Fabernovel is pleased to release the third edition of “Gafanomics - The Quarterly”, our new publication which offers you every quarter a transversal review of the earnings releases and strategic announcements of the disruptive Tech giants.
Fall is here and the Tech space has sneezed but not caught a cold yet warmed by still abundant liquidity on financial markets. Remaining the most performing sector on the Street since the start of the year (+33%), it recorded a modest rise Q3 (only +2%) with contrasted trends between players.
The aborted listing of WeWork was the scary scene of the Halloween party. Threatening to freeze the Tech IPOs flow, it raised the level of general anxiety about the valuation levels of private unicorns as well as the focus of the investment community on profitability, cash generation and governance.
Back to basics and old value patterns ? The Q3 earnings season delivered a more subtle read-across.
Releases of companies such as Alphabet or Amazon highlighted that investors can accept investments in growth at the expense of short term margins if they are convinced in the medium term profitability prospects. Topline traction, management’s vision and track record but also a transparent financial communication on relevant KPIs are critical success factors here.
Planets are aligning for Corporate & Social Responsibility to join this ingredients list.
We address in our quarterly focus this theme that still stands at the Achilles heel of many Tech Giants and sparks more and more debates. The customer centricity turns to be a necessary but not sufficient condition for success. Long live to the stakeholder centricity !
At a time when all companies are becoming software companies, becoming a trusted third party offers in our view a powerful opportunity for traditional economy players to differentiate and strike back. Autumn may not resonate with decline…
2. - Q3 2019 -
Foreword
2
Jean-Christophe Liaubet
Managing Partner
at Fabernovel
abernovel is pleased to release the third edition of “Gafanomics - The Quarterly”, our new publication which offers you
every quarter a transversal review of the earnings releases and strategic announcements of the disruptive Tech giants.
Fall is here and the Tech space has sneezed but not caught a cold yet warmed by still abundant liquidity on financial
markets. Remaining the most performing sector on the Street since the start of the year (+33%), it recorded a modest rise
Q3 (only +2%) with contrasted trends between players.
The aborted listing of WeWork was the scary scene of the Halloween party. Threatening to freeze the Tech IPOs flow, it
raised the level of general anxiety about the valuation levels of private unicorns as well as the focus of the investment
community on profitability, cash generation and governance.
Back to basics and old value patterns ? The Q3 earnings season delivered a more subtle read-across.
Releases of companies such as Alphabet or Amazon highlighted that investors can accept investments in growth at the
expense of short term margins if they are convinced in the medium term profitability prospects. Topline traction,
management’s vision and track record but also a transparent financial communication on relevant KPIs are critical
success factors here.
Planets are aligning for Corporate & Social Responsibility to join this ingredients list.
We address in our quarterly focus this theme that still stands at the Achilles heel of many Tech Giants and sparks more
and more debates. The customer centricity turns to be a necessary but not sufficient condition for success. Long live to
the stakeholder centricity !
At a time when all companies are becoming software companies, becoming a trusted third party offers in our view a
powerful opportunity for traditional economy players to differentiate and strike back. Autumn may not resonate with
decline…
F
3. - Q3 2019 -
What is this document?
A document published each quarter, two weeks after the financial quarterly publications of some of the
largest tech companies in the world.
Who should read it?
Despite being based on some complex financial analysis, this document is designed to be understood by
anyone with some sort of interest for business in general. Moreover, we think that it should be of particular
interest for anyone having a managerial role (CEO, CFO, CDO, Project manager...) or being connected to the
financial markets (investors, analysts, IR,...).
What can you expect to learn from it?
Our goal is to help people understand how today’s Disruptive Tech Giants (more than $10bn of market
Capitalization and disruptive according to Fabernovel) are performing quarter after quarter and what lies
behind this performance. Based on this analysis, we hope to give you the keys to follow their successful path
- from the small quick-win communication best practice to the large business model revolution.
Who is writing it?
Financial analysts, strategists, technologists and designers from Fabernovel are combining their expertises
to make this document as smart and thought-provoking as possible, so as to offer you the best
reading experience and inspire you for your own future.
1.
Strikin
g facts
Gafanomics - The Quarterly
3
4. - Q3 2019 -
1
The last 3 months
through our glasses.
4
5. - Q3 2019 -
1.Thelast3monthsthroughourglasses Share price performance of disruptive tech companies
Increase/decrease of Tech Giants market cap over 3 months
In $Bn (on the left) and in % relative (on the right) to their own market cap
5
GAFAUS Tech Giants
Analysis period: 31/07/2019 - 31/10/2019
USA
Asia
Europe
Tech Giants
-$29bn
Market cap
Change
-6%
Avg share price
change
+$3bn
Market cap
Change
-7%
Avg share price
change
+$20bn
Market cap
Change
+0%
Avg share price
change
6. - Q3 2019 -
1.Thelast3monthsthroughourglasses
6
Operational performance of disruptive Tech companies
20% 40% 60% 80%
Q3 2019
Delivery
S&P 500
Tech cos.
