microsoft's Azure platform.
Huawei
Huawei suffers repercussions from the trade war, as Google and other companies suspended business with the Chinese
phone maker, which will create a major slowdown in its expansion and impressive growth.
1.Strikingfacts Striking facts on competition densification

Facebook before announcing the launch of a privacy-focused social platform:
“I know that we don’t exactly have the strongest reputation on privacy right now, to put it lightly.
But I’m committed to doing this well.”
- Mark Zuckerberg (at annual developer conference F8 in San Jose).
FacebookNetflixTeslaMicrosoftAmazon
Netflix on rival Apple’s impending move into the streaming industry:
“Apple’s a great company. We want to have people watch our shows on our services”
- Reed Hastings.
Tesla after firing 7% of its workforce in January 2019:
“This is hardcore, but it is the only way for Tesla to become financially sustainable”
- Elon Musk.
Amazon on companies’ quest for efficiency:
“Wandering is an essential counter-balance to efficiency. [...] The outsized discoveries – the "non-linear" ones – are highly
likely to require wandering.”
- Jeff Bezos (in its annual letter to shareholders).
Microsoft on its market cap crossing the trillion dollar threshold:
“I would be disgusted if somebody ever celebrated our market cap [...] At Microsoft we have this very bad
habit of not being able to push ourselves because we just feel very self-satisfied with the success we’ve had”
- Satya Nadella.
1.Strikingfacts Quarterly quotes

1
Daily users' growth,
a record since 2017.
Twitter will now only refer to its
monetizable daily active users
(mDAU), demonstrating a better
representation of its activity
according to its managers.
Growth YoY reached 11%, a level
only exceeded in 2017, while
growth QoQ reached 6%, its
highest level since 2016.
What happened this quarter?
3
A more proactive approach
to reducing abuse.
Twitter also warned that its capital
expenditure would be likely to grow
in 2019, thanks to the firm's efforts to
fight abuse and harassment on its
platform. Dorsey said around 38%
of abusive tweets that were removed
were detected by Twitter's automated
systems, rather than humans.
2
A boom in revenues
in the US market.
The strong growth in revenues was
generated by the US market (+
25% YoY), accounting for 55% of
Twitter's revenues, while the US
mDAU only represented 20% of
Twitter users. This impact, coupled
with reduced spending, boosts
Twitter's bottom line, generating
figures three times higher.
1.Strikingfacts Our Top - Twitter generates strong profits thanks to its US market
Net profit
+61%
Performance
Q1 2019
Vs. Analysts
expectation
Growth
YoY
Revenue
$787M
Operating profit
$94M
Net profit
$191M
Revenue
+1.5%
Operating profit
-5%
Revenue
+18%
Operating profit
+27%
Net profit
+213%

Model S
Model 3 Model X
1.Strikingfacts Our Flop - Slowing growth and breakeven postponed
1
Disappointing sales.
With the removal of the tax credit
granted to US electric car buyers in
January and a delay in car
deliveries, sales have missed the
analysts’ consensus in the first
quarter. 63.000 Model 3 were built
but only 51.000 were sold in Q1.
The company said it would not
reach profitability before Q3 2019.
3
Critical cash position.
Tesla’s cash position decreased from
$3.7bn to $2.2bn at end of Q1 2019
following a $920m debt repayment
and capital expenditure to fund its
new Gigafactory in Shanghai. Given
its massive cash burn ($1bn for Q1),
the company is not able to
self-finance its growth yet and may
recourse to an increase in capital.
2
Major strategic pivot.
As announced in its 2006 Master
Plan, Tesla is switching gears from
a premium strategy (selling
high-end Model X and Model S)
towards a volume strategy (selling
a lot of cheaper Model 3). The
product mix clearly reflects the
change,
with Model 3 accounting for 81% of
deliveries at Q1 2019 versus 27% at
Q1 2018.
Net profit
-
Performance
Q1 2019
Vs. Analysts
expectation
Growth
YoY
Revenue
$4.5Bn
Operating profit
$(522)M
Net profit
$(702)M
Revenue
-14%
Operating profit
-
Revenue
+33%
Operating profit
+12%
Net profit
+1%

1.Strikingfacts Our Surprise - Amazon and its incredible benefits
1
An impressive rise
of its profits.
Amazon has been able to boost
its operating income thanks to
better management of its operating
expenses, coupled with an increase
in revenues. In addition, the growing
share of revenues from its cloud
business is contributing to the
strong increase in profits this
quarter.
3
Further investments
in promising startups.
Amazon led investment rounds
of Aurora (Series B, $530M), a
start-up specialized in autonomous
vehicles and Deliveroo (Series G,
$527M), a European food-delivery
company.
2
Beware of slowing growth
in its e-commerce activity.
However, it is necessary to pay
attention to current growth,
the lowest since the first quarter of
2015, including the growth of its
e-commerce activity, the weakest in
the group excluding physical stores.
Amazon also announced one-day
delivery with Amazon Prime to boost
its activity.
Net profit
+55%
Performance
Q1 2019
Vs. Analysts
expectation
Growth
YoY
Revenue
$59.7Bn
Operating profit
$4.4Bn
Net profit
$3.6Bn
Revenue
+0%
Operating profit
+42%
Revenue
+17%
Operating profit
+129%
Net profit
+121%

