Google in the Season of the Switch

 

Company remains focused on durably re-engineering cost base while supporting growth priorities - most important of which is that magic word: AI.

The most important metric for GOOG Alphabet is revenue growth. The company's revenue has grown at an average annual rate of 20% over the past five years. It’s major revenue stream continues to be advertising. It’s gained ad revenue through the years with expert search tech innovation and the move into streaming with YouTube. It is on its heels these days because of 1-The impression that its AI chops are inferior to Microsoft’s and 2- It’s {seemingly} chronic 3rd-place position in the 3-horse field of cloud providers. Over time it is likely the former impression will lift. In the later case, it may be wisely biding its time now as the expenses of GPU- and LLM-based Generative AI drain the other cloud players’ coffers.

The leaky coffers with ephemeral AI results may eventually become apparent to the market. But the challenge to its advertising prowess will continue to need to be met if it is to continue its glory days tour. Advertising itself is a steady grower – tho challenged by an eternally looming recession – but not a startling grower. Google will have to execute expertly.

"You might have a good vision of where things are headed, but it takes forever." - DoubleLine CEO Jeffrey Gundlach, speaking Oct. 3, 2024, at Grant’s Interest Rate Observer  conference

Fears on its growth potential have sent it to the cloak room of the Magnificent 7 stocks [formerly known as the Fabulous Faangs]. The stock  ...slumped 9.5% to end at $125.61 on Thursday because of revenue growth in the company’s Google Cloud unit that disappointed [tho Google Cloud Q3 revenue of $8.4 billion was up 22%.], and comparisons with Microsoft, which has won sentiment since it announced its ChatGPT blitz a year ago. Morningstar was among the hardy with Google Good Vibes – and will maintain its $160 fair price call, while cutting some from its Google ad tech hopes. The dive led some to buy the dip, and Friday’s performance was merely flat, not vortex-like. Meanwhile it grapples with a persona that's Moloch-like as Big Tech takes some arrows. It is in fact on trial just now. 

It seems like Google is caught for now in a Sentiment Driven Season of the Switch – you were on top of the world, but then you got some shit on your shoe, and the Head Cheerleader went over to Bobby Baxter etc. This could be a faulty analysis, and time will always tell. - B.B

What does Bard have to say?  Alphabet's revenue growth for Q3 2023 was 11% year-over-year. This was a solid performance, given the challenging macroeconomic environment. The company's core advertising business performed particularly well, with revenue growth of 9%. This was driven by strong growth in search and YouTube advertising. Alphabet's Cloud business also continued to grow, albeit at a slower pace than in previous quarters. Revenue for the Cloud business grew 12% year-over-year. Overall, Alphabet's Q3 2023 earnings report was positive. The company's revenue growth accelerated from the previous quarter, and its earnings per share beat analyst expectations.

Another factor of note is Free Cash Flow: It's in the $63 B to $78B range. [Amazon is $21]

Some snips from the Google Earnings Call follow. They seems a pretty capable bunch. On hand were Sundar Pichai, CEO Alphabet and Google, Jim Friedland, Director Investor Relations and Ruth Porat, CFO Alphabet and Google. Who said what is not indicated in the snippets from the transcript. It is here: https://abc.xyz/investor/events/2023-q1-earnings-call/

On AI: We’ve learned a lot from people trying it, and we’ve added new capabilities.  ...  ...We’ll experiment with new formats native to SGE that use generative AI to create relevant,  ...high-quality ads, customized to every step of the search journey.  ...  ...Bard can now integrate with Google apps and services, showing relevant information from  ...Workspace, Maps, YouTube, and Google Flights and hotels.  ...  ...We’ve also improved the “Google it” feature. It provides other sources to help people evaluate Bard’s responses and explore information across the web.  ...  ...Earlier this month, we announced Assistant with Bard -- a personal assistant powered by  ...generative AI. It combines Bard’s generative and reasoning capabilities with Assistant’s  ...personalized help. You can interact with it through text, voice or images, and in the coming months, you’ll be able to opt in on Android and iOS mobile devices.  ...  ...Using new technology powered by Google DeepMind SynthID, images generated by Vertex AI can be watermarked.  ...  ...  ...Underlying all this work is the foundational research done by our teams at Google DeepMind  ...and Google Research. We are excited to roll out more of what they’ve been working on soon.  ...  ...Underlying all this work is the foundational research done by our teams at Google DeepMind  ...and Google Research. We are excited to roll out more of what they’ve been working on soon.  ...  ...We remain committed to durably re-engineering our cost base in order  ...to help create capacity for these investments, in support of long-term, sustainable financial  ...value. Across Alphabet, teams are looking at ways to operate as effectively as possible,  ...focused on their biggest priorities.  ...  ...We offer advanced AI-optimized infrastructure to train and serve models at scale, and today,  ...more than half of all funded generative AI startups are Google Cloud customers. This includes  ...AI21 Labs, Contextual, Elemental Cognition, Writer, and more.  ...  ...We offer more than 100 models -- including popular third-party and  ...open-source models, as well as tools to quickly build Search and Conversation use cases.  ...From Q2 to Q3, the number of active generative AI projects on Vertex AI grew by 7X, including  ...Highmark Health, which is creating more personalized member materials.  ...  ... We continue to provide the widest choice of accelerator options. Our A3 VMs powered by  ...3  ...NVIDIA’s H100 GPU are generally available, and we are winning customers with Cloud TPU  ...v5e, our most cost-efficient and versatile accelerator to date.  ...Companies are increasingly using AI for the purpose  ...of analyzing data, and customers are choosing Google Cloud because we are the only large  ...cloud provider with a unified platform to analyze structured and unstructured data.  ...  ...companies are increasingly using AI for the purpose  ...of analyzing data, and customers are choosing Google Cloud because we are the only large  ...cloud provider with a unified platform to analyze structured and unstructured data.  ...  ...And new AI-powered editing features in Google Photos on Pixel 8 and Pixel 8 Pro remove  ...distractions, generate the best shot from multiple images, and reduce distracting sounds in  ...videos.  ...  ...

On nuts and bolts:  ...Operating expenses were $22.1 billion, up 6%, reflecting the following: First, an increase in  ...R&D expenses, driven primarily by compensation; second, an increase in G&A expenses  ...reflecting the impact of charges related to legal matters; and finally, Sales & Marketing  ...expenses, which were relatively flat to last year.  ...  ...Operating income was $21.3 billion, up 25%, and our operating margin was 28%.  ...  ...Turning to segment results, within Google Services, Revenues were $68 billion, up 11%.  ...  ...Turning to segment results, within Google Services, Revenues were $68 billion, up 11%.  ...  ...  ...Google Search and Other advertising revenues of $44 billion in the quarter were up 11%, led  ...again by growth in retail.  ...YouTube advertising revenues of $8 billion, were up 12% driven by both brand advertising and  ...direct response.  ... As we have repeatedly stressed, we remain focused on durably re-engineering our cost base to  ...create investment capacity to support our growth priorities, most important of which is with AI.  - B.B.