2025-08-08 20:04:07
Welcome to the Free edition of How They Make Money.
Over 200,000 subscribers turn to us for business and investment insights.
In case you missed it:
The world’s most valuable sports league now owns a piece of the network that broadcasts it.
In a landmark no-cash deal, Disney is giving the NFL a 10% stake in ESPN, valued at roughly $3 billion. In return, ESPN will take over the distribution of NFL Network, RedZone, and other league content.
It’s a move for strategic control, and it comes just weeks before ESPN launches its $30-per-month standalone streaming app.
With YouTube, Amazon, Netflix, and Apple circling, Disney is doing everything it can to lock in the most valuable content in live sports: NFL games. Giving the league partial ownership ensures ESPN is aligned with its most essential partner and stays relevant as the cable bundle crumbles.
As CEO Bob Iger put it:
“This will go a long way toward improving ESPN’s prospects as it migrates to a direct-to-consumer product.”
Disney’s play is simple: mitigate churn today, gain pricing power tomorrow.
It’s building a premium streaming experience anchored by live sports, with fantasy, betting, personalized highlights, and e-commerce on deck. The endgame? Competing head-on with FanDuel, DraftKings, and Big Tech.
This summer’s biggest media move didn’t happen at the box office, but in the boardroom. And Disney’s deal with the NFL could inspire the rest of the market.
Today at a glance:
📈 Streaming subscriber trends
🏰 Disney: Parks & Streaming To The Rescue
🦚 Comcast: Broadband Slide Continues
🎥 Warner: Studio Hits Lead the Show
⛰️ Paramount: Last Quarter Before Skydance
Remember, Netflix capped 2024 with 302 million members, but has stopped sharing membership numbers. That leaves us focusing on the best of the rest. Let’s zoom in on the streaming platforms still reporting their figures.
Net additions were meager across the board. Only HBO Max gained a meaningful number of subscribers in Q2, but much of that growth came at a lower average revenue per user, driven by ad-tier distribution and international expansion.
Note: Platforms like YouTube Premium, Prime Video, and Apple TV+ don’t share subscriber numbers quarterly—if at all.
Now, let’s break down how the biggest players performed this quarter.
Disney’s fiscal year ends in September, so the June quarter was Q3 FY25.
📈 Streaming stays profitable: Direct‑to‑consumer earned $346 million in operating income, its fourth straight profitable quarter, driven by higher pricing and improved efficiency. Disney+ added 1.8 million subscribers (reaching 128 million), while Hulu gained 900,000 (reaching 56 million), both slightly below expectations. Average revenue per user for Disney+ rose 1% to $7.86. Starting next fiscal year, Disney will stop reporting subscriber counts, focusing instead on profitability metrics, following in Netflix’s footsteps.
🏰 Parks and cruises surge: Experiences revenue rose 8% to $9.1 billion, with operating income up 13% to $2.5 billion, a record Q3 for Walt Disney World despite new competition from Universal’s Epic Universe. Domestic parks and cruise demand remained strong, while China parks faced softer attendance. Disney highlighted early bookings for its new Singapore‑based cruise ship launching in December, already sold out for its first two quarters.
📺 Linear TV remains a drag: Revenue from traditional TV networks fell 15% to $2.3 billion, with operating income down 28% to $0.7 billion amid cord‑cutting and weaker ad rates. ESPN’s revenue slipped 5%, though Disney is preparing to launch its $30‑per‑month standalone ESPN streaming service in August, bundled with Hulu and Disney+ for $36.
🍿 Content sales mixed: Content Sales and Licensing revenue rose 7% to $2.3 billion, though theatrical results were uneven. Pixar’s Elio was a box office disappointment, and Thunderbolts underperformed despite a strong Marvel brand. Still, licensing and home entertainment drove segment growth, with Lilo & Stitch helping boost merchandise revenue.
🔮 Updated guidance: Disney raised its FY25 adjusted EPS growth forecast to 18% year-over-year (up from 16% previously) and expects $1.3 billion in annual streaming operating income. Experiences are projected to grow 8%, sports 18%, and entertainment DTC double digits.
What to make of all this?
Disney is betting big on bundled streaming (Disney+/Hulu/ESPN) and franchise‑driven films to carry momentum into FY26. With Lilo & Stitch topping $1 billion and Fantastic Four leading the box office, Disney has regained its blockbuster footing. But it faces the challenge of balancing nostalgia, new IP, and heavy content investments.
📸 Big picture: Revenue grew 2% to $30.3 billion ($0.5 billion beat), adjusted EPS rose 3% to $1.25 ($0.07 beat), and free cash flow reached $4.5 billion. A massive $9.4 billion gain from the Hulu sale inflated net profit to $11.0 billion.