Time to play fair.
- Spotify about Apple’s fees policy.
Founded in
2008
Founded in
2015
100M
(Mar. 2019)
50M
(Jan. 2019)
Premium subscribers
30M
(Mar. 2019)
28M
(Jan. 2019)
USA’s premium subscribers
Spotify has filed a lawsuit against Apple with the European Commission for
anti-competitive practices and abuse of dominant position. Spotify accuses Apple of
privileging its Apple Music service at the expense of other platforms present on its App
Store, mainly due to the application of "discriminatory tariffs" according to Daniel Ek,
Spotify CEO.
Apple charges 30% for subscriptions
going through the App Store.
Apple responded, through a statement, to the lawsuit submitted by Spotify :
"After using the App Store for years to develop its business dramatically, Spotify now
wants to retain all the benefits of the ecosystem (...) without making any contribution to
this market.“ Apple considers that Spotify would like to take advantage of the highlight
offered by the App Store without financial compensation, adding that Spotify would not
be as successful as it is today without the contribution of the Apple platform.
This complaint comes a few days after the announcement of the release of new services
from Apple, including video streaming that will directly compete with Netflix, another
actor trying to avoid the fees applied by Apple by redirecting its users to its platform and
avoiding in-app payment.
33%
(Mar. 2019)
35%
(Jan. 2019)
Premium subscribers growth (YoY)
1.Strikingfacts Our Clash - Spotify vs Apple

2 Tech is eating the valuation world

What can we draw from the graph?
● 7 out of the 10 biggest market caps
worldwide are tech companies.
● GAFAM have the 5 biggest market caps,
representing around $4Tn cumulated.
How does it compare with
10 years ago?
● Only 2 of the 10 biggest market caps
worldwide were tech companies (Microsoft
and Google).
● Apple was in the top 20, Amazon was not in
the top 50 and Facebook was still privately
owned.
● The biggest market caps at the time were
Exxon and General Electric, which don’t
appear in the top 10 anymore.
Tech companies now have the biggest market capitalizations in the
world, ahead of ﬁnancial services or healthcare companies. And their
market valuation has more than doubled compared to 10 years ago:
Microsoft, Amazon and Apple now have valuations ﬂirting with one
trillion dollars.
*as of 31 May 2019.
Talent CompanyTech company Other
2.AhighlyvaluedTechsector Tech companies at the top of market capitalization

Facebook
Microsoft
Amazon
Apple
Google
MicrosoftAmazonApple Google Facebook
Apple, Amazon and Microsoft are the three ﬁrst companies to reach a
trillion dollars valuation, all from the Tech sector. This milestone illustrates
the power and impact of tech stocks which took over the biggest
valuations.
Google and Facebook look to be the next
companies to reach this symbolic milestone.
While Google had better growth over the past few
years, Facebook made its IPO much later.
Years before
trillion
since IPO
38
Years before
trillion
since IPO
21
Years before
trillion
since IPO
33
Number of
years since
IPO
15
Number of
years since
IPO
7
2.AhighlyvaluedTechsector The Trillion race

Apple
Market Cap
Net Income
P/E
Microsoft’s good earnings
and long-term vision
Apple’s very
high profitability
Amazon’s strategic vision
and exploratory DNA
Apple’s market cap exceeded
$1Tn last August after its
announcement of very strong
financial results and important
stock buybacks.
Microsoft’s market cap
appreciation came after strong
Q1 earnings results, primarily
driven by its cloud activity. But
it also comes from investors’
belief that Microsoft has a key
role to play on the B2B cloud
market.
Amazon’s market cap crossed
the $1Tn threshold in
September 2018, driven by
growing multiples. Investors
were notably buying Bezos’
strategic vision despite the
company’s low profits.
26x15x
$63Bn $39Bn
80x
$13Bn
$1Tn $1Tn $1Tn
Reached on 02/08/2018 Reached on 25/04/2019 Reached on 04/09/2018
2.AhighlyvaluedTechsector Three Trillion Dollar Babies, each in its own way
Microsoft
Amazon

Facebook has reported a sharp decline in operating income
(-39% YoY) entirely due to a provision for the payment of a fine
on data privacy. Without this element, the company would
have outperformed the analysts’ expectations on earnings.
Apple
Apple did not release growth (-5% YoY), however, they were
able to provide strong revenue guidance and a recovery in the
Chinese market.
Microsoft reported strong results this quarter, especially in its
Cloud activity (+41% YoY), where Microsoft remains in fierce
competition with Amazon.
MicrosoftFacebook
This quarter has been extremely good for tech
companies in terms of share price performance,
despite the US/China trade war negatively
impacting all sectors.
3 months performance of all sectors*
*Source: S&P1200 Global, as of 31 May 2019.
Why did they perform so well?
2.AhighlyvaluedTechsector Tech stocks have outperformed the other sectors
Many companies have been able to deliver strong growth
results, in line with analysts' expectations and have
confirmed a dynamic development through their guidance.
Despite posting results under expectations,
some Tech Giants managed to reassure investors.

