How Apple, Amazon, Microsoft, Google and Facebook can unlock new profit engines
|Toronto Star 10 Jun 2021 at 14:49|
When it comes to the tech giants, assigning them valuations based solely on the earnings thrown off by their current profit engines arguably fails to do justice to other businesses and projects that could become major bottom-line contributors for them down the road.
Waymo’s progress (like that of the autonomous driving space at-large) has been slower than what many once hoped — those predictions from several years ago about autonomous cars being widely available by 2020 clearly didn’t pan out. Nonetheless, Alphabet’s self-driving unit is still arguably the technology leader in the field. Over the next several years, Waymo’s driverless taxi services — for now, available in just a portion of the Phoenix metro area — could become available to a much larger number of consumers, and its partnerships with automakers such as Volvo, Fiat Chrysler and Nissan-Renault could yield commercial vehicle launches.
2. The Google Cloud Platform (GCP)
Unlike Waymo, Google’s public cloud operation is already a pretty large business. But similar to Waymo, it’s losing money hand-over-fist for now. In 2020, the Google Cloud segment, which covers both GCP and the Google Workspace productivity app business, posted a $5.6 billion GAAP operating loss on revenue of $13.1 billion, with GCP investments believed to account for much of the red ink. But GCP, which often gets high technical marks from cloud developers, also continues seeing very strong double-digit growth. In time, a combination of continued revenue growth and slowing spending growth should also help GCP to turn profitable.
1. Grocery Delivery
In the short-term, Amazon’s budding grocery delivery operations are at a scale disadvantage relative to rivals that have much larger retail store footprints to leverage for inventory and fulfilment. But in the long-term, Amazon’s giant and steadily-growing warehouse footprint, together with its giant and steadily-growing delivery infrastructure, should give it important cost advantages. And that in turn could allow Amazon to profitably take share in a $700 billion-plus U.S. grocery industry that still sees the lion’s share of its sales take place offline.
2. Streaming and Third-Party Ads
Currently, Amazon’s massive ad business, which is expected to bring in more than $25 billion in revenue this year, revolves heavily around product and brand ads shown on its shopping websites and apps. However, with the help of its customer relationships and shopping data, the company is laying the groundwork to also sell quite a few targeted ads via streaming services (including its own) and third-party websites and apps. A recent deal to gain exclusive Thursday Night Football distribution rights aids this effort, and so does Amazon’s reported plans to launch an identifier that would help it deliver and measure the performance of targeted ads on third-party properties.
3. Emerging Markets
Amazon has invested billions in its Indian e-commerce operations in recent years, spending that has helped it become (along with Walmart-controlled Flipkart) a top-2 e-commerce player in the world’s second-most-populous country. It should get a good payoff from those investments this decade, as India’s economy and e-commerce penetration rates keep growing. In addition, the Middle East, where Amazon established a large presence in 2017 via its acquisition of e-commerce site, Souq.com, could become an international growth engine. And so might Latin America, where Amazon has been gradually upping its efforts to compete against local e-commerce giant MercadoLibre.
1. Electric Cars
A slew of media reports arrived in late 2020 and early 2021 stating Apple is looking to launch an autonomous electric car somewhere in the middle of this decade. With Apple reportedly wanting its cars to be fully driverless from the start, the cars might only operate in a limited set of environments at first. But the company’s engineering pedigree works in its favour as it tries to launch a differentiated solution in a crowded field, as does its knack for crafting end-to-end experiences covering hardware, software and services. And when a car has no steering wheel, pedals or need for traditional driver visibility, its designer can get pretty creative about what its interior looks like.