📉 Subscriber losses widen: Comcast lost 226,000 broadband customers in Q2, deeper than Q1’s 199,000 losses but better than the 257,000 analysts expected. Pay-TV losses also eased slightly to 325,000 versus 383,000 expected. Wireless was a standout, adding a record 378,000 lines. Connectivity and platforms revenue was slightly up at $20.4 billion, supported by new pricing guarantees and bundled offers.
📈 Peacock’s losses shrink: Peacock ended the quarter flat at 41 million subscribers, with revenue up 18% to $1.2 billion (part of the Media segment). Losses narrowed to $101 million from $215 million last quarter, helped by Love Island USA engagement. A $3 monthly price hike begins in Q3, ahead of NBA streaming rights launching this fall.
🎥 Studios lift results: Universal Studios revenue rose 8% to $2.4 billion on the strength of How to Train Your Dragon. The July release of Jurassic World: Rebirth is expected to boost Q3. Content licensing also contributed to the gain, though EBITDA fell 31% due to higher costs.
🎢 Epic Universe drives parks surge: Theme parks revenue jumped 19% to $2.3 billion with the opening of Epic Universe in Orlando. Management highlighted strong pre‑bookings, higher per‑capita spending, and minimal cannibalization of other Universal parks.
📺 Versant spinoff progresses: Comcast is spinning off MSNBC, CNBC, USA Network, and other cable channels into Versant Media Group by year‑end. The move aims to streamline operations around broadband, streaming, and wireless, while freeing Versant to pursue acquisitions and turnaround strategies.
What to make of all this?
Comcast’s growth engines — wireless, parks, and Peacock — are firing, but the broadband slide overshadows the story. Even with better‑than‑expected losses, reversing the core decline remains the swing factor for sentiment. The Hulu windfall and Versant spinoff give Comcast breathing room to double down on growth bets, but investors will watch closely for proof that broadband can stabilize before the rest of the portfolio offsets the drag.
🎬 Studios rebound: Studios revenue surged 55% Y/Y to $3.8 billion, powered by hits like Minecraft, Sinners, and Final Destination: Bloodlines. Adjusted EBITDA reached $0.9 billion, with a full-year target of $2.4 billion. Management emphasized fewer, bigger films going forward—targeting 12–14 annual releases, including tentpoles like Superman, The Lord of the Rings, and Harry Potter.
📺 Linear still dragging: Global Networks revenue fell 9% Y/Y to $4.8 billion, and EBITDA declined 24% to $1.5 billion, with cord-cutting and weaker international rates driving the slump. US viewership declines, especially post-NBA and March Madness, continue to weigh on ad sales (down 13%). Warner completed six major carriage renewals and is preparing to spin off this segment as a standalone entity.
📈 More subscribers at a lower price: The “re-rebranded” HBO Max and Discovery+ added 3.4 million subscribers in Q2, reaching 126 million globally, above expectations. Streaming revenue rose 9% to $2.8 billion, and adjusted EBITDA flipped to a $293 million profit from a loss a year ago. However, ARPU fell 11% globally (-8% in the US), as growth skewed international and ad-tier wholesale deals weighed on pricing. Management remains confident in hitting $1.3 billion streaming EBITDA by 2025 and 150 million subs by 2026.
💵 Profit and debt progress: Warner had a small operating loss (see visual), compared to a $10 billion loss a year ago (which included write-downs). Free cash flow hit $700 million, despite $250 million in separation-related costs. The company reduced gross debt by $2.7 billion in the quarter to $35.6 billion, with net leverage at 3.3x. CEO David Zaslav says the company is “past peak investment mode” and shifting focus to harvesting returns.
🌍 Strategic clarity post-split: Warner Bros. Discovery is preparing to split into two by mid-2026:
Warner Bros.: Streaming and Studios (HBO, Max, DC, Gaming, IP library).
Discovery Global: Cable networks (CNN, TNT, Discovery, sports, Discovery+).
Streaming password-sharing crackdowns will begin in Q4 2025, with broader monetization efforts expected in 2026. International expansion continues, with HBO Max launching in Australia and plans for Europe (UK, Germany, Italy) in 2026.
What to make of all this?
Zaslav emphasized that “a three-year attack plan” is paying off, calling out HBO Max momentum, box office success, and disciplined IP development. CFO Wiedenfels said a “10-digit figure” of deferred intercompany profit is expected to flow into the P&L over time. Management stressed cost control and bundling as future growth levers.
📈 Streaming momentum: Direct‑to‑consumer revenue rose 15% to $2.2 billion, with Paramount+ subscribers at 78 million (down 1.3 million sequentially due to an expired international bundle). Streaming losses narrowed sharply, and adjusted operating profit improved to $157 million from $26 million a year ago, marking global profitability for the first half of 2025. Engagement rose 11% Y/Y, with churn down 70 basis points.