Sales EBIT EPS
Beat In line Miss
20% 40% 60% 80% 20% 40% 60% 80%
Median 2019e financial revisionsSales
EBIT
Sales
EBIT
+21%
+12%
FCF +4%
This quarter, unlike in Q2, Tech Giants’ operating income and Free Cash Flow are
increasing YoY despite many investments for growth. Due to an important top line
growth, EBIT growth resulted in a lower margin for top Tech companies. Facing
fears of economic recession, those results managed to reassure investors but were
not enough to significantly boost those companies’ share prices.
+0.4%
-1%
Q3 2019 Median operational growth YoY
Despite many results beating estimates this quarter, analysts did not
substantially change their expectations for 2020 (except for Zoom, which saw its
Sales and EBIT improve drastically while Tesla’s EBIT is dropping).
Analysis period: 31/07/2019 - 31/10/2019
7. - Q3 2019 -
Amazon
Amazon acquired the startup Health Navigator on 23rd October 2019, its first health-related investment since
Pillpack. The startup allows users to check symptoms online and to be routed to the right place.
Uber
Uber launched Uber Money, which will allow drivers and Uber Eats couriers to have real-time access to their
earnings after every trip through the Uber Debit account. Its spenders will also have access to their payment
history and other products. This might just be the first step for Uber to become a Super-App like WeChat.
1.Thelast3monthsthroughourglasses
Facebook faced strong headwinds with its Libra. Some major players such as Paypal, eBay, Stripe, Mastercard
and Visa have indeed withdrawn from the Libra project. Along with Europe’s disapproval of the Libra, this new
currency has a lot of challenges to face (even in the US).
Facebook
Apple decided to decrease the price of its iPhones in September. While this information might seem harmless,
it highlights the shift Apple decided to take, moving from Hardware to services as the company also launched
its streaming services and video gaming platform.
Apple
7
Google
Google claimed “quantum supremacy”. Google’s quantum computer (Sycamore) managed to solve a problem
even actual supercomputers would take 10,000 years to finish. While the implications of this discovery are not
obvious, it could open the path to many applications.
Google
Google bought Fitbits for $2.1bn which will allow the company to provide a smartwatch which can compete
with the Apple watch. As said in our previous Gafanomics, The Quarterly, Tech Giants are invading the Health
sector and everyone wants a share.
Striking facts among Tech leaders
8. - Q3 2019 -
Quarterly quotes
Zoom
Zoom “I like Cisco, I like them more if they can embed our software. In the future I think that will happen. The
world is more and more interoperable. You don’t want to be an isolated island.” CEO & Founder Eric Yuan at
Zoom’s annual User Conference.
Name
Microsoft “As an American company, we’re not going to withhold technology from the institutions that we
have elected in our democracy to protect the freedoms we enjoy.” CEO Nabella said in an interview with
Quartz.
Uber “While we will of course continue to invest in growth and the power of our platform, especially in some of
our newer, high-potential businesses like Eats, we will continue to be thoughtful stewards of capital, make
tough decisions where necessary, and make any dollar investment count.” CEO Khosrowshahi said.
Amazon ”Although it's counterintuitive, the fastest delivery speeds generate the least carbon emissions because
these products ship from fulfillment centers very close to the customer — it simply becomes impractical to use
air or long ground routes." CEO Bezos said justifying a steep rise in logistic costs in last quarter.
Google “We’ve consistently shown that our business is designed and operated to benefit customers (...) We’ve
helped to reduce prices and expand choice for consumers and merchants in the U.S. and around the world, and
we’ve helped create new competition in many sectors.” CFO Porat in a CNBC’s post earnings interview.GoogleMicrosoftAmazonUbber
8
1.Thelast3monthsthroughourglasses
9. - Q3 2019 -
What happened this quarter?
1.Thelast3monthsthroughourglasses
1
Surprisingly good profit.
While revenue were a bit lower
than expected by analysts and
declined, Tesla managed to turn
profitable, whereas most analysts
expected a loss. If Tesla’s
performance looks weak this
quarter, this is largely explained by
an incredible performance in Q3
2018, making it hard to show high
growth numbers.
3
Margins have increased.
As reported in our last edition of
Gafanomics - The Quarterly, Tesla has
shifted its focus on the production &
delivery of its model 3. This translated
in Q3 into a record delivery of 97,000
vehicles and revenue decrease by 8%
(due to a lower average selling price
for the Model 3). Despite these
elements, Tesla’s automotive gross
margin rose to almost 23%, up from
19% in Q2.