2.AhighlyvaluedTechsector The Alpha Analysis
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 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 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

SnapchatTeslaBaidu
Sales 2020e revision
(28/02/2019-31/05/2019)
Share price increase
Share price decrease
2.AhighlyvaluedTechsector How did they manage to overperform?
EV/Sales 2020e expansion (28/02/2019 - 31/05/2019)
Good results
Snapchat, despite a stagnant
number of users, has created
a more viable business model,
generating a 40% higher ARPU
than the previous year, suggesting
better business prospects.
Surprising results
Despite stable expectations for
Tesla’s sales in 2020, investors
started to lose faith in the
company due to major concerns
about the ability of Tesla to
maintain its activities.
Bad results
Baidu has seen a sharp drop in
its share price after it released its
ﬁrst quarterly loss since it went
public in 2005, due to a major surge
in content costs (+47% YoY) for its
Netﬂix-like video streamer iQiyi and
R&D (+26% YoY).
Examples

Amazon
While new major tech actors are emerging at a high pace, Warren Buffett, one of the
pioneers of investment, built his fortune and Berkshire Hathaway's economic power on
the concept of "Value Investing", consisting in investing in companies with a stable
income, profit and low multiples.
The recent $900 million investment of Berkshire Hathaway in Amazon comes as a shock
considering the high multiples of Amazon. Warren Buffet declared on the subject :
I was wrong on Google and ‘too dumb’ to
appreciate Amazon.
- Warren Buffett
This could set the tone for a whole new investment dynamic: "Growth Investing",
favouring companies with a strong growth momentum and very high multiples.
This method was strongly popularized by Thomas Rowe Price Jr., founder of the
management company T. Rowe Price, recent investor alongside Amazon in Deliveroo,
and who advocates in its strategy the long-term support of companies that he finances.
Thus, this new investment dynamic has greatly benefited the venture capitalists, the
new players in the digital economy, and which participated in the dynamics of many
IPOs in this year 2019.
EV/EBIT
53x
Q1 2019
Historic investments of
Berkshire Hathaway
Recent investment of
Berkshire Hathaway
CocaCola
EV/EBIT
11x
1988
IBM
EV/EBIT
11x
2011
Apple
EV/EBIT
11x
2016
2.AhighlyvaluedTechsector Investment methods are changing towards long term profitability
Multiples

From March 2000 to October 2002: The DotCom boom.
The ‘90s marked the shift to an economy relying on IT, allowing the creation of many
new tech companies. Successful IPOs, including Yahoo: one of the Nasdaq's most
successful IPOs ever, generated high interest in investing in internet companies,
leading to a stock market bubble mainly due to :
● Easier private investments and proliferation of IPOs thanks to the
encouragement of investment banks.
● Overlook of traditional metrics, as P/E ratio, about unprofitable companies,
spending massively without a solid business and economic model.
And in 2019?
● The highest percentage of unprofitable IPOs.
● High VC investments.
● Nasdaq is at its highest point.
This is why many analysts now claim that valuations are unsustainably high.
NASDAQ
1995-2000
VC investment
(in $Bn)
81% 83%
120 100
5142 7788
Unprofitable IPO
(in %)
2000
2000
2000 2019
2018
2019
Nasdaq Composite
(in points)
Market value
Loss total
-78% $5Tn+400%
2000-2002
Amazon
-93%
2000-2002
Cisco
-86%
2000-2002
2.AhighlyvaluedTechsector The increase of risky investments could lead to a new tech bubble...
Similarities between 2000 & 2019 (USA)

Before 2000, companies rushed
to get into the stock market, with
generally few incomes and a
lot of expenses.
Nowadays, tech companies entering
the stock market are now much
more consolidated: older, better
funded, with better ﬁnancial results
and more assets. Without a proper
vision, companies do not perform as
well as they used to.
At the time of the crash, tech
companies’ valuation peaked at
80 times earnings, more than 3 times
the valuation of non-tech companies.
Nowadays, valuations of public
tech companies averaged 20 times
earnings, only 10% above
the general market.
The global population connected
to the Internet is around 4Bn
against 400M in 2000.
Nowadays, tech companies represent
most of the biggest market caps and
report, all combined, more than
$170Bn of earnings against a total
loss of $41Bn in 2000.
Average IPOs’ annual revenue
(in $M)
12 170
2000 2018
Average P/E ratio
by tech companies
80x 20x
2000 2019
Total earnings (loss)
by tech companies
(in $Bn)
(41) 170
2000 2017
2.AhighlyvaluedTechsector …but Tech companies are now way more robust than before
Investors and companies
are now more careful.
More reasonable
ﬁnancial metrics.
A bigger tech ecosystem
backed by giant companies.

