Apple losses trigger a plunge in US markets

Bad news from Apple and signs of slowing international and domestic growth sent stocks tumbling in Thursday trading on all of the major markets.

Investors erased some $75 billion in value from Apple alone… an amount known technically as a shit ton of money. But stocks were down broadly based on Apple’s news, with the Nasdaq falling 3 percent, or roughly 202.44 points, and the Dow Jones Industrial Average plummeting 660.02 points, or roughly 2.8 percent.

Apple halted trading of its stock yesterday afternoon to provide lower guidance for upcoming earnings.

Apple’s news from late yesterday that it would miss its earnings estimates by several billion dollars thanks to a collapse of sales in China was the trigger for a broad sell-off that erased gains from the last trading sessions before the New Year (which saw the biggest one-day gain in stocks in recent history).

Apple’s China woes could be attributed to any number of factors, D.A. Davidson senior analyst Tom Forte said. The weakening Chinese economy, patriotic fervor from Chinese consumers or the increasingly solid options available from domestic manufacturers could all be factors.

Sales were suffering in more regions than China, Forte noted. India, Russia, Brazil and Turkey also had slowing sales of new iPhone models, he said.

Investors have more than just weakness from Apple to be concerned about. Chinese manufacturing flipped from growth to contraction in December and analysts in the region expect that the pain will continue through at least the first half of the year.

“We expect a much worse slowdown in the first half, followed by a more serious and aggressive government easing/stimulus centred on deregulating the property market in big cities, and then we might see stabilisation and even a small rebound later this year,” Ting Lu, chief China economist at Nomura in Hong Kong, wrote in a report quoted by the Financial Times.

U.S. manufacturing isn’t doing much better, according to an industrial gauge published by The Institute for Supply Management. The institute’s index dropped to its lowest point in two years.

“There’s just so much uncertainty going on everywhere that businesses are just pausing,” Timothy Fiore, chairman of ISM’s manufacturing survey committee, told Bloomberg. “No matter where you look, you’ve got chaos everywhere. Businesses can’t operate in an environment of chaos. It’s a warning shot that we need to resolve some of these issues.”

The index remains above the threshold of a serious contraction in American industry, but the 5.2-point drop from the previous month in the manufacturing survey is the largest since the financial crisis, and was only exceeded one other time — following the September 11, 2001 terror attacks on the U.S.

Tencent returns to profit growth despite concern around games

Chinese internet giant Tencent bounced back from a disappointing previous quarter, but for once the company didn’t have its gaming business to thank.

Tencent may be best known for conjuring up WeChat, China’s most popular messaging platform, but its revenue is driven by its gaming business, which includes top smartphone titles and a thriving PC unit. Its Q3 results, announced today, however, saw its gaming income slacken and other units, including a booming advertising business, step up.

The firm posted a net profit of RMB 23.3 billion ($3.4 billion) on total revenue of RMB 80.6 billion ($11.7 billion), up 30 percent and 24 percent, respectively. Profit growth was back on track, mainly thanks to increased net gains from investments, including a blockbuster IPO of Meituan in September.

Advertising increased by 47 percent and generated 20 percent of total revenues, marking the first time that the segment has reached that mark. The jump is in part a result of strong ad revenue growth on Tencent’s two main chat apps, WeChat and QQ.

These changes are a sign that Tencent has begun to aggressively monetize its massive network of social networking users. As of September, Tencent had 1.08 billion monthly active users on WeChat worldwide, though the app’s spectacular growth has slowed to 2.3 percent quarter-to-quarter.

Tencent underwent an internal reorganization in October that saw it merge several business groups, which have resulted in a more unified system of advertising sales platforms, the company explained in today’s report.

“Our advertising, digital content, payment and cloud services sustained robust activity and revenue growth, and now account for the majority of our revenue,” chairman and CEO Pony Ma said in a statement.

In contrast, games, which have been Tencent’s major revenue driver for years, slid four percent this quarter due to a prolonged freeze on gaming licenses in China. The firm claims it has 15 games with monetization approval in its pipeline, which means that gaming revenues could rebound when it publishes those titles, although it said the same in the previous quarter, so a lack of progress is fairly ominous.

