Fastly Q2 Earnings: Revenue of $75M, up 62% y/o/y; Loss of $14M; Raises Full-Year 2020 Guidance to $290-$300M

Fastly announced their Q2 2020 financial results on Wednesday and here are the highlights:

  • First quarter of positive EBITDA
  • Revenue of $75M, up 62% y/o/y; Loss of $14M
  • Total customer count increased to 1,951 up from 1,837 in Q1 2020 — the largest quarterly growth since their IPO
  • Total enterprise customer count of 304, up from 297 in Q1 2020
  • Average enterprise customer spend of approximately $716,000, up from $642,000 in Q1 2020
  • Capital expenditures of $3.1 million, or 4% of revenue
  • As of Q2 2020, Fastly was in 55 markets, providing access to 100 Tb/sec. of global network capacity
  • Stock down -$15.85 (14.55%) after hours as of 5:15pm ET
  • Q2 shareholder letter here

Year To Date, U.S. Pay TV Companies Have Lost 3.4M Subs, With More Losses On The Way

Amongst some of the top pay TV providers, combined to date, they have now lost 3.4M pay TV subscribers in the U.S., since the beginning of the year. And that number is expected to go up as Dish has yet to report Q2 earnings when I expect they will announce additional pay TV losses. Some predicted that when the pandemic hit, the rate of pay TV losses would really jump in Q2 when compared to Q1, especially due to the lack of live sports, but that didn’t happen. The rate of decline quarter-over-quarter remained steady. Here’s a breakdown:

  • Comcast: 477,000 (Q2 lost) – Comcast: 409,000 (Q1 lost)
  • Verizon: 81,000 (Q2 lost) – Verizon: 84,000 (Q1 lost)
  • AT&T: 886,000 (Q2 lost) – AT&T: 897,000 (Q1 lost)
  • Charter: 102,000 (Q2 added) – Charter: 70,000 (Q1 lost)
  • Altice: 43,000 (Q2 lost) – Altice: 42,000 (Q1 lost)
  • WOW!: 14,000 (Q2 lost) – WOW!: 25,000 (Q1 added)
  • Dish: Waiting On Numbers (Q2) – Dish: 413,000 (Q1 lost)
  • Mediacom: Waiting On Numbers (Q2) – Mediacom: 54,000 (Q1 added)

When we see cord cutting taking place in the market most automatically assume that all of these subscribers are simply replacing their cable TV packages with streaming options, but that’s not the case for the majority of them when it comes to live streaming. Of the live streaming services in the market offered by Hulu, YouTube, AT&T, Sling TV, Fubo, ESPN+ and CBS All Access, all combined they probably have’t grown their subscriptions by 3.4M subs since the start of the year. I say probably as Google didn’t disclose YouTube TV subscription numbers on their last earnings call and  AT&T and Sling TV subs declined. We have earnings in the next few days from Disney, ViacomCBS and Fubo, but we don’t know if they will update us with subscriber numbers.

I think Q3 and Q4 of this year are going to be the most important quarters to look at for the pay TV market since we have so much uncertainty around live sports and original content coming back. And if consumers end up staying home more in the second half of the year than previous years, and the NFL or other content isn’t available, it will impact what we see in pay TV losses for the year.

Updated 5:43pm ET: Disney Q3 earnings are out and in the past 9 months, Hulu only added 200,000 subs to it’s Live TV offering. More details on Disney’s earnings here.

Recap: Google, Apple, Facebook, Amazon and Comcast Q2 Earnings

Alphabet Q2 Earnings: Google’s first ever revenue decline, ad revenue down 8%. Total revenue $38.6 billion, down 2%; YouTube ad revenue $3.8 billion, up 6%, but down from $4.04 billion in Q1; Cloud revenue $2.7 billion, up 43%.