2
Tesla ahead of schedule.
Tesla explained that the new factory
in Shanghai (Gigafactory Shanghai)
was built faster and cheaper than
anticipated, which partly explains
why the company managed to
deliver greater profits this quarter.
The factory is said to have started
trial production runs. The company
is also ahead of schedule regarding
the production of the new model Y
crossover.
9
Net profit
-
Performance
Q3 2019
Vs. Analysts
expectation
Growth
YoY
Revenue
$6.3Bn
Operating profit
$261M
Net profit
$143M
Revenue
-2%
Operating profit
-
Revenue
-8%
Operating profit
-41%
Net profit
54%
Tesla vehicles delivery (‘000)
Our TOP - Tesla is still alive and ready for Shanghai
10. - Q3 2019 -
1.Thelast3monthsthroughourglasses
10
1
Disappointing results
due to Twitter’s MAP.
On 24th October 2019, Twitter
published its financial results
which largely disappointed
investors, causing the share price
to drop by more than 20% after a
few hours. The company blamed
its MAP (Mobile Application
Promotion) used by advertisers for
not working as planned.
What happened this quarter?
3
Twitter’s social
responsibility.
This issue does not only impact
Twitter’s revenue but also the
company’s image. Indeed, by using
private data from users for relevant
ads, Twitter has broken trust with its
clients and users. As the number of
Monthly Active Users of Twitter is
growing, such concerns become
problematic for the future of the
company.
2
This trend could continue
in 2020.
Twitter also announced the issue
could continue in 2020, impacting its
revenue and profit.
This is a major issue for advertisers
which cannot rely on Twitter’s
technology for targeted ads,
meaning they could be abandoning
the service.
Net profit
-77%
Performance
Q3 2019
Vs. Analysts
expectation
Growth
YoY
Revenue
$824M
Operating profit
$44M
Net profit
$37M
Revenue
-5%
Operating profit
-76%
Revenue
+9%
Operating profit
-52%
Net profit
-95%
+180%
+1018%
+213%
-95%
Twitter’s Net income per quarter (Million dollars)
Our FLOP - Important miss on Sales and Net Income
11. - Q3 2019 -
1.Thelast3monthsthroughourglasses
What happened this quarter?
1
Zoom beat guidance and
expectations.
As shown in the table above, Zoom
managed to deliver high YoY growth
on both top and bottom line.
The company beat its own guidance,
as well as analysts expectations
(which were already high) on both
top and bottom line.
3
Zoom multiples went from
high to reasonable.
During the year 2019 more than 70% of
IPOs were unprofitable. Zoom is
one of the very few who were profitable
and still highly growing.
This factor, combined with a highly
attractive sector (10x EV/Sales
on average) resulted in very
high multiples. Investors started to
become more reasonable in Q3, trading
Zoom shares at a lower multiple.
2
Share price continued
to drop.
Zoom’s share price fell by 16% during
the days following its earnings report,
which is counter-intuitive when
looking at Zoom’s amazing results.
This share price drop continued until
22nd October 2019, when it reached
an all-time low of $62 (-33%
compared to the share price before
the earnings announcement).
Net Income
$5.5M
EPS
$0.08
EPS
+300%
Net Income
+25%
Net Income
+44%
Revenue
+96%
Revenue
+12%
EPS
+700%
11
Performance
Q3 2019
Vs. Analysts
expectation
Growth
YoY
Revenue
$146M
Zoom Sales Growth
Our SURPRISE - Excellent results but a decreasing share price
12. - Q3 2019 -
Source: Factset as of November, 11 2019
1.Thelast3monthsthroughourglasses
12
Apple
In order to create this graph we used the latest quarterly
net income reported by the company. We then divided
this income by the number of days in the quarter (92)
and by 24 hours.
Microsoft
Alphabet
Facebook
Samsung
Tescent
Alibaba
Amazon
Netflix
Paypal
Baidu
Spotify
Tesla
Salesforce
Twitter
Zoom
Square
Snap
Lyft
Uber
$6198
$4836
$3201
$2759
$1965
$1602
$1410
$966
$301
$209
$160
$121
$65
$41
$17
$3
-$3
-$103
-$210
-$524
Who is the most profitable?
Comparison of profit/loss made by Tech Giants every hour (in thousands of
dollars)
Unsurprisingly, some of the oldest
Tech Giants with the highest market
capitalization such as Apple, Microsoft
or Alphabet manage to earn millions
of dollars. On the contrary, new
entrants which are still highly valued
such as Uber, Lyft or even Snap are not
yet profitable, losing thousands of
dollars every hour.
13. - Q3 2019 -
2 A challenging Q3
for the startup universe.
