Yahoo stock rises as it turns Alibaba investment into separate company

Yahoo is splitting its remaining Alibaba shares into a separate company called SpinCo. The move will help Yahoo avoid the tax pitfalls of the investment.

The news came Tuesday as Yahoo reported its fourth quarter earnings. In after hours trading, Yahoo’s stock price increased as much as seven percent. Investors clearly approve of the plan for the cash.

The presentation deck for the plan explained that part of the goal of spinning off the Alibaba investment is to provide transparency for investors into Yahoo’s core business. SpinCo will still be answerable to Yahoo shareholders. Take a look at the full deck here. This image visualizes the split:

Page 4 from the Yahoo deck on its Alibaba investment split off

Page 4 from the Yahoo deck on its Alibaba investment split off

In terms of its fourth quarter earnings, Yahoo met expectations. Here’s the numbers:

Revenue

Earnings per share

On the earnings call, CEO Marissa Mayer emphasized the split between Yahoo’s core business and its new mobile, video, native, and social efforts which she deemed “MaVeNS.” She went so far as to insult Yahoo’s previously mobile efforts, prior to her arrival, calling it a “confused, web-based mobile strategy” compared to the company’s current “beautiful, native strategy.”

The MaVeNS properties brought in over a billion dollars in 2014, leading Mayer to conclude the company earned that revenue “basically from nothing in just two years.”

At the end of the call, she hinted that the company might build or acquire more messaging or communication applications because it builds on the company’s native, social and email strengths.

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This story has been updated since publishing with information from the earnings call.

Verizon adds 2M new connections, but customer turnover increases

At a high level, Verizon had a very good fourth quarter for customer growth. It brought on board an additional 2.07 million subscriptions, upgraded many old feature phone customers to new 4G smartphones and connected 1.4 million new tablets to its network. But there were also definite signs that Verizon’s formidable wireless citadel is showing weaknesses as competition from T-Mobile and a recently rejuvenated Sprint increases.

[company]Verizon[/company]’s churn rate was the highest its been in more than two years, hitting 1.39 percent. A carrier’s churn is the percentage of overall customers who leave each quarter. Carriers with a lot of prepaid and transient customers tend have a lot higher churn, but Verizon, with its huge focus on postpaid contracts and family plans, historically tends to have the lowest turnover rate in the industry.

Of particular note, Verizon’s fabled postpaid churn rate — usually below 1 percent – jumped to 1.14 percent, which represents about 1.16 million of Verizon’s most valuable contract and family plan customers abandoning ship.

Just because a churn rate is high doesn’t mean a carrier is shrinking. It just has to court new customers more aggressively. That’s exactly what Verizon did in the fourth quarter, luring customers over from other carriers and encouraging existing customers to connect more gadgets. But CFO Fran Shammo said Verizon was only prepared to be so aggressive. Many of those departing customers left because prices were cheaper at the competition, and Verizon isn’t willing to engage in price war, preferring instead to let those customers go, Shammo said at Verizon’s earnings call.

It looks like [company]T-Mobile[/company] was the primary beneficiary. It hasn’t reported earnings yet, but earlier this month it released its subscriber numbers for 2014, showing 2.1 million net new subscribers in Q4. [company]Sprint[/company] also saw 1 million new net customer additions in the last quarter. [company]AT&T[/company] hasn’t yet released its subscriber numbers for the quarter.

Verizon by no means is crumbling under the pressure of T-Mobile’s Uncarrier strategy, but an increasing churn rate is definitely something to keep an eye on. The last time Verizon’s postpaid churn rate popped up above 1 percent was in Q1 of 2014, when Verizon actually lost phone customers for the first time in recent memory.

Verizon ended 2014 with 108 million total postpaid and prepaid connections. Though Verizon reported profits for the full year of $2.42 per share, it suffered a loss in fourth quarter of $2.15 billion, or 54 cents a share.

During the company’s earnings call, Shammo was also asked about the possible threat of Google entering the carrier biz by becoming a mobile virtual network operator. The CFO didn’t seem too worried. He pointed out MVNOs have been around for 15 years with posing any huge threat to Verizon. Shammo has a point. By becoming a virtual operator, [company]Google[/company] would need the carriers to give it wholesale access to their networks. It’s difficult to challenge an industry when you’re entirely dependent on that industry to survive.

 

Netflix wants to expand to 200 countries within the next two years

Netflix wants to complete its global expansion within the next two years, the company announced as part of its Q4 2014 earnings release. Here’s how Netflix CEO Reed Hastings and CFO David Wells put it in a letter to investors Tuesday:

“Our international expansion strategy over the last few years has been to expand as fast as we can while staying profitable on a global basis. Progress has been so strong that we now believe we can complete our global expansion over the next two years, while staying profitable, which is earlier than we expected. We then intend to generate material global profits from 2017 onwards.”

These bold statements comes after the company once again showed significant international growth. In Q4, it added a total of 2.43 million subscribers abroad, and now has a total of 18.28 million members in its 50 international markets. Domestically, it ended 2014 with 39.11 million subscribers, compared to 33.42 million a year before that. Netflix ended the year with a total of 57.39 million subscribers, compared to 44.35 million at the end of 2013.

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So how did Netflix do money-wise? Not so shabby either: The company booked $1.305 billion in revenue from its streaming operations in Q4 of 2014, compared to $962 million during Q4 of 2013. It was able to generate a surprising $83 million of net income in Q4, compared to $48 million during the same quarter a year ago. However, that growth is in part due to tax benefits of $39 million.

