Daily Tech Snippet: Wednesday, April 29

• Twitter Q1 earnings: $436M, +74% Y/Y, net loss $162M; shares crash 18% on weakness in both engagement and monetization: Twitter posted weaker-than-expected financial results for the first quarter on Tuesday and told investors to reduce their expectations for the rest of the year. The quarterly report, which was supposed to be published after the stock market closed, was obtained early and posted on Twitter by the financial analytics firm Selerity. The release sent Twitter shares plunging. Trading was briefly halted so the company could disseminate its results. That steepened the drop, and the stock ended the day down about 18 percent. Twitter’s revenue grew 74 percent in the quarter, but that was less than the 97 percent growth seen in the fourth quarter and below the company’s own forecasts. Executives attributed the slowdown to a transition to a new advertising model that priced certain ads based on the result, such as whether the viewer downloaded an app, instead of whether the person simply clicked on it. Analysts said, however, that the shortfall suggested that the real-time network might be less useful than competitors for what are called direct-response ads. “Do people want to leave what they are doing on Twitter and do something else like buy something?” said Debra Aho Williamson, an analyst at the research firm eMarketer. “Direct-response advertisers haven’t figured out the best way to use Twitter, and Twitter hasn’t figured out the best way to market to them.” The quarterly results may renew calls for the resignation of Twitter’s chief executive, Dick Costolo, who has been under fire from some investors ever since the company’s initial public offering in the fall of 2013. “User growth doesn’t appear to be notably improving, and now monetization is failing to live up to expectations,” said Richard Greenfield, an analyst with BTIG Research. “That’s why the stock is selling off so hard. The question is, How much of this is Twitter’s own missteps versus how much of this is peers such as Facebook, Instagram and Snapchat eating into their advertising?” Twitter said that 302 million people used its service at least once a month during the first quarter. That is up from 288 million in December and in line with recent trends. But the figure failed to impress investors, who have been eager to see results from recent changes Twitter has made to help newcomers better understand how to use its service. Twitter’s revenue, most of which derives from advertising, came in at $436 million in the first quarter, up from $250 million in the same quarter a year ago. That was well below the $457 million that Wall Street analysts had expected, according to estimates collected by S&P Capital IQ. The company also continued to lose money in the first quarter: $162 million, or 25 cents a share. Excluding stock-based compensation and certain other expenses, however, the company reported a profit of $46.5 million, or 7 cents a share. On that basis, Wall Street had expected Twitter to earn 4 cents a share.

• Twitter CEO faces a crisis of confidence: Twitter Inc.’s chief executive officer failed to foresee a slowdown that forced the social-media company to miss analysts’ first-quarter revenue estimates and cut its 2015 sales forecast, and the stock slumped 18 percent. While this isn’t the first time Twitter has fallen short on promised results, investors had been told that new features and services, as well as a management overhaul, were starting to pay off. Now, with results missing projections and executives warning of a “slow start” to April user additions, analysts are asking whether Twitter’s potential market is limited and about management’s ability to lure more users and advertisers“Management will again have to address credibility concerns,” Mark Mahaney, an analyst at RBC Capital Markets, wrote in a note to investors. The quarter’s performance “raises the question of how much visibility into advertiser and consumer demand for its offerings Twitter really has,” he said. As Twitter has evolved, Costolo has also sought to explain changes in how the company’s performance should be measured. He usually has a positive business reason for why a number went down. For example, after a slump in timeline views, a metric that Twitter touted as a key figure before its November 2013 initial public offering, Costolo said product improvements had made clicks less necessary, deflating the importance of a number that was supposed to measure user interest. That figure no longer appears on earnings releases, and Twitter hasn’t replaced it with a new metric to track engagement. As Twitter’s monthly active user growth slowed, Costolo responded by saying that it didn’t show the whole picture because 500 million people also visit Twitter’s website each month without logging in. Now, Twitter has decided to tweak the metric, it said on the conference call, making historical comparisons more difficult. The company is adding to the total user count people who access Twitter and send tweets via SMS, or text messaging, in emerging markets, reasoning that they will one day become regular users when upgrading their phones. The change, which will start this quarter, would have added 6 million more people to the prior period’s total count.