The firm also pointed out that while mobile games continued to fuel revenue growth, PC games suffered a decline.

When asked about the situation with gaming licenses on a call with investors, Tencent President Martin Lau said the company is “waiting for the government to start the approval process.”

Tencent appears to have found a potential interim solution, which involves allowing third-party publishers who secured a license before the freeze to publish games through its platform, but of course, that has limited use.

While games are the hot topic, Tencent was keen to push the story of its cloud computing business, which it said is a key to widening its focus into IOT and other areas.

Emboldened by the reorganization in October, which seemed aimed at shifting Tencent from a consumer-facing internet company into one that’s increasing serving industries, the firm said its cloud business more than doubled its revenue year-on-year. There was no raw revenue figure released for the quarter, but the company did disclose that the cloud unit has brought in more than RMB 6 billion, $860 million, over the last three quarters.

Furthermore, cloud computing and payment-related services helped its “Others” business increase its revenue 69 percent year-on-year to reach RMB 20.3 billion, $2.92 billion, for the quarter.

Daily Crunch: Tesla is profitable again

The Daily Crunch is TechCrunch’s roundup of our biggest and most important stories. If you’d like to get this delivered to your inbox every day at around 9am Pacific, you can subscribe here:

1. Tesla earns its first profit in two years

Tesla reported a profit in the third quarter, reversing seven consecutive quarters of losses. This is only the third time in the company’s history that it has achieved this milestone.

The turnaround was driven by sales of the Model 3. The company said customers are trading up their relatively cheaper vehicles to buy a Model 3, even though there is not yet a leasing option and the starting price was $49,000.

2. Trump has two ‘secure’ iPhones, but the Chinese are still listening

A new report by The New York Times puts a spotlight on the president’s array of devices and how he uses them. However, both Trump and a spokesperson for China’s foreign ministry have denied the story.

(BRENDAN SMIALOWSKI/AFP/Getty Images)

3. Red Dead Redemption 2 sets the bar high for the next generation of open world games

Tomorrow, Red Dead Redemption 2 goes live after months of breathless speculation. And according to Devin Coldewey and Jordan Crook, it’s as good as you’ve been hoping.

4. Facebook is building Lasso, a video music app to steal TikTok’s teens

Facebook is building a standalone product where users can record and share videos of themselves lip syncing or dancing to popular songs, according to information from current and former employees.

5. One-year-old Ribbon raises $225m to remove the biggest stress of home buying

The startup wants to replace the incredible stress of securing a mortgage during the home-buying process with a Ribbon Offer: If a buyer can’t secure a mortgage in time for close, Ribbon will pay for the house itself and give the buyer extra time to get financing.

6. Twitter beats Wall St Q3 estimates with $758M in revenue

Twitter reported a 29 percent increase in ad revenue to $650 million, and the company says total ad engagements increased 50 percent year over year. However, user growth didn’t quite match expectations.

7. Confirmed: ShopRunner acquires Spring, raises $40M

ShopRunner is announcing its first infusion of venture funding under CEO Sam Yagan, plus an acquisition of the shopping app Spring. Sources also say it’s readying a major overhaul of its mobile app.

Alibaba continues to gain cloud momentum

When Alibaba reported its earnings yesterday, the cloud data got a bit buried in other stories, but it’s worth pointing out that its cloud business grew 93 percent in the most recent quarter to $710 million. That’s down a smidgen from the gaudy triple digit growth of last report, but their market share has doubled in just two years, and they are growing fast.

As John Dinsdale, principal analyst at Synergy Research, a firm that keeps a close eye on the cloud market points out, the dip in growth is all about the law of large numbers. Alibaba couldn’t sustain triple digit growth for long.

“Microsoft Azure and Google Cloud Platform have recently seen similar reductions in growth rates, and if you go back far enough in time, AWS did too. The key thing is that the market for cloud infrastructure services is now very big, yet is still growing by 50% per year — and the leading players are either maintaining or growing their market share,” he said.