13
14. - Q3 2019 -
While Tech remains the best performing sector since the
start of 2019 in the US (+33%), the third quarter of Tech
companies was a bit disappointing (+2%) despite overall
very qualitative earnings results.
3 months performance of all sectors*
*Source: S&P 1200 Global, as of 31 October 2019.
Why Tech decelerated this quarter?
2.AchallengingQ3forthestartupuniverse
For some companies, Q3 2019 was a good quarter as they
showed good results and benefitted from high multiples.
Nevertheless, many companies traded at lower multiples in
Q3 2019 and especially the latest Tech IPOs.
14
Apple
Q3 was an excellent quarter for Apple. The company managed
to beat estimates on both its top and bottom lines, while raising
its guidance for the next quarter. Moreover, the company saw its
share price perform strongly during Q3, as it continues to shift
towards more services vs. hardware - a move that could help its
historic 3x EV/Sales rising to higher multiples.
Netflix
While Netflix managed to beat EPS estimates in Q3, its US
subscriber growth disappointed investors. Moreover, with the
arrival of Disney+, Apple TV+ and their exclusive shows,
investors have shown more cautiousness, resulting in lower
trading multiples (from 10x EV/Sales over the past 4 quarters to
7x in Q3) and a negative share price performance.
Tech stocks vs other sectors
Uber
While Uber has always been making huge losses, investors
started to stress the fact that the company might never
become profitable. Despite Uber answering that the company
would become profitable in 2021 and showing good Q3 results,
investors started trading Uber’s shares at lower multiples.
15. - Q3 2019 -
*Source: Yahoo Finance, as of 31 October 2019.
2.AchallengingQ3forthestartupuniverse
15
Share price performance (over 18 Months, local currency) P&G, through its digital transformation,
achieved an impressive share price growth
of +67% over 18 months.
There are 2 reasons for this growth
1 Sales started to go up after 5 years of decrease
(2013 to 2017) and analysts estimate that sales
will keep going up.
2 Shares traded at higher multiples as
the company was shifting towards more
digitalization.
The result?
P&G and other major companies relied less and
less on agencies such as Publicis (P&G was their
first customer for a long time) which resulted in
a steady decrease of Publicis’ share price.
2018 2019
EV/Sales 3.2x 4.4x
EV/EBIT 15x 20x
P/E 21x 77x
More and more companies are becoming Tech companies
16. - Q3 2019 -
2.AchallengingQ3forthestartupuniverse
Valuation represents the
total value of the assets
of a company, or the sum
of its market capitalization
and its net debt.
Sales expectations are
anticipated by financial
analysts according to
market outlook and
growth perspectives.
The EV / Sales multiple
reflects the level of
confidence investors have
in a company’s ability
to create future value.
To assess the stock performance of a company, we usually refer to the evolution of its valuation.
The valuation of a company during the quarter and after the publication of its results is driven by two distinct factors:
1. the evolution of its sales or earnings expectations;
2. the expansion of its multiples.
The equation below uses Sales as a breakdown of valuation and details the meaning of each item.
Valuation Sales EV / Sales
16
Tech Giants financial valuation analysis
17. - Q3 2019 -
Some of the best performers this
quarter are Apple and Samsung as
analysts expect their sales to be
better than previously expected in
2020.
Moreover, investors are willing to
pay higher multiples for Samsung
and Apple as both companies shift
more and more towards the service
industry with Apple TV+, Apple
Arcade, Apple pay or Samsung pay.
Samsung&Apple
Sales 2020e revision
(31/07/2019-31/10/2019)Share price increase
Share price decrease
2.AchallengingQ3forthestartupuniverse
EV/Sales 2020e expansion (31/07/2019 - 31/10/2019)
Good results
Examples
17
Disappointing results
Twitter posted disappointing
results in Q3 and said that its
business could be impacted by
major issues on their products sold
to advertisers. This impacted both
its 2020 Sales forecasts and its
multiples, resulting in a large share
price drop.
Twitter
How did they manage to overperform?
18. - Q3 2019 -
Source: Factset, as of 31 October 2019
2.AchallengingQ3forthestartupuniverse
18
Despite very promising starts and some
satisfying earnings, the latest Tech IPOs were
mostly avoided by investors.
How to explain this phenomenon?
As explained before, a drop in share price can be
explained by a revision in financial performance
(Sales for example) or a contraction of the
multiples (EV/Sales for example).
A revision in Sales performance can indicate a
temporary lower performance of the company,
while a revision of the multiples indicates a lower
trust from investors in the company’s potential.