🎥 Film division rebounds: Filmed entertainment revenue grew 2% to $690 million, led by an 84% jump in theatrical revenue from Mission Impossible: The Final Reckoning, offset by a decline in licensing due to weaker animated content. Franchise strength is boosting library viewership across Paramount+, though the segment posted an $84 million loss amid rising production costs.
📉 TV media declines persist: TV media revenue fell 6% to $4.0 billion as cord‑cutting and weak ad markets weighed on results. Adjusted operating profit declined 15% to $863 million, with affiliate and ad revenue both under pressure despite solid sports programming.
🤝 Skydance merger: The $8 billion merger with Skydance Media received FCC approval and just closed on August 7. David Ellison will lead the new Paramount Skydance Corporation (ticker: PSKY), with Jeff Shell as president. Paramount agreed to employ an ombudsman for two years to monitor political bias at CBS as part of the approval conditions.
⚖️ Legal overhang resolved: Paramount settled the $16 million lawsuit filed by President Trump over a 60 Minutes interview. The settlement avoided further legal distraction during merger negotiations but sparked controversy, coinciding with CBS’s cancellation of The Late Show with Stephen Colbert.
What to make of all this?
The Skydance deal resets the company’s future, bringing new leadership, deeper resources, and a franchise-driven strategy. But challenges remain: linear declines, political scrutiny, and the need to sustain streaming momentum in a crowded market will determine whether Paramount Skydance can turn this pivot into lasting growth.
📊 Stay tuned for over 40 companies visualized tomorrow in our PRO coverage!
Eli Lilly, Uber, Shopify, Airbnb, Sony, Celsius, Duolingo, and more.
That’s it for today!
Stay healthy and invest on!
Disclosure: I own AAPL, AMZN, GOOG, NFLX, and ROKU in App Economy Portfolio. I share my ratings (BUY, SELL, or HOLD) with App Economy Portfolio members.
Author's Note (Bertrand here 👋🏼): The views and opinions expressed in this newsletter are solely my own and should not be considered financial advice or any other organization's views.
2025-08-06 05:48:24
Welcome to the Premium edition of How They Make Money.
Over 200,000 subscribers turn to us for business and investment insights.
In case you missed it:
A flood of reports from the world’s most‑watched companies is rolling in, and we’re tracking the early standouts.
Coming up: Disney, Warner, Shopify, Uber, Airbnb, and more.
Today at a glance:
🦎 Berkshire: Kraft Heinz Pain
🕵️ Palantir: ‘Astonishing AI Impact’
↗️ AMD: AI Demand vs. China Curbs
🤝 Mercado Libre: Free Shipping Trade‑Off
🏎️ Ferrari: Tariff Relief
⚡️ Axon: AI and Software Propel Growth
💊 Hims & Hers: GLP‑1 Reset
Warren Buffett’s Berkshire booked a $5.0 billion write‑down on its long‑troubled Kraft Heinz stake, using the equity method (an accounting adjustment that lowers the value of its investment), cutting its carrying value to $8.4 billion.
Revenue slipped 1% Y/Y to $92.5 billion with a relatively flat operating profit as wildfire losses in its insurance arm wiped out gains at BNSF and Berkshire Energy. Net profit plunged versus last year, driven by smaller investment gains and the write-downs.
The cash hoard remains massive at $344 billion, near record highs, but Berkshire stayed cautious: no buybacks for a fourth straight quarter and net equity sales of nearly $7 billion. With Buffett set to step down as CEO at year-end, successor Greg Abel inherits both the war chest and the challenge of deploying it. For now, Berkshire is signaling patience, waiting for the right pitch rather than swinging at every opportunity.
Palantir smashed expectations again, crossing $1 billion in quarterly revenue for the first time, up 48% Y/Y and $61 million ahead of estimates. Total US revenue grew 68% to $733 million, cementing the US as Palantir’s growth engine. US commercial sales surged 93% to $306 million, while US government revenue climbed 53% to $426 million.
Management raised full‑year guidance across the board: revenue now expected to grow 43% Y/Y to ~$4.15 billion (vs. $3.9 billion prior) and free cash flow to reach $1.8–$2.0 billion. The company also posted a record Rule of 40 score of 94 and record total contract value of $2.27 billion (+140% Y/Y), reflecting surging demand for its AI platform (AIP) and a string of new federal deals, including a 10‑year, $10 billion Army contract consolidation.
CEO Alex Karp called the performance “once in a generation,” pointing to Palantir’s years‑long bet on AI infrastructure, from Ontology to embedded AI tools, finally translating into record demand across both defense and enterprise customers.