Back in 2015, when the Chinese eCommerce giant launched a big cloud push as part of an effort to expand beyond its eCommerce roots, Alibaba Cloud’s president Simon Hu bragged to Reuters, “Our goal is to overtake Amazon in four years, whether that’s in customers, technology, or worldwide scale.”

That is obviously not happening, but the company has managed to move the market share needle, doubling from just 2 percent of worldwide cloud infrastructure market share in 2016 to 4 percent today. That’s nothing to sneeze at, according to Dinsdale, but it’s also worth pointing out that most that business is in Asia, and of that, most of it is in its native China.

Like all its cloud competitors, the company is concentrating on some key technologies to drive that growth including big data analytics, artificial intelligence, security and Internet-of-Things, all of which are resource intensive and help grow revenue quickly.

To sustain its growth, however, Alibaba needs to begin to develop markets outside of China  and Asia. Dinsdale thinks that could happen as Chinese customers expand internationally. He also recognizes the political realities that the company faces as it tries to move into western markets. “Alibaba has what it takes to seriously challenge the top four cloud providers — despite some inevitable political headwinds that it will face,” he said.

While Alibaba might not reach the lofty heights of catching AWS any time soon, or probably ever, it has a good shot at IBM and Google Cloud Platform and for a company that just started taking the cloud market seriously in 2015, that’s amazing progress.

Cisco’s $2.35 billion Duo acquisition front and center at earnings call

When Cisco bought Ann Arbor, Michigan security company, Duo for a whopping $2.35 billion earlier this month, it showed the growing value of security and security startups in the view of traditional tech companies like Cisco.

In yesterday’s earnings report, even before the ink had dried on the Duo acquisition contract, Cisco was reporting that its security business grew 12 percent year over year to $627 million. Given those numbers, the acquisition was top of mind in CEO Chuck Robbins’ comments to analysts.

“We recently announced our intent to acquire Duo Security to extend our intent-based networking portfolio into multi- cloud environments. Duo’s SaaS delivered solution will expand our cloud security capabilities to help enable any user on any device to securely connect to any application on any network,” he told analysts.

Indeed, security is going to continue to take center stage moving forward. “Security continues to be our customers number one concern and it is a top priority for us. Our strategy is to simplify and increase security efficacy through an architectural approach with products that work together and share analytics and actionable threat intelligence,” Robbins said.

That fits neatly with the Duo acquisition, whose guiding philosophy has been to simplify security. It is perhaps best known for its two-factor authentication tool. Often companies send a text with a code number to your phone after you change a password to prove it’s you, but even that method has proven vulnerable to attack.

What Duo does is send a message through its app to your phone asking if you are trying to sign on. You can approve if it’s you or deny if it’s not, and if you can’t get the message for some reason you can call instead to get approval. It can also verify the health of the app before granting access to a user. It’s a fairly painless and secure way to implement two-factor authentication, while making sure employees keep their software up-to-date.

Duo Approve/Deny tool in action on smartphone.

While Cisco’s security revenue accounted for a fraction of the company’s overall $12.8 billion for the quarter, the company clearly sees security as an area that could continue to grow.

Cisco hasn’t been shy about using its substantial cash holdings to expand in areas like security beyond pure networking hardware to provide a more diverse recurring revenue stream. The company currently has over $54 billion in cash on hand, according to Y Charts.

Cisco spent a fair amount money on Duo, which according to reports has $100 million in annual recurring revenue, a number that is expected to continue to grow substantially. It had raised over $121 million in venture investment since inception. In its last funding round in September 2017, the company raised $70 million on a valuation of $1.19 billion.

The acquisition price ended up more than doubling that valuation. That could be because it’s a security company with recurring revenue, and Cisco clearly wanted it badly as another piece in its security solutions portfolio, one it hopes can help keep pushing that security revenue needle ever higher.