Share price
performance
during Q3
Share price
performance
between IPO
and end Q2
Opening price
vs IPO price
IPO Valuation
(before market
opening)
+1%
-22%
+19%
+54%
-13%
-6%
+8%
+26%
+83%
+48%
$82.4Bn
$24.3Bn
$12.7Bn
$9.2Bn
$16.0Bn
-26%
-29%
-28%
-26%
-34%
-33%+83%$9.2Bn -61%
-36%+24%$600M -13%
+54%+87%$6.6Bn -45%
Recent Tech IPOs faced a very difficult Q3 2019
19. - Q3 2019 -
Source: Factset, as of 31 October 2019.
2.AchallengingQ3forthestartupuniverse
19
While some companies have seen
growing Sales expectations for 2020
due to good topline delivery in Q3
(Lyft, Uber, …), the share price of those
companies did not grew at the same
time.
This lower appeal can be explained by
an increased focus on profitability
prospects and
the contraction of multiples for the
recent Tech IPOs. Almost every
company has seen its multiple
decrease by 30% to 50%.
Sales 2020e revision
(31/07/2019-31/10/2019)
Share price increase
Share price decrease
EV/Sales 2020e expansion (30/04/2019 - 31/07/2019)
The lower performance of Tech IPOs is related to lower multiples
20. - Q3 2019 -
2.AchallengingQ3forthestartupuniverse
20
Slack shares started trading around $36 on opening day:
48% above the IPO price of $26.
Slack’s current share price is now around $26 after a steady
decline.
This trend and other recent IPOs decline can be explained by
3 major factors:
1
The recent fear from investors of an economic slowdown.
2
The fear of a Tech Bubble, justified regarding the many
unprofitable IPOs in 2019. Investors cannot simply support
unprofitable companies with no regards to future rentability.
3
The lack of faith in the management’s Governance and
ambitions (related to financial communication).
All those elements resulted in a caution from investor towards
companies with an unclear business model and no obvious
profitability potential.
Evolution of Slack Share price since IPO
EV/Sales
20x
EV/Sales
12x
For Slack, this resulted in a a progressive loss of valuation (the
company was valued way over its peers: EV/Sales 2019e of 10x on
average for B2B SaaS). As the revenue model was unclear and
the lifetime of a customer needed to be long to generate profit,
investors started to question Slack’s potential of profitability.
Source: Factset, as of 31 October 2019.
Slack valuation - an example of desillusion
21. - Q3 2019 -
2.AchallengingQ3forthestartupuniverse Investors have demonstrated much more cautiousness recently
The failed IPO of the “most hyped startup in the world”*
21
Aug. 14th
Aug. 15th
Sept. 5th
Sept. 9th
Sept. 13rd
Sept. 16th
Sept. 24th
Oct. 23rd
WeWork
releases S-1.
Morgan Stanley
withdraws from
WeWork’s IPO.
WeWork is ready to cut
its valuation by 2.
SoftBank, WeWork's
largest shareholder,
requests the
suspension of the IPO.
WeWork’s board
members announce
major governance
changes.
IPO is officially
postponed.
As a result, WeWork's
bonds fall at a record
pace (7cts per $).
Adam Neumann steps
down as CEO of
WeWork. He is named
non-executive
chairman.
SoftBank injects $5bn
in WeWork at a
valuation of $7.5-8bn
& takes the control.
Adam Neumann exits
the Board.
*How WeWork became the most hyped startup in the world, Wired (June 2018)
Source: Business Insider, CNBC
22. - Q3 2019 -
Amount of losses
Increasing marketing costs
Decreasing ARPU
Lease commitments
...
Tech-like multiples
Lack of comparables
Non-GAAP practices
...
CEO’s firepower
Trademark compensation
Lack of diversity at the Board
….
2.AchallengingQ3forthestartupuniverse Investors have demonstrated much more cautiousness recently
22
Business model Valuation Governance
Initially intending to raise $3-4bn in the public markets at a $47bn+ valuation, media loudly
reported various investor concerns, notably in terms of:
23. - Q3 2019 -
Facebook
2.AchallengingQ3forthestartupuniverse
23
WeWork is not the sole victim of governance critics
UberTesla
Governance issues have threatened many tech companies
24. - Q3 2019 -
3 Tech Giants: trusted
third parties or not?
25. - Q3 2019 -
3.TechGiants:trustedthirdpartiesornot?
25
In the digital economy, everyone is a customer.
Tech companies have based their competitive
advantage on seamless, customized and innovative
experiences, answering customers needs and
creating new usages, thus building an increasingly
closer relationship with them.
The customer scope
However, if tech giants have become
irreplaceable daily partners for users,
they have failed to position themselves
as trusted third-parties.
Visitors
Paying
Users
Non
Paying
Users
Tech companies built their model on customer centricity
26. - Q3 2019 -
3.TechGiants:trustedthirdpartiesornot?
26
The recent tech backlash showed the limits of this relationship with
customers and their will to regain power over it.