Tech US IPOs’ amount valuation - 2012 (Facebook and 29 others IPOs)
Tencent [2004]
Zoom [2019]
Apple [1980]
Baidu [2005]
Pinterest [2019]
12.7
11
Twitter [2013]
Alibaba [2014]
Facebook [2012]
Uber [2019]
Xiaomi [2018]
Snapchat [2017]
Google [2004]
PagerDuty [2019]
Lyft [2019]
These new actors among
the Tech Giants
(in $Bn)
Amazon [1997]
This year 2019 is and will be marked by IPOs.
While the number of IPOs is expected to be only around 15 this year,
their average valuation is much higher than the previous years. CB
Insights expects the average valuation of the 2019 IPOs to be around
$10Bn, up from $4Bn in 2012 (boosted by Facebook’s $104Bn
valuation).
The valuation of the only 6 IPOs since the beginning of 2019 in the
tech sector have already beaten the 2012 record when Facebook
and 29 other companies had entered the stock market.
Tech US IPOs’ amount valuation - 2019 (year to date)
30 29 33 16 12 19 19 15
4.3 1.4 1.1 1.2 0.7 2.3 2.1 9.6
Average valuation per US IPO (in $Bn)
Numbers of tech US IPO2012 2013 2014 2015 2016 2017 2018
2012 2013 2014 2015 2016 2017 2018
$128Bn
$132Bn
231
104
82.4
54
25
24.3
24
23
9.2
4
1.8
1.4
1.8
0.4
‘s year vs ‘s year
2019 (Preview)
2019 (Preview)
Jumia [2019]
Source: Fabernovel estimates
3.ThenewIPOModel 2019 is already historic for tech companies in terms of IPO

Google - 5%
Main investors
Shares in
Benchmark - 11%SoftBank - 16%
Uber (UBER)
May 9th
NYSE
IPO Price : $45 / share
Amount raised : $8.1Bn
T. Kalanick - 9% G. Camp - 6%
Main activities
Valuation at IPO $82.4Bn
China Asia Russia
Valuation, as of 31 may $71Bn Lost $11.4Bn
6.5x
EV/Sales
2019e at IPO
3.ThenewIPOModel Uber - Disappointing start for the most anticipated IPO
Uber was by far the most anticipated IPO for this year 2019. The mobility giant
has entered the New York Stock Exchange on May 10 with a valuation of
around $82Bn, making Uber the biggest US IPO since Facebook in 2012.
During his roadshow, Dara Khosrowshahi wanted to highlight the comparison
between his company and the evolution of Amazon, which began its activity as a book
Reseller before becoming the most powerful e-commerce platform worldwide while
burning a lot of cash.
Uber invests heavily, at risk of its proﬁtability, to develop its new activities and research
in autonomous vehicles, to be able to deploy its mobility expertise in a large number of sectors.

Pinterest (PINS)
April 17th
NYSE
PagerDuty (PD)
April 10th
NYSE
Lyft (LYFT)
March 28th
NASDAQ
Zoom (ZM)
April 17th
NASDAQ
Jumia (JMIA)
April 11th
NYSE
Software as a ServiceIPO Price : $24 / share
Amount raised : $250M
IPO Price : $14.5 / share
Ride-hailing company,
Uber’s main competitor
Social media
Software as a Service
First e-commerce platform
in Africa
6.6x
EV/Sales 2019e at IPO
10.8x
15.5x
17x
17.9x
3.ThenewIPOModel New Kids On The Block - A record quarter for IPOs

EV/Sales
Multiple
2019e at IPO
Share price
performance
Since
Opening day
Opening
price
vs IPO price
IPO Valuation
-4%
-26%
+4%
+21%
+39%
+40%
-6%
+8%
+26%
+83%
+54%
+31%
$82.4Bn
$24.3Bn
$12.7Bn
$9.2Bn
$1.8Bn
$1.4Bn
6.5x
6.6x
10.8x
15.5x
17x
17.9x
Uber and Lyft failed to give any guidance on their
profitability, letting investors with their doubts
on a potential to ever make earnings, resulting
in a strong devaluation regarding previous expectations,
approaching a total of $30Bn for the two companies.
Jeff Bezos explained that profits were
useless if they lessened a bigger goal.
However, the best-performing companies are logically
the closest to profitability such as Zoom, which
is profitable, or Pager Duty.
Financial markets do not hesitate to punish for
lack of results or scandals. While Pinterest made an
honourable entry on the NASDAQ, the company
reported results below analysts' expectations and fell by
11% on May, 17th.
Despite a very promising start, Jumia has been
the subject of a class action by its investors and
has lost 50% of its value.
Source: Factset, as of 31 May 2019
3.ThenewIPOModel Share price, what about now since these introductions?