PLTR is now a 10‑bagger (up 900%) since it entered our real-money portfolio in January 2024, a sign of just how wild investor enthusiasm around Palantir and AI has become. The stock is trading at the highest multiples in the S&P 500, and valuation risk is hard to ignore, even as the company cements itself as a leader at the intersection of defense and enterprise AI.
AMD’s revenue climbed 32% Y/Y to $7.69 billion ($260 million beat), while adjusted EPS of $0.48 was in line.
Data Center rose 14% Y/Y to $3.2 billion on demand for MI300 accelerators and EPYC processors, though growth slowed and margins were hit by US export controls on the MI308 chip. Without the $800 million charge tied to these restrictions, adjusted gross margin would have been 11 points higher.
Client revenue jumped 67% Y/Y to $2.5 billion, driven by strong uptake of Ryzen 8000 and Zen 5 desktop CPUs as AMD gained share from Intel. AI‑capable laptops also boosted sales, reflecting a broader PC refresh cycle. Gaming revenue surged 73% to $1.1 billion on higher semi‑custom chip shipments for PlayStation and XBOX consoles and steady GPU demand, aided by AI‑accelerated features.
The Q3 outlook beat expectations. AMD guided revenue to $8.7 billion (midpoint), roughly $0.4 billion above consensus, with gross margin expected to rebound to 54%. The outlook excludes China AI chip shipments as licenses remain under review, making the beat even more impressive.
CEO Lisa Su expects “significant growth” in the second half, driven by computing and AI demand. AMD is still very much in the AI race.
2025-08-03 22:02:36
Welcome to the Premium edition of How They Make Money.
🔥 The July report is here!
All the key earnings visuals from the past month in one place.
✔️ Cut through the noise with clear, concise financial snapshots.
✔️ See revenue trends, profit margins, and key takeaways instantly.
Download the full report below or log in to your account.
![Screen Recording 2025-08-01 at 5.16.40 PM.mov [video-to-gif output image]](https://substackcdn.com/image/fetch/%24s_!Yhro!,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fd6cf561b-e231-4365-8d7e-462e496dd43d_800x450.gif "Screen Recording 2025-08-01 at 5.16.40 PM.mov [video-to-gif output image]")
Here’s a sneak peek of the 80+ companies included. 👀
💬 Social: Meta, Reddit.
🏝️ Travel: Booking, Hilton.
📦 Marketplaces: Etsy, Grab.
🚗 Automotive: Tesla, GM, Ford.
🎮 Gaming: Electronic Arts, Roblox.
📈 Investing: Coinbase, Robinhood.
💊 Biopharma: AbbVie, Merck, J&J.
🔬 Equipment: ASML, Lam Research.
🛩️ Defense: Boeing, Lockheed Martin.
🍫 Food: Hershey, Kraft Heinz, Mondelez.
👜 Luxury: LVMH, Hermès, L’Oréal, Kering.
🥤 Beverage: Coca-Cola, Constellation, Pepsi.
🌮 Franchises: Chipotle, Domino’s, Starbucks.
☁️ Big Tech: Apple, Amazon, Google, Microsoft.
✈️ Airlines: American, Delta, Southwest, United.
📞 Telecom: AT&T, Comcast, Verizon, T-Mobile US.
🍿 Entertainment: Netflix, Paramount, Roku, Spotify.
💳 Payments: Amex, Fiserv, Visa, Mastercard, PayPal.
🏥 Healthcare: UnitedHealth, Intuitive, Align, Novartis.
💰 Wealth: Morgan Stanley, Goldman Sachs, BlackRock.
⚙️ Semis: Arm, Cadence, Intel, KLA, Qualcomm, TSMC, TXN.
🏦 Banks: JPMorgan, BofA, Wells Fargo, Citigroup, Schwab, SoFi.
💻 Software: Appfolio, Confluent, Cloudflare, IBM, SAP, ServiceNow.
Plus Adidas, P&G, GE Vernova, and others.
2025-08-02 22:02:43
Welcome to the Saturday PRO edition of How They Make Money.
Over 200,000 subscribers turn to us for business and investment insights.
In case you missed it:
📊 Monthly reports: 200+ companies visualized.
📩 Weekly articles: Exclusive deep dives and insights.
📚 Access to our archive: Hundreds of business breakdowns.
📩 Saturday PRO reports: Timely insights on the latest earnings.
