The Internet sector posted strong results in the third quarter, with an increase in average revenue of 24% year on year, but a more modest quarter-over-quarter increase of 5.9%. Average net income was also strong, with all seven companies in the group reporting positive net income. The rise in net income was led by Amazon with a year-over-year increase of 219%, followed by Yahoo! which reported growth of 114%. Google and Netflix also reported positive year-on-year net income growth of 27% and 75%, respectively.
The worldwide eCommerce market has been growing exponentially. Online retail sales will hit US$1.6 trillion in 2016 and about US$3.5 trillion in 2019. The amount spent on implementing, creating and maintaining eCommercetechnology is around US$2.6 billion presently and is expected to double by 2020.1
Amidst the positive outlook, the sector witnessed a massive cyber attack on October 21, 2016. The attack took control of thousands of internet-connected devices (such as webcams and digital recorders) that had previously been infected with a malicious code, and directed them to clog up web traffic across the globe. It led to temporary outages of some 1,200 websites, including Twitter, Netflix and PayPal. The attacked companies were all customers of Dyn, an infrastructure company based in New Hampshire.2
The outages began in the Eastern United States and spread to other parts of the country and subsequently to Europe. With millions of Internet addresses used by hackers, this was one of the largest attacks of its kind. The security of IoT devices has become critical.2By 2020, 21 billion of Internet of Things (IoT) devices are expected to be used worldwide. Of these, close to 6% will be in use for industrial IoT applications.3
In Q3 2016, online advertiser spending growth for Google search ads slowed compared to the prior year’s spend. Google’s expansion of local search ads on Google Maps, along with its addition of a fourth, top-of-page ad unit on mobile search results, have helped Google avoid a larger slowdown in search spending growth. Google also continued to benefit from the strong performance of Google Shopping and the Product Listing Ad (PLA) format. Google PLA clicks grew nearly six times faster than text ad clicks in the third quarter.4
Facebook saw advertiser spending increase 63% year over year. Total display advertising spend growth continued to outpace other channels, seeing a 46% jump compared to a year earlier. Facebook growth was resilient even with the closure of Facebook Exchange (FBX), as advertisers moved the bulk of their FBX investment to other Facebook ad targeting methods. Google search ad spending grew 20% year over year in Q3 2016, down from 22% growth a quarter earlier. Click volume grew 28%, while cost-per-click fell 6%. Bing Ads and Yahoo Gemini combined search ad spending fell 14% year over year in Q3 2016, compared to a 17% decline in Q2. Bing Product Ad spending declined 12%, while Gemini’s share of click volume across both platforms remained flat at 17%.4
Amazon’s net sales increased 29% to US$32.7 billion in the third quarter, compared with US$25.4 billion in the third quarter 2015. The favorable impact from year-over-year changes in foreign exchange rates was US$52 million. Operating income was US$575 million in the third quarter, compared with US$406 million in the third quarter 2015. Net income was US$252 million, or US$0.52 per diluted share, compared with US$79 million, or US$0.17 per diluted share, in third quarter 2015. This increase in revenue and net income was led by Amazon entering a number of categories with its own private label goods in the past few years. These include diverse categories like batteries, baby wipes, speakers, clothing, perishable foods and more. For Amazon, these private label goods may be the key to higher margins, profitability and long-term growth.5
Netflix’s global streaming revenue totaled US$2.2 billion, of which 40% was generated abroad. Operating income was US$106 million and net income was US$52 million. In Q3 2016 the company added 0.4 million members in the US and 3.2 million members internationally. Domestically, revenue rose 32% year over year. US contribution to profit increased 38% year over year. One major concern that still remains with Netflix is the massive amounts of money it has raised for developing original content. Current liabilities related to content development stand at US$3.5 billion and total disclosed content liabilities are US$14.4 billion.5
eBay Inc delivered gross merchandise volume (GMV) for the third quarter ended September 30, 2016 of US$20.1 billion, increasing 3% on an as-reported basis. Revenue for the quarter was US$2.2 billion, up 6% on an as-reported basis. Net income, after adjusting for discontinued operations, was US$413 million, down 23% over Q3 2015. The decline in net income was due to US$142 million rise in operating expenses in this quarter. The company also incurred US$9 million in net interest expenses, compared to US$87 million net interest income in Q3 2015.
During the quarter, eBay also repurchased US$500 million of its common stock. In the third quarter, the company added over one million active buyers to a total of 165 million global active buyers across its platforms. The Classifieds platforms also delivered strong performance with revenue of US$197 million, up 11% on an as-reported basis, primarily driven by the Automotive and Real Estate verticals across several key geographies.5
2.Reuters, Oct 2016
3.Gartner.com, Oct 2016
4. www.businesswire.com, Oct 2016
5. Seekingalpha.com, Oct 2016