CBS News, May 2019
Forbes, July 2019
CNBC, September 2019
The NY Times, November 2018
Newsweek, October 2019
Channel News, November 2017
Beyond customers, companies are also held accountable by workforce, regulators & media for
relegating major societal and environmental topics to a secondary role.
But most tech companies have failed to become trusted third-parties
#DELETEFACEBOOK TRENDS AFTER
REPORT THAT MARK ZUCKERBERG HELD
SECRETIVE MEETINGS WITH
CONSERVATIVE INFLUENCERS
AMAZON WAREHOUSES TRASH
MILLIONS OF UNSOLD PRODUCTS,
MEDIA REPORTS SAY
UBER DRIVERS BLOCK TRAFFIC IN
MANHATTAN, PROTESTING LOW PAY AND
POOR WORKING CONDITIONS.
CONFIRMED: APPLE CAUGHT IN SIRI
PRIVACY SCANDAL, LET CONTRACTORS
LISTEN TO PRIVATE VOICE RECORDINGS
GOOGLE WALKOUT: EMPLOYEES STAGE
PROTEST OVER HANDLING OF SEXUAL
HARASSMENT
APPLE ADMITS TO USING CHILD LABOUR
TO BUILD IPHONE X
27. - Q3 2019 -
3.TechGiants:trustedthirdpartiesornot
27
Some issues are inherent in tech & platform business models
Potential biasKey characteristics
Based on customer data
To better target customers & provide a customized experience.
Strong focus on UX
Better velocity & seamless experience.
Fast technology innovation cycles.
Integrated models (physical & digital infrastructures)
& enclosed ecosystems/network effect.
Governance structured around an emblematic founder,
with a strong vision.
Dark patterns to push data collection
“If you’re not paying for it, you are the product”.
Dark design to push usage/time spent on platforms;
urban congestion, pollution related to fast shipping.
Planned obsolescence; Pollution related to digital
usage; lack of control over new technologies.
Monopolies and conglomerates construction.
Potential lack of counterpower.
But to what extent do companies have the capacity to avoid these biases?
There is an increasing demand for qualitative experience; Twitter or Facebook initiatives have
shown their difficulties to handle misinformation and content moderation...
28. - Q3 2019 -
A situation of monopoly
of integrated companies strengthened by their network
effect and their financial & technical resources,
High customer experience standards
thanks to strong technological capacities, which limit
customer’s willingness to switch,
Leading to a low capacity for consumers to influence
company’s policies.
A lack of legal framework to regulate tech business
models mostly regarding data privacy, antitrust, taxes or
content regulation,
Global & parapolitics actors with huge influence and
resources, requiring an international collaboration to
define norms and rules to frame and guide their
development,
Complex situation when tech companies are seen as
armed wings of political parties (see enquiry on TikTok
content in the US or Blizzard hearthstone tournament
winner banned after interview supporting HK protesters).
3.TechGiants:trustedthirdpartiesornot?
28
A lack of strong alternatives Regulators facing “superstates” entities
Facebook: in the end, no major impact of Cambridge Analytica (exposed in March 2018) on user retention & valuation.
1 One million MAU loss in Europe in Q3 2018.
2 A stalling US & European users growth (Q3 & Q4 2018).
3 A dual impact of data breaches & market maturity
level.
1 Share prices are back to their initial level despite the
drop after the exposure of Cambridge Analytica.
2 Global increase of Facebook users on all platforms: 2.4
Bn MAU in Q3 2019 (+8% yoy).
What makes the situation tricky today?
29. - Q3 2019 -
3.TechGiants:trustedthirdpartiesornot?
29
Tech giants have started to review
their engagement policy and launch
some key initiatives. Enough?
While regulators have a mixed approach of
fines and attempts of new laws.
30. - Q3 2019 -
3.TechGiants:trustedthirdpartiesornot?
30
Sanction... ...and regulation
Facebook vs. Congress
$5bn fine to Federal Trade Commission for
privacy violation.
Apple vs. Supreme Court
Antitrust lawsuit for driving up prices of apps in
Apple Store.
Big Tech conglomerates vs. E. Warren
“Break Up Big Tech”: a central debate of the upcoming US
presidential election
Congress & FTC
DETOUR Act proposal taking on on dark pattern design that
influences consumer choice and pushes compulsive usage.
Towards a more cautious approach? Facebook’s currency Libra is having a hard time getting
approval from regulators in the wake of the recent breakdown of trust.
Tech companies vs. European Union
GDPR enforced in 2018 to protect users from privacy
& data breaches.
Social media vs. Information Commissioner’s Office (UK)
Established an age appropriate code of conduct regulating social
media practices for children.
Tech giants vs. France
Enforcement of a tax on tech giants revenue, that led to an OCDE
project of an international tax on tech giants revenue.