Today at a glance:
📱Apple: Pull-Forward Demand
🕶️ Meta: AI Spending Accelerates
💳 Visa: Spending Holds Up
💳 Mastercard: New Partnerships
🧴 Procter & Gamble: Price Hikes Ahead
💊 AbbVie: Eyeing Mental Health
👜 Hermès: Luxury Outlier
✨ LVMH: Softer Demand
💼 UnitedHealth: Reform Under Pressure
💄 L'Oréal: US and China Rebound
🦠 Merck: Before Keytruda Cliff
🏝️ Booking: Connected Trips Rise
⚙️ Arm: AI Push Thin Margins
🛩️ Boeing: Deliveries Drive Progress
📲 Qualcomm: AI Diversification Gains
🎧 Spotify: Slushing Ad Performance
🧠 Lam Research: Record Margins
🔬 KLA: AI Tailwinds
☕️ Starbucks: Early Signs of Stabilization
📈 Coinbase: Trading Slump
🪶 Robinhood: Crypto Fuels the Boom
🍪 Mondelez: Cocoa Costs Bite
💡 Cadence: China Fines
📦 UPS: Tariffs Hit Hard
👾 Roblox: Viral Surge
💳 PayPal: New Ambitions
☁️ Cloudflare: Growth Reaccelerates
🚙 Ford: $2B Tariff Hit
👟 Adidas: Tariffs Cloud Momentum
🏎️ Electronic Arts: F1 Boost
🍫 Hershey: Cocoa Weighs Heavy
🌭 Kraft Heinz: Still Searching for Stability
🧣 Kering: Gucci Sales Collapse
👽 Reddit: Fastest Growth in 3 Years
🏦 SoFi: Fee-Based Momentum
🛵 Grab: Profitable Growth Holds
🦷 Align: Weaker Volumes
📺 Roku: Platform Momentum Builds
📊 Confluent: Cloud Outlook Disappoints
📦 Etsy: Buyer Slump
🏡 Appfolio: AI Lifts Growth
Apple’s June quarter (fiscal Q3 FY25) revenue jumped 10% Y/Y to $94.0 billion ($4.9 billion beat) with EPS up 12% to $1.57 ($0.14 beat). It was a surprisingly strong performance in a seasonally weaker quarter.
📱 iPhone sales jumped 13% Y/Y to $44.6 billion, boosted by strong upgrade cycles linked to pull-forward demand ahead of tariff hikes, which could impact future quarters. Tim Cook noticed an “unusual buying pattern” in the US.
💳 Services grew 13% Y/Y to a record $27.4 billion, supporting Apple’s highest June-quarter revenue ever.
Despite an $800 million tariff hit on costs, Gross margin held at 46% as Services continue to boost Apple's margin profile.
Geographically, China returned to growth, up 4%, while North America and emerging markets accelerated. Apple guided for mid- to high-single-digit revenue growth next quarter, with tariffs-related costs expected to rise to $1.1 billion.
Management highlighted expanded AI investments, including 20+ new Apple Intelligence features, and ongoing supply chain diversification (India and US manufacturing ramping). Regulatory risks are still on the horizon around the Google search deal and App Store changes we’ll cover in the coming weeks.
Meta posted a blowout Q2, with revenue up 22% Y/Y to $47.5 billion ($2.7 billion beat) and EPS up 36% to $7.14 ($1.24 beat).
Ad strength drove results, as impressions rose 11% and average price per ad climbed 9%, pushing operating margin to 43%. Daily active users across the Family of Apps rose 6% Y/Y to 3.48 billion, and Meta AI now boasts more than 1 billion monthly users. The core ad engine is funding massive AI investments and the persistent Reality Labs’ losses ($4.5 billion).
CapEx guidance held at $66–72 billion for 2025 ($64-72 billion previously), with another significant increase flagged for 2026 (possibly hitting $100 billion) as Meta builds superintelligence capabilities via new Prometheus and Hyperion data center clusters. Zuck announced the formation of Meta Superintelligence Labs to consolidate AI research teams through aggressive hiring and accelerate frontier model development.
While regulatory risks loom in Europe and tariff pressures remain, Meta guided Q3 revenue growth to 17%-to-24% Y/Y (above consensus), signaling continued momentum as AI drives both product innovation and ad efficiency.
2025-08-01 20:01:40
Welcome to the Free edition of How They Make Money.
Over 230,000 subscribers turn to us for business and investment insights.
In case you missed it:
Amazon (AMZN) just delivered a quarter well ahead of expectations.
Prime Day set new records. Ads accelerated at their fastest pace in over a year.
But the spotlight remains on the AI arms race.
AWS leads the cloud market at a $123 billion run rate, but Azure and Google Cloud are grabbing near‑term growth headlines.
The key number: $120 billion in CapEx for FY25, up from ~$105 billion previously. Amazon is pouring that into Trainium 2 chips, multi‑gigawatt data centers, and agentic AI across Alexa and Bedrock. That scale of reinvestment means near‑term margin pressure but potentially massive long‑term payoff.