  • Total revenue of $38.6 billion, down 2%, total profit overall of $6.4 billion
  • Ad revenue down 8%, a first for Google who’s previous advertising revenue had risen every quarter of its 22-year history
  • YouTube ad revenue of $3.8 billion, up 6%
  • Cloud revenue of $2.7 billion, up 43%
  • Google’s board of directors has authorized an additional stock buyback of $28 billion
  • No update on the number of YouTube TV subscribers
  • Stock is up $11.63 (+0.76%) after hours, as of 6:09pm ET

Apple Q2 Earnings: Announces 4-for-1 stock split. Revenue of $59.7 billion, up 11%, Services revenue of $13.1 billion, up 14.8%; iPhone revenue of $26.4 billion, up 1.6%. (all y/o/y) No guidance for Q3. More details:

  • Announces 4 for 1 stock split
  • Will release its fall update of iPhone models a few weeks later than usual, pushing the release into October
  • iPhone revenue of $26.4 billion, up 1.6%
  • Services revenue of $13.1 billion, up 14.8%
  • Mac revenue: $7.08 billion, up 21%
  • iPad revenue: $6.58 billion, up 31%
  • Other Products revenue: $6.45 billion, up 14.8%
  • Sales in China rose slightly to $9.33 billion
  • Stock is up $16.54 (+4.93%) after hours, as of 4:46pm ET

Amazon Q2 Earnings: $88.9 billion, up 41% y/o/y; AWS revenue of $10.8 billion, up 29% y/o/y. Invested $9 billion in capital projects. More details:

  • Revenue of $88.9 billion, up 41%
  • AWS revenue of $10.8 billion, up 29%
  • Amazon provided a one-time Thank You bonus totaling over $500 million to all front-line employees and partners who were with the company throughout the month of June
  • Invested over $9 billion in capital projects, including fulfillment, transportation, and AWS
  • Prime Video introduced Prime Video Profiles, allowing customers to create and manage up to six profiles within a single account
  • Announced new live content integrations on Fire TV from YouTube TV and Hulu, and expanded discovery options including the new Free tab which helps customers find free movies, TV shows, and more
  • Amazon expects to spend roughly $2 billion in coronavirus-related costs during Q3
  • Stock is up $186.12 (+6.10) after hours, as of 4:27pm ET

Facebook Q2 Earnings: $18.69 billion; Monthly active users of 2.7 billion, increase of 12%; Daily active users of 1.79 billion, increase of 12%. More details:

  • Facebook daily active users (DAUs) – DAUs were 1.79 billion on average for June 2020, an increase of 12% year-over-year
  • Facebook monthly active users (MAUs) – MAUs were 2.70 billion as of June 30, 2020, an increase of 12% year-over-year
  • Family daily active people (DAP) – DAP was 2.47 billion on average for June 2020, an increase of 15% year-over-year
  • Family monthly active people (MAP) – MAP was 3.14 billion as of June 30, 2020, an increase of 14% year-over-year
  • Expects quarter year-over-year ad revenue growth rate for the third quarter of 2020 to be roughly similar to this July performance
  • Stock is up $13.00 (+5.14%) after hours, as of 4:15pm ET

Comcast Q2 Earnings: Lost 477,000 pay TV subscribers; 10 million sign ups for Peacock TV; Revenue of $23.7 billion, a decrease of 11.7% year-over-year. More details:

  • Cable Communications Total Customer Relationships Increased by 217,000 in the Quarter, the Best Second Quarter Result on Record
  • Total High-Speed Internet Customer Net Additions Were 323,000, the Best Second Quarter Result in 13 Years
  • Broadcast Television revenue decreased 1.6% to $2.4 billion, reflecting lower advertising revenue, partially offset by higher content licensing revenue and distribution and other revenue
  • Filmed Entertainment revenue decreased 18.1% to $1.2 billion in the second quarter of 2020, primarily reflecting lower theatrical revenue
  • Cable capital expenditures represented 9.3% of Cable revenue compared to 10.3% in 2019
  • Launched Peacock, NBCUniversal’s New Highly Anticipated Streaming Service, Free to Xfinity X1 and Flex Customers on April 15, Ahead of National Debut on July 15, With 10 Million Sign-Ups to Date
  • Sky Successfully Retained 99% of Total Customers and 95% of Sports Subscribers
  • Stock is down $0.16 after hours, as of 10:26pm ET