$776M
VS
Revenue
Revenue
Net loss
Net loss
Activities
Activities
Market
capitalization*
Market
capitalization*
$68Bn
$17Bn
$3.1Bn
$1.1Bn
$1Bn
Why they failed ?
USA-China’s trade war
causes ﬁnancial markets’
volatility.
No short-mid term vision
on proﬁtability.
Disappointing results
Lyft didn’t reach its guidance.
Uber announced slow growth
to come.
Drivers’ strikes ahead
Uber’s IPO.
Q1 2019 Earnings
Riders
Riders
93M
20.5M
Revenue per rider
Revenue per rider
$37.9 / rider
$33.3 / rider
EPS
EPS
*Source: Factset, as of 31 May 2019
+46% YoY
+33% YoY +20% YoY
+95% YoY
$(48.5)
$(2.3)
3.ThenewIPOModel Uber vs Lyft : the new mobility competition

Palantir Technologies
H2 2019
Slack (SK)
NYSE (expected June, 20th)
Via a Direct Listing
WeWork
Q2 2019
AirBnb
H2 2019
Via a Direct Listing
Main investors : General Atlantic, Softbank
Latest private valuation $41Bn
Main investors : Softbank
Main investors : Sequoïa Capital, Andreessen Horowitz
Main investors : Founders Fund
Amount raised : $2Bn
Latest private valuation $7.1Bn
3.ThenewIPOModel More new kids on the block expected for 2019

42
In 2018, 83% of tech companies listed in the US were
NOT profitable the year of their IPO*.
This trend is expected to continue in 2019, as those companies
are investing more and more to develop their platform and
support their growth. This long-term vision can often be
criticized by investors who want to see profits in the short
term.
Uber, for example, is investing heavily in what could be the
future of mobility: autonomous car technologies and air
transport solutions (Uber Air). More than $427M has been
invested in 2018, according to Uber’s SEC filing.
*Source : Factset, Wall Street Journal
Financial results before the IPOs
(in $ million))
Revenue (2018)
Operating loss (2018)
Revenue (2018)
Revenue (2018)
Revenue (2018)
Operating profit (2018)
Revenue (2018)
Revenue (2018)
Among the main tech IPOs this year,
only ZOOM is profitable
978
2 157
3 000
11 270
756
75
330
6
118
154
197
14 785 4 214
Total Operating loss
(in $Bn)
Total revenue
(in $Bn)
3.ThenewIPOModel But these IPOs are decorrelated with financial sustainability

A stock exchange for a new
generation of public companies.
More than a market, a movement.
LTSE will
compete with
NASDAQ NYSE
Tech companies listed on
On May 10, the SEC has approved the project of creation of a
Long Term Stock Exchange, initiated in 2011 by Eric Ries and backed
by prominent Silicon Valley names, which will target elite tech companies,
frustrated by the investors’ short-term expectations in terms of proﬁtability.
LTSE CEO Eric Ries said that he wants to build a market where companies
are rewarded for choosing to innovate, to invest in their employees and to
seed future growth. According to the LTSE, these companies tend to outperform
their peers over time. Another major aspect of LTSE is its focus on long-term voting
rights: the longer an investor owns a stock, the more power voting rights he will have.
"We welcome the approval, which advances our vision of a
new way of being public for a generation of companies that aspire
to build their businesses and generate value for decades to come"
- Zoran Perkov, LTSE Chief Executive.
This stock exchange will become the 14th U.S. Equity Market, alongside
the Nasdaq or the New York Stock Exchange. The Long-Term Stock Exchange
will start trading later this year after completing administrative and technical steps.
Total market capitalization
(in $Bn)
7000
(2018)
25 000
(2018)
3.ThenewIPOModel The Long-Term Stock Exchange, the solution?

4 Down to earth:
The Tech Giants model challenged

Corporate social responsibility and related regulation
Whereas Tech Giants initially launched with acute social awareness,
as Google’s motto “Do no evil” shows, they progressively abandoned
ethics as a key pillar of their strategy.
Still growing at a sustained pace and trading at high valuations, tech companies nevertheless increasingly face three challenges
typical of large corporations
Slowing growth due to maturity
While Tech Giants beneﬁtted from the natural market growth
of their core business, they are progressively facing slowing growth
on these activities (advertising, hardware sale…).
Increased competition on their core businesses
While looking for new growth levers, tech companies face increased
competition from other tech players, fast-growing newcomers
and traditional companies reinventing themselves.
4.ThechallengedTechGiantsmodel Tech giants are now facing three big challenges

Most Tech Giants face a slowdown in their overall growth, mainly
impacted by the progressive saturation of their core activity.
These giants are generally financially dependent on these
activities: Apple with the iPhone; Amazon with e-commerce;
Google and Facebook with advertising.
Dependence of GAFAM in their historical activities
Shares (in %) of their historical activities in terms of global revenues
Arriving at full maturity, the objective for these companies is to diversify
their revenues in order to reduce the impact of the results achieved
by their historical activities. For the first time, Amazon's e-commerce
results do not reach the 50% share in the group's turnover; the share
of iPhone sales went from 62% last year to 54% this year.
To achieve such results, these groups have recently begun
a diversification strategy to increase their sources of income.
Facebook
Advertising
99%
Q1 2019
Slowing Growth
for GAFAM
AmazonAppleGoogleMicrosoftFacebook
Growth
YoY
Q1 2018*
Growth
YoY
Q1 2019*
+43% +17%
+16% -5%
+26% +17%
+21% +14%
+50% +26%
4.ThechallengedTechGiantsmodel Tech leaders face a slowing growth due to maturity
Amazon
E-commerce
49%
Q1 2019
Apple
iPhone
54%
Q1 2019
Advertising
85%
Q1 2019
Google
*including perimeter effects, such as “Whole Foods Market” acquisition for Amazon in August 2017.