As Kuiper satellites, ads, and AI agents collide, Amazon is making the boldest reinvestment bet in Big Tech. The kind that pays off if you think in decades instead of years.
Here’s what stood out this quarter.
Today at a glance:
Amazon Q2 FY25.
Recent developments.
Key quotes from the call.
Kuiper and the CapEx war.
Income statement:
Revenue breakdown:
💻 Online stores (37% of overall revenue): Amazon.com +11% Y/Y.
🏪 Physical store (3%): Primarily Whole Foods Market +7% Y/Y.
🧾 3rd party (24%): Commissions, fulfillment, shipping +12% Y/Y.
📢 Advertising (9%): Ad services to sellers, Twitch +23% Y/Y.
📱 Subscription (7%): Amazon Prime, Audible +12% Y/Y.
☁️ AWS (18%): Compute, storage, database, & other +17% Y/Y.
Other (1%): Various offerings, small individually +19% Y/Y.
Revenue grew +13% Y/Y to $167.7 billion ($5.6 billion beat).
Gross margin was 52% (+2pp Y/Y).
Operating margin was 11% (+1pp Y/Y).
AWS: 33% margin (-3pp Y/Y).
North America: 8% margin (+2pp Y/Y).
International: 4% margin (+3pp Y/Y).
EPS $1.68 ($0.35 beat).
Cash flow:
Operating cash flow TTM was $121 billion (+12% Y/Y).
Free cash flow TTM was $18 billion (-66% Y/Y), driven by the operating cash flow growth, offset by an 87% rise in Capex to $103 billion.
Balance sheet:
Cash, cash equivalent, and marketable securities: $93 billion.
Long-term debt: $51 billion.
Q3 FY25 Guidance:
Revenue $174 to $179.5 billion ($3.6 billion beat).
Operating income $15.5 to $20.5 billion ($1.4 billion miss).
So, what to make of all this?
AWS steady, but lag narrative grows: AWS grew 17% Y/Y to a $123 billion run rate, with growth lagging Azure’s 39% and Google Cloud’s 32%. AI demand remains triple‑digit, but constrained by power and chip supply.
Retail momentum vs. tariff watch: Prime Day hit record sales and sign‑ups, signaling resilient consumer demand. Tariffs haven’t dented prices or volumes yet, but pre‑bought inventory rolls off in H2, creating potential margin pressure.
Ads are Amazon’s sleeper rocket: Advertising jumped 23% Y/Y, its fastest pace in 5 quarter, outpacing Meta and YouTube growth. New Roku and Disney DSP integrations position Amazon as the leading connected‑TV ad platform.
Margins hold despite AI drag: Company‑wide operating margin rose 140 bps Y/Y to 11.4%, despite AWS margin compression (33% vs 36% last year). Retail network efficiencies offset part of the AI CapEx drag.
Amazon is still building furiously across infrastructure, models, and applications. Q2 brought two big shifts: agentic AI tools are moving center stage, and custom silicon is ramping into full production.
Custom silicon ramps: Trainium 2 is now the backbone for Anthropic’s newest models and Bedrock workloads. Amazon claims ~30–40% better price/performance than comparable GPUs, critical as inference (not training) becomes the dominant cost.
AI superclusters: Multi‑gigawatt clusters (Project Rainier) are coming online, expanding training and inference headroom. Biggest constraint isn’t chips anymore, it’s power.
Third‑party GPUs: AWS launched EC2 instances with NVIDIA’s Grace Blackwell chips, offering choice for customers that prefer external silicon.
CapEx cadence: AI‑driven data center spend topped $31 billion in Q2 and will remain elevated through FY25 as AWS plays catch‑up with Azure and Google Cloud capacity.
Bedrock momentum: Anthropic’s Claude 4 became Bedrock’s fastest‑growing model yet. Amazon’s own Nova family is now the #2 foundation model on the platform.
Nova differentiation: Nova is tuned for enterprise customization, allowing customers to inject proprietary data and optimize for cost/speed, an edge versus Llama or DeepSeek.
Agent Core launch: A new secure, serverless runtime for deploying AI agents. Handles memory, identity, and orchestration, solving a core scaling bottleneck for enterprises.
Kiro coding agent: A new agentic IDE where developers “vibe code” via natural language, generating specs, tests, and docs automatically. Hundreds of thousands joined in weeks.
Alexa Plus rollout: Millions of US users are testing Alexa’s multi‑step actions (“set the table, dim the lights, play jazz”). Engagement is meaningfully higher than legacy Alexa.
AI across retail and ads: Generative AI continues to power personalized shopping, faster fulfillment (robotics + AI routing), and Amazon Ads (full‑funnel with DSP integrations).