NAB Cancels In-Person Portion of NAB Show NY in October, Will Be Online Only

The NAB Show NY, planned for October in NYC will no longer be an in-person event. The NAB announced today that the event in October will be online only. I am still looking at the options for doing an online version of the Streaming Summit, so if you’d like to be involved content wise and have ideas or suggestions, please contact me (dan@danrayburn.com). If there is enough of a demand and speakers and vendors want to participate, I’ll help organize sessions. Note that the April 2021 NAB Show and Streaming Summit in Las Vegas are both confirmed to take place in-person.

CDN/Media Pricing See’s Big Drop for Largest Customers: Pricing Down to $0.0006

I just finished surveying over 600 customers that use third-party CDNs for the delivery of video and software downloads and the data shows there’s been a big decline in Q1 pricing, year-over-year, for the largest customers. Some of the biggest OTT and gaming companies are now getting pricing as low as $0.0006 per GB delivered. (Contact me if you are interested in purchasing the data) While the list of companies that can get pricing that low is very short, they are also the coustomers that tend to generate the largest portion of the overall total growth of the video and software download traffic in the industry. In the survey data I saw only one customer getting $0.0006 per GB, but I saw a couple brand names we all know getting $0.0007 per GB delivered. A year ago I reported that some of the lowest pricing around was $0.001, and I saw AWS starting to allow $0.0009 on select deals, but pricing has now fallen even below that.

This decline in pricing for some of the largest customers in the market is also one of the reasons why some CDNs pass on taking on video and software traffic at these price points. The margins are simply too slim, and outside of CenturyLink, none of the other major third-party CDN providers own their entire network, where theoretically their costs should be lower. I won’t mention CDNs by name, but I know that some third-party CDNs internal cost per GB delivered is in the $0.0007 range. So taking on customers at that price point means they aren’t making any money on the deal, unless they are able to up-sell the customer on other services, which most times they can’t.

As I wrote two years ago, the current Infrastructure strategy to support OTT services isn’t economically sustainable for third-party CDNs. They can only make up for the low pricing with volume, which is hard to get since all large customers use a multi-CDN strategy or sell other services at a higher margin, which even if sold, are nowhere near the volume of video and software download traffic. And for those that think the recent pandemic is going to produce a large growth in sustained traffic, overall traffic growth specific to video on third-party CDN networks was only up between 12%-20% in March, when compared to February.

Even for customers not doing insane amounts of volume, a mid-sized customer can now get pricing starting at around $0.007 per GB delivered, with a commit of something north of 20PB of traffic a month. Get into the 40PB a month range, and pricing is around $0.005 per GB delivered, depending on the CDN. If you’re a content owner reading this, that doesn’t necessarily mean that’s the rate you should be paying if you have this level of volume. There are a lot of variables that determine the final quoted price and if you need help in your RFP process, reach out to me at any time. I’ll help you free of charge and I take NO kickback from any CDN.

When you add in the fact that there is currently a large wave of new CDN DIY deployments taking place, the market for third-party CDNs is going to get very interesting in the next 18 months. And for those, like Apple, who already built out their own CDN, they are now branching out to work with even smaller ISPs with a minimum requirement of only 25 Gb/s of peak traffic across all Apple services. I am not predicting doom and gloom for third-party CDNs that deliver a lot of low-margin bits, but change is coming to the CDN landscape in the next 18 months in the wave of new DIY deployments, new competitors with scale, and a shift in traffic commitments across multi-CDN deployments. Pricing will probably drop to $0.00045 for the largest customers, in the next 12-months.