Alphabet has the second-biggest R&D spendings in the world
($16.2Bn), allowing to conduct internal R&D projects that can
evolve into new subsidiaries (Waymo, Verily, Calico).
Facebook’s R&D spendings topped 19.1% of revenues in 2018,
with a strong focus on AI. In terms of products, it launched
Marketplace and more recently announced Facebook Dating.
Apple is a product company (Mac, iPhone, iPad) spending only
5.1% of rev in R&D. But since Cook took over in 2011, it didn't
launch any “home run” product (Apple Watch, Home Pod).
Microsoft’s R&D spending amounted to 13.7% of revenues.
It massively invested into its own cloud activity, which resulted
in Azure grabbing market shares and driving company growth.
Amazon has the biggest R&D spendings worldwide with
$23Bn in 2018 (12.7% of rev) and favors it over short-term proﬁt.
Its R&D gave birth to the Echo hit product line powered by Alexa.
In contrary to Apple, Microsoft is one of the biggest acquisitive
companies (75 acquisitions between 2013 and 2018). It recently
poured billions into LinkedIn ($26Bn) and GitHub ($7.5Bn).
To keep up with growth, GAFAM need to diversify their activities into new growth levers. To do so, they balance their capital
allocation differently among R&D - used to develop breakthrough products internally - and M&A.
Since recently, Amazon resorted to M&A to build capabilities away
from its core business, with acquisitions of physical retailer Whole
Foods ($14Bn) and video game streaming platform Twitch ($1Bn).
Facebook primarily used massive M&A to consolidate in the social
networking space with WhatsApp ($19Bn) and Instagram ($1Bn)
and later to diversify into virtual reality with Oculus ($2Bn).
Apple isn’t traditionally oriented towards M&A (only 2% of its FCF
vs 25% for peers). Its biggest past acquisitions were Beats ($3Bn)
and more recently Dialog ($600M) and Shazam ($400M).
Sources : “The 2018 Global Innovation 1000 study”, Strategy &; Press articles.
INTERNAL PRODUCT LAUNCH M&A
How will they maintain growth? Capital allocation is key4.ThechallengedTechGiantsmodel
Alphabet has an exceptional M&A track record in nurturing and
then integrating companies such as Nest Labs ($3.2Bn) or Waze
($1Bn) and could repeat this with Looker’s acquisition ($2.6Bn).

Online advertising
By diversifying into new markets, new entrants shake up the leaders on their historic market. Below are the 2018 market
shares of the leaders on a bunch of tech-related industries with increasing competition: cloud, online advertising, smart
speakers and music streaming.
61%
12%
7%38%
Cloud
Smart speakers
Music streaming*
32% 17% 41%10%
22% 33%
36% 19% 33%
*Number of paying subscribers vs total number of users worldwide
15%
Sources : Canalys, Geekwire, Venture Beat, MIDiA, eMarketer, Voicebot.ai
4.ThechallengedTechGiantsmodel This diversiﬁcation strategy leads to increased competition
24%

Cloud
Advertising
Video streaming
Gaming streaming
Smart speakers
YouTube Gaming (2015)
Favorite destination for streamers with a
global YouTube audience of 1.9Bn MAUs.
Amazon Advertising
Growing fast (+34% yoy), leveraging
marketplace traffic and purchasing
data (7% m.s.).
Amazon Web Services (2006)
Global leader (32% market share),
first-mover thanks to its server needs.
Amazon Echo (2014)
61% market share + 100M Alexa-based
products sold (incl. 3rd party products).
Twitch (2014)
Acquired for $970M then integrated
into Prime, counting 140M MAUs.
Prime Video (2011)
2nd streaming service after Netflix,
spending $1.7Bn on content at Q1 2019.
Founded in 1994 by Jeff Bezos
Revenues (Q1 2019) : $60Bn
Market cap (31/05/19) : $874Bn
VS
VS
VS
VS
Google Cloud (2013)
3rd player (10% market share), launched
late and unable to catch up.
Founded in 1998 by L.Page & S.Brin
Revenues (Q1 2019) : $36Bn
Market cap (31/05/19) : $767Bn
AdWords, Display Network, etc (2000)
Core business (85% of revenues), using data
from B2C products (search, Maps…).
VS
Google Home (2016)
24% market share, but growing faster
than Amazon Echo (+5.5% vs -11% YoY).
YouTube Premium (2014)
Low spending on content (10x less than
Amazon), moving to an ad-based model.
4.ThechallengedTechGiantsmodel A clash of the Titans: Amazon vs Google