• Oracle raises $10B in debt as tech majors borrow to sweeten equity with dividends, buybacks: Oracle sold $10 billion of notes on Tuesday, including the software maker’s first bond that will mature in 40 years, at yields that were lower than originally offered, according to a person with knowledge of the deal. Amgen, the world’s second-biggest biotech company, issued $1.25 billion in 30-year securities at its lowest coupon for that maturity as a part of a $3.5 billion debt sale, according to data compiled by Bloomberg. Both borrowers raised debt to return capital to their equity investors. The highest-rated companies that have been building up their balance sheets after the financial crisis are showing willingness to borrow to satisfy stock investors pushing them to lift share prices. And even as the Federal Reserve moves closer to raising interest rates, forecasts that the U.S. central bank will wait until September, is encouraging borrowers to embrace yields on corporate bonds that are hovering near record lows. Apple Inc. said Monday it may tap debt markets to fund share buybacks. Investors are rewarding companies that have hoarded cash and tightened spending. The ratio of net debt to earnings before interest, taxes, depreciation and amortization for companies in the Standard & Poor’s 500 index is near the lowest levels on record. Oracle last month boosted its dividend for the first time since 2013 by 25 percent to 15 cents a share, up from the prior payout of 12 cents. Oracle, based in Redwood City, California, last sold bonds in June, when it issued $10 billion. The company sold the new debt in six parts, with the $1.25 billion 40-year portion yielding 170 basis points more than similar-maturity Treasuries, 10 basis points less than where the deal was initially marketed. Apple unveiled a plan Monday to boost its share-buyback authorization by $50 billion to $140 billion, and increasing the company’s dividend by 11 percent. Cupertino, California-based Apple has issued the equivalent of $40.35 billion of bonds since April 2013, when it sold $17 billion in what at the time was the biggest corporate-bond offering ever.

• Microsoft might be approaching a substantial goodwill impairment from the Nokia purchase: Microsoft made waves recently by disclosing in its quarterly 10-Q document that its Phone business, which generates billions in yearly revenue, isn’t performing as well as it expected. As Microsoft is carrying billions of dollars of goodwill related to the Nokia purchase on its books, the warning landed like a brick in a puddle of lukewarm slop. History as prelude in this case is the aQuantive boondoggle, during which Microsoft wrote of billions of dollars of value relating to that purchase. As Business Insider’s Matt Weinberger recently wrote: “[T]he last time Microsoft used language like this in an earnings report was back in 2012, three months before it took a $6.2 billion charge to its bottom line for its aQuantive acquisition.” Microsoft currently counts quite a lot of goodwill as an intangible asset on its books. In its most recent quarters, the dollar amount of goodwill sourced from the Nokia deal, in which Microsoft bought the majority of the Finnish company’s hardware assets, sat around the $5.4 billion mark. That’s about a quarter of the company’s total goodwill, which it reports as just over $21.7 billion. Microsoft may not be forced to write down any goodwill relating to the Nokia deal. Or it may have to write down quite a lot. In terms of scale, how bad could the damage be? A massive write down could tank a quarter of the company’s profit, using normal accounting methods (GAAP). Using adjusted metrics, Microsoft could take the non-cash charge in stride, more shamefaced than materially castigated. On a GAAP basis, things get more interesting. The $5.4 billion in goodwill that the company currently counts as an asset is more than the company’s last-quarter GAAP profit. So, in theory, a massive write down could erase a full quarter’s profits both per-share and in aggregate. We can look back to the aQuantive write down to see the potential impact. Here’s Microsoft, from the fourth quarter of its fiscal 2012. In short, the write down essentially erased the company’s profit for the quarter.

• In sharp reversal, US retailer Best Buy will start accepting Apple Pay in all stores: Best Buy announced on Monday that it now accepts Apple Pay payments for purchases made inside its smartphone app, and by the end of the year will accept payments made in its brick-and-mortar stores using the Apple Pay mobile wallet. A Best Buy spokesman said in a statement that the electronics retailer wanted to give customers as many options as possible in how they pay for goods and services. The company also plans to open a technology innovation office in the Seattle area to work on mobile technology issues, the spokesman said. That is a sharp reversal from just a few months ago, when major retailers like Rite-Aid and CVS abruptly shut off the ability to accept Apple Pay payments in their retail stores. Best Buy has not accepted Apple Pay payments in the past. The issue was not whether these companies want a mobile wallet to catch on. More than 50 retailers, including Walmart, Best Buy and Gap, started working together years ago to develop CurrentC, a smartphone-based payments product still in development. The hope was that for members of the consortium, also called the Merchant Customer Exchange or MCX, accepting mobile payments through their CurrentC app could be a way to help retailers understand more about their customers’ shopping habits and, potentially, let merchants avoid the high fees they pay when processing credit card transactions. However, when Apple Pay made its debut, MCX retail partners were contractually bound not to accept alternative mobile wallet payments, according to two retailers involved in MCX, who spoke on the condition of anonymity because the details of the partnership are private. That meant that even though the CurrentC product is still unreleased, partner retailers would not be able to take Apple Pay or Google Wallet transactions. Some of those exclusivity agreements will expire soon, people close to the coalition said, which could explain why Best Buy will accept Apple Pay in stores this year.