But back to Netflix’s bold international plans. Hastings and Wells made it clear that they’re not just talking about adding a few more countries and then calling the job done:

“We already offer Netflix in about 50 countries and have learned a great deal about the content people prefer, the marketing they respond to and how to best organize ourselves for steady improvement. Acceleration to 200 countries is largely made possible by the tremendous growth of the Internet in general, including on phones, tablets and smart TVs.”

Hastings and Wells even laid out plans to enter China through a smaller, targeted service “centered on our original and other globally-licensed content.” The remarks about China include a caveat about acquiring “the necessary permissions,” which is particularly challenging for a service like Netflix that relies so heavily on smart TV apps. China’s regulators have in the past months cracked down on streaming devices and smart TV services, which they consider similar to running a broadcast station in the heavily regulated country.

The letter to investors names revenue growth as one goal of an accelerated international expansion, with a goal of getting to $10 billion in yearly revenue soon. Based on the Q4 earnings release, Netflix ended 2014 with around $5.5 billion in revenue from streaming and its domestic DVD business combined. But the letter to shareholder also paints Netflix as a global licensor for content, able to compete with some of the biggest media companies in the world:

“With the growth of the Internet over the next 20 years, there will be some amazing entertainment services available globally. We intend to be one of the leaders.”

Here are some other key metrics disclosed as part of the earnings release:

  • Netflix plans to spend $3 billion on original content in 2015.
  • The company wants to spend $600 million on marketing this year.
  • Netflix plans to spend $500 million on technology in 2015.
  • Netflix grew to five million subscribers across Latin America during Q4 of 2014.
  • The streaming service intends to release a total of 320 hours of original TV shows, documentaries, comedy specials and movies in 2015, which is three times as much as the company put out in 2014.

This post was updated at 2:30pm with additional metrics on Netflix’s spending and original content plans.

Sprint is growing again, adding 1M new connections

T-Mobile tried valiantly but it didn’t overtake Sprint as No. 3 U.S. mobile carrier in 2014. Sprint actually had a great holiday season, adding 967,000 net new mobile subscriptions to its network in its fiscal third quarter ending December 31.

Like [company]T-Mobile[/company], [company]Sprint[/company] reported its subscriber numbers ahead of its official earnings next month, and the new growth should put Sprint at 56 million total connections, 1 million more than T-Mobile. Sprint actually began its turnaround over the summer when Marcelo Claure took over from ousted CEO Dan Hesse. Claure launched a series of plan changes, new programs and discounts designed to make Sprint competitive again, including its most recent “cut your bill in half” promotion.

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In Sprint’s fiscal Q2, Sprint added 464,000 net new subscriptions, but all of that growth came from wholesale connections from its mobile virtual network operator (MVNO) customers. Those customers bring a fraction of the revenue of a full retail subscriber on a Sprint plan.

In the most recent quarter, wholesale was still a big driver, accounting for half of new connections, but Sprint saw growth across the board, including 30,000 net new postpaid customers. That’s not a huge number, but considering Sprint has been shedding these valuable postpaid customers for years, any growth in the segment is a positive. Sprint also added 410,000 new prepaid customers on its Boost Mobile and Virgin Mobile brands.

T-Mobile grew by 8.3M subscribers in 2014

T-Mobile’s customer growth spurt continued into the normally busy holiday season in 2014 as it added 2.1 million new connections to its ranks. It wasn’t T-Mobile’s best quarter of the year for subscriber growth – that would be its blockbuster Q1 – but it was a good way to cap off a very successful year.

Off the back of its evolving Uncarrier strategy, T-Mobile recruited 8.3 million net new subscribers to its ranks, the carrier revealed Wednesday ahead of its official earnings next announcement next month. In a single year T-Mobile grew its customer base by 18 percent, giving it a connection total of 55 million. At the end of Q3, Sprint had 55 million subscribers as well, so if Sprint continued its customer loss streak in Q4, T-Mobile will have assumed the mantle of the country’s third largest carrier.

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T-Mobile’s gains weren’t all due to Uncarrier, though. It added 1.3 million net new postpaid customers and 266,000 net new prepaid subscribers in the quarter, but the remaining 586,000 links were comprised of wholesale connections from mobile virtual network operators (MVNOs) like Ultra Mobile, Straight Talk and Target’s Brightspot, as well as from machine to machine connections linking the internet of things. Sprint used to be king of MVNOs, but T-Mobile has become much more aggressive in attracting virtual operator customers as of late.

Samsung shuts down its flagship retail store in London

If you’re doing any last-minute Christmas shopping for a gadget lover in the U.K., you’re not doing it at Samsung’s retail flagship Experience Store in East London. The Verge reported that Samsung has shut down its Westfield Stratford store, one of two big showcase venues in London intended as Samsung’s answer to the Apple Store.

Samsung is still running its Experience Store in the more centrally located West End, and in a statement to the Verge the company said it is “fully committed” to running its remaining nine stores in the U.K.

The closure comes a year after Samsung announced plans to make a big retail push throughout Europe with partner Carphone Warehouse. But since then Samsung has posted a few very disappointing quarters in smartphone sales. As my colleague KIf Leswing points out, Samsung’s biggest challenge is building more low-end smartphones to target the emerging markets. Meanwhile these Experience stores are more aimed at high-end devices sales.