Google vs. European Union
$9.7 Billion fine since 2017 for antitrust
breaches.
Apple/Samsung vs.Italian competition
authority
Respectively €10m & €5m fines for planned
obsolescence.
GAFAs vs. France
Google $57 million fine by a French regulatory
agency for violating the EU’s GDPR.
Initiatives emerge from regulators to provide an institutional framework
31. - Q3 2019 -
Google recently announced an
incognito feature on Maps in order
to stop recording user location
history.
However the app still specifies,
“Turning on Incognito Mode in Maps
does not affect how your activity is
used or saved by internet providers,
other apps, voice search, and other
Google services".
Facebook started to roll out a privacy
tool for browsing history: users will
have the option to dissociate their
information from their user account;
however data will not be deleted.
Facebook set out guidelines and rules
regarding content posted on the
platform, with teams of moderators
removing content seen as
inappropriate.
Facebook is currently testing hiding
like counts on Instagram in order to
make social media a safer place for
users.
Twitter banned political advertising
on the platform in order to fight
misinformation and reject a “paying
for reach” system seen as
undemocratic.
To address concerns regarding social
media and screens effects on mental
health disorders & attention span.
3.TechGiants:trustedthirdpartiesornot?
31
On-the-job progresses and initiatives from tech giants to address growing issues
Tech giants have started to address customers and regulators concerns regarding privacy
and data protection, as well as sustainability of their practices.
Customer data privacy Content moderation Screen time control
32. - Q3 2019 -
3.TechGiants:trustedthirdpartiesornot?
32
On-the-job progresses and initiatives from tech giants to address growing issues
Sustainability Societal
Amazon
40% of energy is renewable (solar & wind farms)
80% targeted by 2024 & 100% by 2030
Net zero emissions targeted by 2040
Once a week delivery launch to reduce delivery emissions.
Tesla’s
550,000 electric vehicles saved 4 million metric tons of C02
Tesla Energy’s solar panel will generate 86.7 TWh of energy
over 35 years (enough to power a city like Washington DC over nearly
10 years).
Google
100% renewable energies in global operations since 2017.
Data centers optimization thanks to a machine learning
program (15% reduction in overall energy).
Beyond customers & regulators, tech companies have been
facing a strong pressure from employees to reform and
address internal ethical issues: among them,
Google faced protests from employees over the appointment
of a right-wing think tank leader to the Board of its AI ethics
council, and quickly ended it.
Microsoft
Launched Xbox adaptive controller for players with limited
mobility
(a first in the industry).
Facebook
Announced its ambitions to double the number of women
globally and Black and Hispanic employees in the US.
Still, workforce culture remains an issue within large tech companies, in terms of diversity (black technical workers at Apple
represent 6%), gender parity (the technical workforce at Facebook is only 23% female) or working conditions (Google Walkout
2018 has not led yet to substantial improvements, Amazon warehouses working conditions have not improved either).
33. - Q3 2019 -
3.TechGiants:trustedthirdpartiesornot?
33
In the end, will these initiatives be
sufficient to restore trust?
Could ethics be ultimately the achilles heel of
these highly customer centric models and
notably in regards of their ambitions in very
sensitive sectors like healthcare?
Should the models built with a global impact
approach be seen as inspiring ones?
34. - Q3 2019 -
3.TechGiants:trustedthirdpartiesornot? This subject of Tech giants’ responsibility is all the more critical
given their potential impact
Large tech companies have the technical, financial resources as well as global reach to become leading
ethical businesses and be really impacting on that side.
34
A powerful strike force
that gives Tech giants momentum for their actions &
gives them power to fill some State deficiencies.
A global reach
that enables them to spread connectivity thanks to
free access, and to democratize knowledge &
information or defend freedom of speech.
Apple addresses housing crisis in Silicon Valley via a
$2.5Bn investment to provide affordable housing, first-time
homebuyer mortgage assistance and support to vulnerable
populations.
Other Tech like Google ($1Bn in lands for housing), Facebook ($1Bn
for affordable housing, or Salesforce founder M. Benioff ($30m for
SF homeless) address the crisis they largely contributed to.
A global partnership between GAFAM and Federal state
to facilitate access to healthcare & insurance by digitizing
medical appointment process or insurance selection on a
unique platform/app.
Social media play a role to facilitate communication and
interactions, as seen in context of political protests, with
participants using it to organize demonstrations, raise
awareness and disseminate information.
“I believe in giving people a voice.” - Mark Zuckerberg
However this role raises concerns especially during political
campaigns and fake news spread as seen with Twitter and Facebook.
Apple
Facebook,Twitter
Apple,Microsotf,Google
SpaceX launched 60 Starlink satellites to pursue its
mission to “bring global internet coverage to the world” and
provide connectivity to people who don’t have any today or
where it is expensive and/or unreliable.