• PremjiInvest may lead $50M fresh investment in grocery e-tailer BigBasket. PremjiInvest, the private investment arm of Wipro Ltd chairman Azim Premji, is in discussions to lead a $50 million (Rs 312 crore) Series C investment round in Bangalore-based SuperMarket Grocery Supplies, which owns and operates online groceries marketplace – BigBasket.com, sources told Techcircle.in. According to senior investment bankers who are aware of the discussions, this fresh round of funding is expected to be wrapped within three months. Request for views on the development from the management of BigBasket and PremjiInvest did not elicit any response. This comes within seven months of BigBasket raising Rs 200 crore ($32.9 million) in its Series B round of funding from a clutch of investors including Helion Venture Partners and Mumbai-based Zodius Capital. After establishing its presence in its home market Bangalore, it has expanded into Mumbai, Pune, Hyderabad and Chennai. It is expected to enter Delhi soon. The firm still has cash from the last round but would need a larger stash not just to enter new markets but to create a war-chest to fight fresh competitors, including some which follow an asset-light hyper-local grocery delivery marketplace. In the grocery e-commerce space ZopNow raised $10 million from Dragoneer Investment Group with participation from the existing investors Accel Partners, Qualcomm Ventures and Times Internet. ZopNow, which earlier competed head on with BigBasket, has pivoted to become an asset-light business and partners with offline hypermarket chain HyperCity to pick products and deliver to consumers who order online. Then there are a bunch of delivery startups which essentially connects users to local grocers. Grofers raised $45 million across two rounds since January this year; PepperTap raised $10 million while LocalBanya also got fresh funding. BigBasket is understood to have closed FY15 with a top-line of Rs 250 crore, with a run-rate of 6,000 orders a day with average billing of Rs 1,500 per customer. It had generated sales of around Rs 70 crore in the year ended March 31, 2014, according to VCCEdge, the data research platform of VCCircle.

• Indonesian startup Cubeacon aims to be pioneer in iBeacon technology: Cubeacon wants to be Indonesia’s pioneer in iBeacon technology: It’s a rare thing to hear about software-as-a-service (SaaS) ventures from Indonesia, and even more rare to hear about hardware innovation. But Cubeacon combines both. It focuses on customer loyalty management with a hardware component based on Apple’s iBeacon technology. The startup may be so far ahead of the curve in Indonesia that its CEO Tiyo Avianto is focusing Cubeacon’s distribution in the Japanese market for the time being. Cubeacon uses a BLE (Bluetooth Low Energy) sensor that was introduced by Apple under the name of iBeacon in 2013. iBeacon sensors are made to be placed indoors, for instance inside a shop. These sensors can detect a customer’s position within the shop very precisely, and they can send offers or information relevant to that location directly to a customer’s phone (so long as they have Bluetooth turned on). Potentially, hundreds of sensor units can be installed across one location. Along with its sensor units, which Cubeacon calls a Cubeacon Box, the company delivers customizable software which shop owners can configure depending on their context and requirements, for example to receive analytics and maps, and to deliver custom ads, or push notifications. “At this time we can produce about 2,500 Cubeacon units per month,” Avianto says. Cubeacon hopes to tap into the big budgets that major companies have at hand for their customer loyalty programs. “Cubeacon exists to bring a different experience to customer loyalty,” he says. Cubeacon’s revenue is based on hardware unit sales, but it also charges for its software on a subscription-based model. For large companies, Cubeacon’s software can be white labelled, meaning that it can be branded and adapted to suit the firm’s needs. It even allows the integration of other iBeacon-based devices, which makes the software attractive for developer companies who are already experts in the technology.