Total cloud infrastructure market spending grew by 25% Y/Y to $99 billion in Q2 2025, an acceleration from 23% Y/Y in Q1. It’s a good time to a cloud provider, and GenAI remains a critical growth factor.
Sybergy Research Group projects growth above 20% gfor the next 5 years, with enterprise cloud services, social media and search expanding.
AWS had a commanding 30% market share, compared to 20% for Microsoft Azure and 13% for Google Cloud.
For context, in the June quarter:
Google Cloud (GCP + Workspace) grew 32% Y/Y (vs. 28% Y/Y in Q1).
Microsoft Azure grew 39% Y/Y (vs. 33% Y/Y in Q1).
AWS grew 17% Y/Y (unchanged).
As always, I wouldn’t read too much into growth rates since they are all capacity-contained and have a different product mix.
What about margins? AI CapEx and stock-based comp weighed on margins in Q2 (down 3pp Y/Y to 33%). Management had warned margins could fluctuate as AI investments flow through the P&L. AI is a short-term headwind on margin, but management expects the AI margin to match that of the non-AI business over time.
If you recall, the jump in AWS’s operating margin to 39% in Q1 was primarily due to an accounting adjustment (the useful life of servers was extended).
Amazon ads reached $15.7 billion in Q2 and now represent:
29% of Google Search (+3pp Y/Y).
34% of Meta's ad revenue (+0.5pp Y/Y).
160% of YouTube ads (+13pp Y/Y).
The gap with YouTube has widened in the past 4 years (see visual).
Prime Video’s shift to an ad‑supported default in 2024 and a new Roku partnership in June (80 million CTV households) give Amazon unmatched retail‑plus‑streaming data. It’s a moat neither Meta nor Google can replicate, and a sleeper driver behind Amazon’s rising margins (ex-AWS).
“This year’s Prime Day was our biggest ever with record sales, number of items sold, and number of Prime sign ups in the three weeks leading up to the event.“
Prime Day remains a growth engine. Beyond the sales spike, each sign‑up feeds Amazon’s flywheel: recurring Prime fees, higher purchase frequency, and deeper lock‑in, offsetting tariff uncertainty in H2.
“In Q2, we increased the share of orders moving through direct lanes by over 40% year over year […] We’ve reduced the average distance packages traveled by 12% and lowered handling touches per unit by nearly 15%.“
Regionalized logistics are paying off. Shorter routes and fewer touches cut costs while speeding delivery, a structural edge rivals can’t easily copy and a tailwind for margins.
“Agent Core is a set of building blocks that gives customers the industry’s first secure serverless runtime […] freeing them up to start deploying agents more expansively.“
AWS is positioning itself for the agent era: secure, serverless deployment as the pitch. The question: does this move the needle against Azure’s Copilot ecosystem or Google’s Gemini stack?
“Remember, 85 to 90% of worldwide IT spend is still on premises versus in the cloud […] In the next ten to fifteen years, that equation is going to flip.“
The scale of untapped migration justifies Amazon’s record $120 billion CapEx plan. Even as AI dominates headlines, the broader shift from on‑prem to cloud remains AWS’s biggest tailwind.
Amazon has now placed 78 production satellites into orbit as of July 2025 — two 27‑satellite Atlas V launches and a 24‑satellite Falcon 9 mission. A new 100,000 ft² payload facility at Kennedy Space Center is live, capable of prepping 100+ satellites per month and supporting multiple launch campaigns simultaneously.
Why it matters: Amazon must deploy half of its 3,232‑satellite constellation by mid‑2026 to keep its FCC license. Starlink already dominates with thousands of satellites and ~5 million users, so Kuiper’s catch‑up is high‑stakes. Analysts see Kuiper evolving into an “Amazon Space Platform,” with synergies for AWS, logistics, and robotics — but execution risk is real.
Q2 CapEx reached $31 billion and Amazon now expects ~$120 billion in FY25 (up from ~$105 billion previously). Nearly all of it is earmarked for AI infrastructure.
Amazon’s posture is singular in Big Tech:
No buybacks, no dividends.
Every dollar plowed into future growth.
A strategy at odds with Apple, Alphabet, and Meta, which returned a combined $280+ billion to shareholders in the past year.
Yes, AWS margins have slightly compressed, but this spending is a feature, not a bug.
Bottom line: Kuiper satellites, agentic AI, and ads are converging into Amazon’s boldest expansion cycle. If the biggest risk of the current cycle is to under‑invest, Amazon is the one playing it the safest.
That’s it for today!
Stay healthy and invest on!
Disclosure: I am long AMZN, GOOG, META, NET, and SNOW in App Economy Portfolio. I share my ratings (BUY, SELL, or HOLD) with members.
Author's Note (Bertrand here 👋🏼): The views and opinions expressed in this newsletter are solely my own and should not be considered financial advice or any other organization's views.