0 10 20 30 40 50 60 70 NPS
Life insurance
$ 565Bn
$ 900Bn
4.ThechallengedTechGiantsmodel Tech Giants’ compass for disrupting traditional industries
Your margin is my
opportunity.
Jeff Bezos,
Amazon Founder and CEO
Jeff Bezos considers that industries with
high margins focus more on the ﬁnancial
return that customer satisfaction and
product offering. Such industries leave room
for more customer-centric players to take
market shares from incumbents.
There are no longer markets, only clients. To guide their diversiﬁcation strategy, Tech Giants look at the needs of their clients
that could cover and look at businesses combining two features: a large revenue opportunity and weak current customer
satisfaction.
Net Promoter Score and market size, per industry segment (2018) Amazon’s view on competition
1350
1200
1050
900
750
600
450
300
150
0
Health
Insurance Drugstores &
pharmacies
Cell phone
services
Shipping
services
Hotel
services
Grocery /
Supermarket
$ 5700Bn
$ 1500Bn
Airlines
$ 1350Bn
Cable /
Satellite TV
Brokerage &
investment
Credit card
Opportunities
for tech giants
Travel Website
Source : Satmetrix benchmark, 2018
Marketsize($Bn)
Payments
$ 1900Bn

Facebook investigates into blockchain
After acquiring Chainspace
(Feb 2019), Facebook is said to
seek funding up to $1Bn for its
“GlobalCoin” project enabling
transfers through WhatsApp.
Amazon massively invested in healthcare ﬁrms
Amazon is tackling drug
distribution (with Pillpack’s $1Bn
acquisition) and investing
in disruptive cancer detection
startups (Grail’s $900m series B).
4.ThechallengedTechGiantsmodel And concrete initiatives to invade selected traditional industries
Worldwide market size :
$ 10 Trillion
Alphabet deeply researched into healthcare
Former Google X projects launched
to tackle eye disease (Verily) and
ageing issues (Calico), are now
entire subsidiaries grouped into
Alphabet’s “Other Bets”.
Amazon enters multiple FS segments
Partnership with Berkshire
Hathaway on health insurance and
$3Bn granted to SME lending show
Amazon’s interest for FS beyond
payment solutions.
Healthcare
AmazonGoogle
Financial services
Worldwide market size :
$ 21 Trillion
AmazonFacebook
Considering their poor customer satisfaction level and huge global market size, the Healthcare and Financial Services
industries look like good candidates for disruption from big tech players. Below are a few initiatives from tech giants
showing they are starting to invade these industries.

Disney enters the video streaming
market with Disney +
Disney will launch its streaming service Disney+ in the
US in November 2019, entering an already crowded
market. While it’s not a tech company, Disney has two
major competitive advantages against actors such as Netﬂix,
Amazon and Apple:
- a huge catalogue of popular brands (Star Wars, Marvel,
Pixar, Disney originals...).
- a 60% controlling stake in Hulu after the Fox acquisition.
$6.99 / month
Walmart rebrands itself as a “tech
company” at SWSX
To answer Amazon’s growing threat in retail, Walmart
intensiﬁed its digital efforts. After launching its in-house cloud
storage systems earlier last year, the company hired former
Amazon and Microsoft executive Suresh Kumar to run its
technology businesses. Walmart also announced it was offering
two-day delivery for purchases over $35 in answer to Amazon.
As a result, online sales grew 40% in 2018, topping 4.6% market
share (still largely below Amazon’s 47%).
+ 8.000 +43% 80%
4.ThechallengedTechGiantsmodel Still, non-digital players compete back on tech-related markets
Subscription price # Titles at launch Q1 online sales growth In-house cloud network

NATU (Netflix, AirBnb, Uber,
Tesla) are the new players in
the digital economy, supposed
to compete with the hegemony
of GAFAM.
Tech Giants compete with each other in a growing number of sectors,
but their diversification strategy also pushes them to enter the market of new
players in the economy.
Netflix, AirBnb, Tesla or Uber are no longer safe as GAFAM fight to get more of their
market share. Newcomers rely on the strong engagement of their user bases to
remain competitive
Those Giants will inevitably have a major impact on many different markets.
Spotify and Netflix, previously unchallenged leaders on their territories, must now face
the competition from Apple and Amazon in the music and video streaming markets.
Average age
(in years since creation)
Average revenue in 2018
(in $Bn)
NATU
15
NATU
13
GAFAM
30
GAFAM
160
Average market capitalization
(in $Bn)
NATU
75
GAFAM
800
Apple announces its streaming video
service : Apple TV+.
Amazon announces new free
musical offer on Amazon Echo.
Amazon invests in Deliveroo, one
of the leader in food delivery.
Share price
-5%
Share price
-5%
Share price
-9%
4.ThechallengedTechGiantsmodel But competition also impacts new tech actors New players
in tech sector
Food delivery
Video streaming
Music streaming