The greedy ways Apple got to $1 trillion

For being the richest company ever with $243 billion in cash, Apple sure cuts corners in the stingiest ways. The hardware giant became the first trillion-dollar company this week. Yet it’s tough to reconcile Apple earning $11 billion in profit per quarter with it still screwing us over on cords and keyboards. The “it just works” philosophy has slipped through the cracks of the money-printing machine. It’s not that Apple couldn’t afford to fix the problems, it’s just ensnared in hubris such that it doesn’t see them as important.

We still turn to Apple because it makes the best core products. But the edges of the customer experience have frayed like the wires of a Lightning cable. The key to Apple’s fortune is obviously selling high margin iPhones, not these ways it nickels and dimes us. But the company has an opportunity to raise its standards after this milestone, and win back the faith that could push it to a $2 trillion market cap.

1. Frayed Charging Cables

Apple gives you that tingly feeling in the worst way. Can it not build Lightning cables and MacBook chargers a little sturdier? If you avoid losing one long enough to put in some serious use, it inevitably ends up splitting where the cord meets your iPhone or exits the laptop power supply. Whether it’s wrapping them in electrical tape or the spring of a retractable pen, people have come up with all sorts of Macgyver methods to make their Apple chargers last. It got so bad that Apple was sued into offering a MacBook charger replacement program, but that expired years ago. If these are what allow us to play with the fancy devices it invents, shouldn’t they get the same quality of industrial design?

Image via Sophia Cannon

2. Buried iTunes Subscriptions Cancellation

Want to cancel your Apple Music subscription or some other service you got roped into with a free trial? It’s SUPER easy. First, click the totally unlabeled and generic circle with a blotch in it that’s supposed to be a profile picture icon. You should see a “Manage Subscriptions” option…but you don’t. Instead, you’ll have to know to tap “View Apple ID”. Once you auth in with the same face or thumbprint that opened your phone in the first place you’ll find the option to cut them off. And as thank you for this convenience, you’ll get to pay 30 percent extra on some subscriptions if you pay through Apple. It’s clearly exploitative dark pattern design.

3. Keyboard Claptrap

The MacBook keyboard is the on-ramp to the information superhighway, yet a single grain of sand can cause a pile up. Renowned Apple pundit John Gruber called it “one of the biggest design screwups in Apple history”. The new butterfly key design Apple rolled out in 2016 can get jammed by dust, requiring a lengthy disassembly process often requiring a professional to fix. Suddenly your work grinds to a halt. Apple wouldn’t always cover this repair, even under warranty. It took a lawsuit and tons of public backlash for Apple to offer free fixes, and that still typically leaves you without a laptop for a few days. I’m typing this article on a cracked-screen 2013 MacBook Pro because I refuse to upgrade until they make the keyboard design more resilient.

4. Killing Affiliate Fees Blogs Rely On

Apple benefits from a legion of blogs obsessing over its hardware and software, hyping up everything it sells. Just this week it returned that favor by announcing it will cut off one of their core sources of revenue. Websites would previously earn a 7 percent commission from Apple in exchange for affiliate link clicks leading to purchases on the App Store. But over the past few years, Apple has begun to sell ads inside the App Store too, competing for advertisers with those external blogs. It’s also built up its own editorial team that curates what’s featured, and apparently doesn’t want competition in being a king-maker. So in October Apple is shutting down the affiliate program that app review sites like TouchArcade and AppShopper depend on, potentially spelling their doom.

5. Dongle Hell

What’s the opposite of “it just works”? Paying extra to lug around a slew of gangly cord connectors you need just to plug things into your laptop or phone. Dongles are the emblem of Apple’s abandonment of the user experience. A Thunderbolt 2 to Thunderbolt 3 dongle runs $50 while it will cost you $9 to plug in any pair of headphones from the past half-century once you’ve inevitably lost the Lightning dongle you’re allocated. Apple loves pushing us towards its vision of tomorrow, like Bluetooth headphones (that it sells) and USB-C fast-chargers (that it sells). But ditching headphone jacks and old school USB ports makes Apple’s latest devices incompatible with sanity. Even its own commercial shows musician Grimes struggling with her dongles. Sorry you can’t pass me the aux cord. I’m from the future.

Image via Notebookcheck

[Featured Image via Instructibles]