Webscale Network Operators: 1Q19 Market Review

Webscale Network Operators: 1Q19 Market Review
Webscale spending continue to soar as large network operators invest in cloud and AI, and explore new market avenues
By Arun Menon and Matt Walker

Description

MTN Consulting’s 1Q19 WNO Market Review analyzes the network infrastructure spending and financial position of webscale network operators (WNOs).

WNOs are web-centric companies whose operations and services rely heavily on hyperscale data centers and supporting connectivity. They typically have tens or hundreds of millions of customers/users, and rely heavily on scale and network effects in quest for profitable growth. Most WNOs build and operate data centers, but some rely largely on rented/leased resources. Netflix, Snap and Twitter are notable examples. Each of these spends heavily on cloud resources from other providers and is a candidate to build organically in the future. Or, purchase existing assets during a market adjustment.

WNOs tracked in this report include the “Top 8” companies (Alibaba, Alphabet, Amazon, Apple, Baidu, Facebook, Microsoft, and Tencent) and over 20 others: Altaba, Booking Holdings (formerly Priceline), ChinaCache, Cognizant, eBay, Fujitsu, HPE, IBM, JD.COM, LinkedIn, Netflix, Oracle, Qihoo 360, Salesforce.com, SAP, Sina, Snap, Sohu, Twitter, Weibo, Xunlei, Yandex, and YY.

Coverage:

  • Global coverage with company-level drilldowns of 31 companies
  • Company-level annualized and quarterly trends across 29 financial data series
  • Network-related spending estimates at market- and company-level, across quarters

More details are available in the “sample file,” above

Abstract

Excerpt:

“After spending big in 2018, global technology companies continued to expand their “webscale” networks in 1Q19, investing over $110B in capex over the last 12 months.

Webscale networks are mostly centered around immense, “hyperscale” data centers and undersea cable systems that support network traffic from the tech companies’ online retail, video, and social media platforms, along with cloud services. Not just that, some tech-bigwigs including Amazon, Facebook, Alphabet, and Microsoft are now looking to conquer another frontier – outer space – for providing connectivity to the underserved and unserved markets.

After surpassing $100B in capex for the first time in a single year in 2018, the companies in this webscale network operator (WNO) sector invested $110.6B in the twelve-month ending 1Q19, up by a robust 22.7% YoY. This surge impacted the sector’s cash & short-term investments which fell by 3.0% YoY during the same period. Free cash flow margins, however, saw no impact as they witnessed a mild uptick in 1Q19 compared to previous quarter, on an annualized basis. The capex hike was primarily led by the “Top 8” webscale companies composed of eight leading technology firms – Alibaba, Alphabet, Amazon, Apple, Baidu, Facebook, Microsoft, and Tencent.

Webscale operators continue to branch into new markets, including hardware, both through R&D and acquisitions. M&A activity in the sector remained vigorous in 2018, with Alphabet, Amazon, Microsoft, Oracle, and Salesforce each recording sizable related costs. The M&A climate remains strong for the sector given its high cash reserves. Total debt for the sector is manageable overall, at $446.1B in March 2019, or $186.1B less than cash & stocks. Some individual companies could face debt issues in an economic downturn, however, or due to regulatory pressure.”

  • Table Of Contents
  • Figure & Charts
  • Companies Covered
  • Visuals

Table Of Contents

  1. Abstract
  2. Analysis
  3. WNO Market: Key Stats thru 1Q19
  4. Top 8 WNOs
  5. All WNOs: Company Drilldowns
  6. Totals by Company
  7. About

Figure & Charts

  1. Key Metrics: Annualized growth rates 1Q19/1Q18 vs. 2011-18
  2. WNO Revenues: Single-quarter (US$M)
  3. Top 8 WNOs: YoY revenue growth in 1Q19
  4. Annualized profitability: WNOs
  5. Free cash flow per employee, 1Q19 annualized (US$)
  6. FCF Margins vs. Net Margins, 1Q19 annualized
  7. Advertising revenues as % total (FY2018)
  8. Annualized capex and R&D spending: WNOs (% revenues)
  9. WNO capex by type, Annualized: 1Q15-1Q19 (US$M)
  10. Network & IT capex as share of revenues, 1Q19 annualized
  11. R&D expenses as % revenues, Top 8 WNOs (1Q19 annualized)
  12. Net PP&E per employee (US$M) – 1Q19
  13. Ranking the Cloud’s Webscale Network Operators: 1Q19 revenues (US$B)
  14. Ranking the Cloud’s Webscale Network Operators: 1Q19 R&D expenses (US$B)
  15. Ranking the Cloud’s Webscale Network Operators: 1Q19 total capex (US$B)
  16. Network, IT & software capex (US$B) by WNO, 1Q19
  17. 1Q profitability trends, WNO Market
  18. WNOs: R&D spending, and network/IT capex, 1Q annualized
  19. Network & IT capex as % of revenues
  20. WNO Network, IT and software capex: YoY growth
  21. Total employees: Webscale network operators
  22. Webscale market: Revenues & FCF per employee (US$K)
  23. Revenues & Spending (US$M)
  24. Webscale Business Mix by Revenues (FY2017) – MTN Consulting estimates
  25. Top 10 recent acquisitions & investments
  26. Revenues & YoY revenue growth: by company
  27. Annualized profitability: by company
  28. Annualized capex and capital intensity: by company
  29. Annualized capex and R&D spending as % of revenues: by company
  30. Share of WNO network & IT capex, Annualized: by company
  31. Total employees: by company
  32. Annualized per-employee metrics (US$000s): by company
  33. Net debt (debt minus cash & stock) (US$M): by company
  34. Profitability and cash flow, 2011-18 (% revenues): Webscale operators
  35. Free cash flow and cash on hand, 2011-18: WNOs (US$M)
  36. Revenues & capital intensity, 2011-18: WNOs
  37. Capex and R&D spending, 2011-18: WNO segment (US$M)
  38. Cash on hand, capex and acquisition costs, 2011-18: Webscale operators
  39. Capex and R&D as a % of revenues, 2011-18: WNOs
  40. Capex and leasing expenses as a percent of revenues, 2011-18: WNOs

Companies Covered

Visuals

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