Tech Giants face rising dissent from several stakeholders (employees, regulator, investors...) on their poor Corporate Social
Responsibility as well as governance practices.
The battle for data privacy is far from over.
Facebook will have to pay a bill between $3Bn
and $5Bn due to the Cambridge Analytica
scandal. Google also had record ﬁnes to pay
in the US ($20M) and in Europe (€50M) on data
privacy issues.
4.ThechallengedTechGiantsmodel CSR : the Achille heel of Tech Giants
Under the spotlights of regulatory scrutiny Growing criticism from insiders
It is time to break up Facebook.
Chris Hughes,
Facebook cofounder.
Regulation will keep putting pressure on tech
companies, especially on ethical design issues.
In May, two senators proposed a bill that would
forbid big tech platforms from using dark pattern
design, which often pushes users toward giving up
their privacy unwittingly and allowing a company
deeper access to their personal data.

My administration will make big, structural
changes to the tech sector to promote
more competition - including breaking up
Amazon, Facebook, and Google.
Elizabeth Warren,
Candidate for US presidential election in 2020.

The current power of Tech Giants is crushing most of the competition due to their size
and cash available. While the debate is now reaching the US regulators and political
scene, it is likely to be very present during the upcoming US Presidential elections.
Many ideas and initiatives in favour of a dismantling of GAFAM are emerging. Among others,
the Congress held a hearing on the 11th of June to see if Google and Facebook's online
advertising dominance is killing news and thereby threatening democracy.
Elizabeth Warren (US Democratic candidate for the 2020 presidential election) based part of
her program on these regulatory issues, considering that the quasi-monopolistic positions of
these companies represent a brake on democracy.
The U.S. Antitrust Regulators will start to investigate on GAFA
GAFAM
Economic power
4th world power
$4Tn
Germany’s GDP
4.ThechallengedTechGiantsmodel Towards a regulation of Tech Giants
=
=
The Federal Trade Commission
would supervise antitrust investigations
against Facebook and Amazon
The U.S. Department of Justice
would supervise antitrust investigations
against Apple and Google
Share price
-7%
Share price
-5%
Share price
-7%
Share price
-1%

4.ThechallengedTechGiantsmodel CSR : Tech Giants react
● Apple powers its data centers with
100% renewable energy.
● Google’s Power Purchase Agreement
to ensure future procurement of clean
energy for 10 years.
● Amazon’s Shipment Zero to make 50%
of all Amazon shipments net zero
carbon.
Environment
These ethical issues represent a serious threat for tech companies’ business models based on trafﬁc and usage. The GAFAM have
taken it very seriously and initiated concrete actions in several ﬁelds : communication to acknowledge their mistakes and their
commitment on privacy and ethical issues, investment in products and new initiatives that contributed to cap their operating
leverage in Q1 results.
● Google created a council (ATEAC)
making recommendation on
ethical issues around AI and
emerging technologies.
● Amazon collaborated with the
National Science Foundation
($30M in research for more
fairness in A.I).
Fairness in AI People
Apple, a role model for data privacy compared to Google and Facebook ?
Through their single sign-on feature (SSO),
Google and Facebook allow third-party apps to
access all user data. On the contrary, Apple
stores data locally and anonymously on devices
to avoid misuse by third-party apps (“Sign in with
Apple” feature).
● With iOS 12, Apple added
time-management features to its
devices in order to limit users’
daily screen time.
● Amazon Future Engineer to help
young people from unprivileged
backgrounds.
We have a responsibility to protect your
data, and if we can’t then we don’t deserve
to serve you. Mark Zuckerberg,
Facebook founder and CEO.

Credits
Jean-Christophe joined
FABERNOVEL in 2017 as a
Partner and founder of the
valuation practice of the Group.
Graduated from ESCP Europe,
he has accumulated over 20
years of experience in the
financial markets, working as an
Equity Analyst and then
Managing Director at Exane
BNP Paribas.
At FABERNOVEL, he combines
his financial expertise, investors
network, entrepreneurial spirit
and innovation culture to help
corporates make and value the
best investment decisions.
Jean-Christophe
Liaubet
Advisor
Guillaume Tirel
Contributor
Jérémy joined FABERNOVEL as a
Financial analyst.
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.
Guillaume works as Financial
Analyst at FABERNOVEL. He
specializes in the financial and
strategic analyses of big tech
corporates and emerging players
of the new economy.
A graduate from ESSEC, he
worked in Corporate Strategy at
Natixis, in Marketing at tech
startup Helpling and as Venture
Capital Analyst at Bpifrance.
At Fabernovel, he contributes on
innovation strategy and new
models of valuation based on
extra financial criteria.
Dorian Da Cunha
Contributor
Dorian works as a Financial
Analyst Intern at FABERNOVEL.
Passionate about technologies,
he specializes in financial and
strategic analysis of new players
in the economy.
Pursuing Corporate Finance
studies at SKEMA Business
School, he will continue his path
in the M&A Department at
Devoteam.
At Fabernovel, he works on
several financial research
projects about giant technology
companies.
Jérémy Taïeb
Project Leader

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