2025-07-31 08:07:09
Welcome to the Premium edition of How They Make Money.
Over 230,000 subscribers turn to us for business and investment insights.
In case you missed it:
Microsoft (MSFT) just closed its fiscal year with a blowout quarter.
Revenue smashed expectations across every segment, Azure growth hit 39%, and Copilot adoption is accelerating. GPT‑5 is days away, and Microsoft will have exclusive access.
But a high‑stakes rift with OpenAI is emerging, and the outcome could define Microsoft’s AI edge for years to come.
Here’s what stood out this quarter.
Today at a glance:
Microsoft’s Q4 FY25.
OpenAI drama and risks.
Earnings call takeaways.
What moves the needle.
Revenue +18% Y/Y to $76.4B ($2.6B beat).
Gross margin 69% (-1pp Y/Y).
Operating margin 45% (+2pp Y/Y).
EPS $3.65 ($0.27 beat).
☁️ Server products and cloud services $27.8 billion (+27% Y/Y).
📊 M365 Commercial products and cloud services $24.3 billion (+16% Y/Y).
🎮 Gaming $5.5 billion (+10% Y/Y).
👔 LinkedIn $4.6 billion (+9% Y/Y).
🪟 Windows and Devices $4.3 billion (+2% Y/Y).
🔎 Search and news advertising $3.6 billion (+17% Y/Y).
💻 Other $6.2 billion (+15% Y/Y).
As a reminder, Microsoft restructured its business segments last year to better align reporting with current operations:
📊 Productivity and Business Processes grew 16% Y/Y to $33.1 billion ($1.0 billion beat). M365 Commercial and Consumer drove upside, with Copilot adoption fueling ARPU gains.
☁️ Intelligent Cloud grew 26% Y/Y to $29.9 billion ($0.8 billion beat), driven by Azure across all workloads.
🎮 More Personal Computing grew 9% Y/Y to $13.5 billion ($0.8 billion beat), with Search and XBOX content driving the upside.
The table below compares growth year-over-year in constant currency following the new segmentation. Many of the products and services overlap.
Microsoft Cloud—spanning Azure, M365, and more—grew 25% Y/Y to $46.7 billion. It now accounts for 61% of total revenue, up 4pp Y/Y.
Azure is running the show and driving the growth of ‘Server products and cloud services’ and Microsoft Cloud.
Consumer products saw a big acceleration on the M365 side, boosted by an ARPU growth from the recent price increase and subscriber growth of 8%.
Xbox growth has normalized after the Activision acquisition completed in Q2 FY24, but Game Pass has offset a 22% decline in hardware sales.
Operating cash flow grew 15% Y/Y to $42.6 billion.
Free cash flow grew 10% Y/Y to $25.6 billion, reflecting higher Capex.
Cash, cash equivalents, and investments: $95 billion.
Long-term debt: $40 billion.
📈 Azure hits a new high: Azure grew 39% Y/Y, far ahead of the 34-35% outlook, driven by core infrastructure demand from large enterprise customers. Surprisingly, management did not share the AI contribution to Azure’s growth this time. But they shared that Azure sales reached $75 billion in the past 12 months (+34% Y/Y). For context, Google Cloud was $49 billion and AWS $112 billion as of March.
🚧 Capacity constrained: Like other hyperscalers, Microsoft’s cloud growth remains constrained by data center shortages. For now, AI-driven demand is outpacing supply, limiting faster acceleration.
💰 Capex soared 27% Y/Y to $24.2 billion: Microsoft is spending aggressively to expand AI infrastructure, catching up with AI demand.
🔎 Search and ads steady: Search and news advertising (ex‑TAC) rose 20% Y/Y, benefiting from volume growth and third‑party partnerships. This segment increasingly captures AI features like Copilot Pro alongside Bing and Edge.
📊 Strong bookings: Commercial bookings climbed 37% Y/Y to over $100 billion, lifting total remaining performance obligations to $368 billion (+37% Y/Y). About 35% of this will convert to revenue over the next 12 months, giving strong forward visibility.
🔺 Margins resilient: Gross margin held at 69%, flat Q/Q, while operating margin improved 2pp Y/Y despite restructuring charges tied to recent layoffs. Efficiency gains helped offset AI infrastructure drag.
🧠 OpenAI’s impact: “Other expenses” of $1.7 billion largely reflect Microsoft’s share of OpenAI’s losses under equity accounting, a growing line item as OpenAI scales aggressively toward GPT‑5.
📅 FY26 guidance: Management guides to double‑digit revenue and operating income growth in FY26, with Azure up ~37% in Q1 (September quarter). Capacity constraints will linger through H1, but CapEx growth is expected to moderate versus FY25.