SpaceX
35. - Q3 2019 -
Building its core model
on positive
environmental impact
Around 80% of advertising
revenues is dedicated to tree
plantations; furthermore
Ecosia is a social enterprise
with transparent value
sharing.
KPI: €9m revenues in 2018,
12m at end-sept 2019.
A phone designed to be
used only for necessary
actions
The product is meant to be a
simple tool with few
features (texts, calls, alarm),
to be used as little as
possible to reduce time
spent on tech products.
KPI: $12.3m investments.
An open source
search engine
Open source engine with a
system of tokens rewards to
value attention given to
advertising.
KPI: 8m monthly active
users.
Private search
engine
Monetization on cost
per click rather than collect
& sale of user data;
KPI: €5m revenue in 2018.
3.TechGiants:trustedthirdpartiesornot? Some business models designed according to this paradigm shift
35
Some tech models have been building their solutions & products with a more global approach,
integrating ethical design (ethical algorithms, etc.), encouraging sustainable consumption practices, taking
on social responsibility. They have started to take ground even if only a few of them have scaled. Their
approach can be a source of inspiration as they try to address some of the potential identified biases.
An alternative to wide
data collection.
Encouraging limited
use of technologies.
Addressing
digital pollution.
Collaborative economy &
ethical governance
The platform aims at having
a positive impact on
community by developing
ecotourism, with a % of
revenue redistributed to
local development.
Governance relies on users.
KPI: 5 cities are being beta
tested.
A counterpower to
centralized
governance.
36. - Q3 2019 - 36
Three dimensions for a systemic and global design framework
3.TechGiants:trustedthirdpartiesornot? Our conviction: design services and products with a positive impact approach
In a network world, our society
is made of connections. The
challenge is to be able to
create better ones. Having a
positive impact on society
means designing solutions
that reinforce our social
connections, humanise them
and make them inclusive.
Our model based on a linear
economy is panting. It is
essential to design solutions
that have a symbiotic and
circular life-cycle approach.
The territory must no longer be
seen just as a resource well, but
as a fundamental stakeholder
in the conception process.
Humans are complex irrational
beings. Their desires and needs
can be contradictory and even
have an indirect negative
impact on themselves.
Designing for a positive impact
implies accepting that this
equation doesn’t have an ideal
solution, but different variables
to play with.
The human
paradox
A society
of better
connections
A symbiotic
economy
37. - Q3 2019 -
Three dimensions that come together to form our ecosystem
37
3.TechGiants:trustedthirdpartiesornot? Fabernovel’s positive impact design framework
1
Building efficient solutions to minimize
negative externalities, prevent risks in
advance and establish awareness of
potential impact.
2
Thinking and designing by integrating
the notion of "ecosystem" (human,
society, territory) at the same level of
importance. Consider digital as a key
enabler.
3
Designing with social, environmental
and technological responsibility in mind.
38. Credits
Jérémy joined Fabernovel as a
Value Analyst. He is specialized
in quantitative finance and data
analysis, especially for tech
companies.
After graduating from
CentraleSupelec he followed his
interest in finance at ESCP
Europe, and then worked
for Exane BNP Paribas in
Equity Research.
He now works on several
projects including financial
research at Fabernovel, financial
modelling and ecosystem
modelling.
Jérémy Taïeb
Project Leader
Gabrielle
Peyrelongue
Value Analyst
Thanks to her experience of
financial markets and her
knowledge of investor relations,
Axelle has a 360° vision on the
analysis of listed companies. She
is renowned for her expertise to
accompany companies in the
structuring and
communication of their
strategic plans and new
approaches for business
models’ monitoring and
valuation. Axelle also developed
an expertise on ESG issues and
integrated thinking.
At Fabernovel, she works on
several projects of strategic
advisory and the assessment
and scoring of strategic projects.
Gabrielle joined Fabernovel in
2018 as a Value Analyst.
She graduated from ESSEC,
where she specialized in Media
& Digital.
She has worked within
Fabernovel practices in Paris
and San Francisco, focusing on
several projects related to
innovation strategy and new
business models.
She now works on new models
of valuation based on extra
financial criteria, and on KPIs of
the new economy.
Agathe Martin
Value Director
Having worked for 5 years as an
Equity Analyst at Exane BNP
Paribas in London, Agathe joined
Fabernovel to launch a strategic
and financial advisory offer,
aiming at helping companies to
articulate, pilot and value their
transformation strategies.
She notably contributes to the
production of strategic studies
for clients in various sectors (from
Financial services to logistics) and
involving various technologies (AI,
blockchain,…).
She graduated from ESSEC and
holds a Master of International
Business from the Queen’s
University in Kingston (Canada).
Axelle
Ricour-Dumas
Value Director