Michael Liedtke, Detroit News
Technology trendsetters Apple Inc., Google Inc., Facebook Inc. and Netflix Inc. all mined foreign countries to produce earnings or revenue that exceeded analysts’ projections in their latest quarters. Prodded by the steadily rising demand for Internet access and online services in developing countries, these technology companies will likely be wading even deeper into overseas markets for years to come.
“The philosophy is to start your growth in the states and then take your fight overseas,” says BGC Financial analyst Colin Gillis. “That’s what the big guys are doing.”
The intensifying international focus extends beyond technology. Century-old companies such as Coca-Cola Co. and Ford Motor Co. also are hoping to make more money in countries including China and India.
Few U.S. industries are tying their fortunes to overseas markets as aggressively as the technology sector, where new sources of revenue are often just a matter of equipping people with a computing device and an Internet connection.
Soaring sales of iPhones in China, Russia, India and Brazil during the April-June period helped Apple overcome softening demand for the device in the U.S. and Europe, where consumers seem to be more interested in waiting for the autumn release of a new iPhone that’s expected to feature a larger screen.
Google generated 58 percent of its revenue outside the U.S. in its second quarter, the highest level yet for the Internet’s most powerful company.
Facebook already gets 55 percent of its revenue overseas, and the growth in those markets is outpacing what’s happening in the U.S. The social networking service has attracted 1.1 billion users in foreign markets versus 200 million in the U.S. and Canada.
Netflix’s Internet video service added 1.1 million international subscribers, nearly doubling the number it gained in the U.S during the April-June quarter. The company expects the trend to continue as Netflix enters six more European markets, including France and Germany, in September.
Corporate profits will probably need to keep rising to sustain the U.S. stock market’s record-breaking run. The Standard & Poor’s 500 index has already climbed nearly 8 percent this year, well ahead of its average pace historically, while analysts expect earnings to increase 8 percent this year. Low interest rates and an improving economy have helped create a climate of optimism, said Brad McMillan, chief investment officer at Commonwealth Financial.
“Everything is going well right now,” McMillan said. “That’s what’s driving the market up.”
Like many other money managers, McMillan isn’t convinced companies will be able to live up to investors’ high hopes.
Overall sales have been slow, and profit margins are at record levels after years of cost-cutting. Those factors will make it tougher for companies to find ways to ratchet their earnings even higher.
The natural response for many companies? Look abroad because that’s where most potential customers are. The U.S. population accounts for less than 5 percent of the world’s roughly 7.2 billion people.
The U.S., though, still boasts the world’s largest economy with a mass market of consumers who can afford more products and services than most other parts of the world. That means growth in other countries, especially in markets outside Europe, Japan and South Korea, often isn’t as lucrative as it is in the U.S.
Apple, which has always demanded premium prices, is discovering this as it sells more devices overseas. For instance, the iPhone’s average selling price fell to $561 in Apple’s most recent quarter, a 3 percent drop from a year ago and a 13 percent decline from $647 two years ago.
Advertisers haven’t been willing to pay as much to peddle their wares to consumers who don’t have as much disposable income as people in the U.S.
Facebook is experiencing a similar phenomenon. The company reaped an average of $6.44 per user in the U.S. and Canada during the second quarter, compared with just $2.84 per user in Europe, $1.08 per user in Asia and 86 cents per user in the rest of the world.
Although the company remains profitable overall, Netflix still isn’t making money on an international expansion that began nearly four years ago. The company’s international losses have exceeded $800 million, with more likely to come with a move into France and Germany looming.
From The Detroit News: http://www.detroitnews.com/article/20140729/BIZ/307290024#ixzz38soeIJEj