I noticed this too and was wondering if there was any more info. Sounds like it's effectively just changing the payment plan such that they can say it was a net gain this Q?
It's not a payment plan; they already fully paid for those servers the moment they bought it. Buying hardware is a capital cost. It's not accounted as an expense the moment it was bought and paid for, but gradually over the expected lifetime of the server.
If you buy a truck you expect to use for 10 years for $50k, the company's cash goes down by $50k but its capital assets go up by $50k to match that. This purchase has no impact on the company's net income, because the cost and the value of the asset are the same. Every year the value of the truck is considered to be $5k less, so its assets go down by that amount. To make the books balance out, there's a $5k depreciation expense for that year.
This is totally standard accounting, every company does it with any kind of capital goods. See the depreciation line item in the cash flow statement.
This is them saying that a server's expected lifetime is now 6 years rather than 4 years, so the amount of depreciation "expense" per quarter is lower.
Cloud turning a profit is a good thing, and makes sense. But cloud is also a super competitive market - not so for Search or Ads. Those two feel like the places Google can rely on money coming from - revenue falling for those is worrying!
"Cloud" for the purposes of financial reporting also includes the consumer cloud services workspace/gsuite/gdocs or whatever they're calling it now, right? not just the stuff at cloud.google.com
From the report: "Google Cloud includes infrastructure and platform services, collaboration tools, and other services for enterprise customers. Google Cloud generates revenues from fees received for Google Cloud Platform services, Google Workspace communication and collaboration tools, and other enterprise services."
Ad spend globally may be down; can a comparison be made to competitors' ad revenue to come up with a baseline there?
Youtube was a large contributor to growth in 2021-2022, and that engine appears to have slowed. (Not just the "Youtube ads" line that is separated out.)
Most likely the market is reacting to these results not being any worse. Cloud gains were already priced into the stock, in my opinion.
I would question just how competitive cloud is. Companies with banks worth of cash and an existing army of technical knowhow are few and far between. The only companies that could enter the market right now are facebook and Apple.
> - unallocated corporate losses are 3B higher YoY
$2.5 billion of that is charges related to the layoffs.
> - all their expenses are way up (cost of revenue 1B up, R&D expenses 2.3 B up, sales and marketing costs ~0.7 B up)
Likewise half of this (i.e. you're double counting). See the table on page 3.
> - ad revenue is down (that's 80-90% of all of their revenue)
78% is not 80-90%. It's impressive that you managed to quote a ridiculously large range, and still get it wrong, in a discussiong about the earnings report.
The ad revenue from Google properties, not from the display ad network, is up.
> I couldn't care less to calculate it this time. It fluctuates around the same number YoY
Uh-huh. It was 77% in Q4, 79% in Q3, 80% in Q2. It has not been 90% for a decade.
> And that somehow makes it less of an ad revenue? Or different? Or something?
So you weren't making any kind of point when saying that ad revenue was down? If that's the case, I'm happy to also pretend that I'm also a member of the non sequitur club.
And since there are no details what is included on Cloud, number of new customers, example of large accounts that moved to Cloud, or info how much is Workspaces versus Enterprise Cloud customers...the moment those details leak, or if this is shown to be financial reporting engineering, the market will turn very sower, very quickly.
> reliant on the assumption advertising revenue will be going up forever?
Who has that assumption? At some point ads just reach steady state as a percentage of an economic sector, and therefore their growth simply mirrors GDP growth. Yes it will grow forever as the economy grows forever, but no faster.
I don't think anybody thinks advertising is going to eat the whole economy, so I don't think there are any implications in that not happening.
Growth doesn't require increased energy usage at all.
To the contrary, if you figure out a way to manufacture the same widget X but using 25% less energy, that's economic growth.
Long-term economic growth is primarily a phenomenon of increasing human efficiency which is enabled mainly via improved education which leads to ongoing technological progress.
Sure we need energy to heat our homes and grow our food and power our transportation and build our phones and so forth, but those needs are not growing exponentially whatsoever. Homes in the developed world, for example, are becoming more energy efficient rather than less.
Economic growth includes things like “improved product quality” and is already decoupled from carbon output. There may be some fundamental limit to economic growth, but in order to show that, your argument probably has to have a form like: “humans can only produce this much utility”
> More importantly, it announces a 70 billion dollar stock buyback.
I don't pay so much attention to investment news, but the last time I heard of huge buybacks was when Intel decided to drastically cut back its research and development. It seemed to not be good for Intel. Or maybe it was good for the ones making those decisions, if they are getting bailed out by billions of government money, I don't know. Maybe I have cause and effect mixed? It could be possible.
Not at all. It's literally just a more tax-efficient dividend. Everyone does it these days. Companies that are failing can't afford it; you can only do these when you have excess cash.
Ad revenue was basically flat year over year. It seems like more of a correction after how ridiculous things got during the pandemic. It's still nearly double what it was in 2019, so I wouldn't read too much into it yet.
LLMs are the next ad frontier, and revenues will hit all-time-highs when the ball gets rolling.
Who needs messy user tracking when users will voluntarily feed you their deepest secrets? Why fight ad blockers, and waste resources on ad placement research, click-through rate optimization and all that noise, when you can just slip subtle ads into conversations with humans?
Ad revenue isn't going anywhere but up. This is just a minor blip in the grand scheme of things.
Hard, hard disagree. LLMs will reduce the blogspam driving a lot of ads. Competitors will enable bypassing Google entirely. LLM is more expensive than traditional search. I find it likely it won’t fuel additional ad spending but merely be required to keep the spending they have and defend their moat.
I seriously wonder if that's true. In a purely AI chat-style conversation, there simply isn't much real estate to insert ads.
In your classic scenario, you navigate the SERP and hit various websites, that's a lot of surface area for ads. In this supposed new situation, you don't browse and scan, you just get the answer. The end. It's a way shorter interaction. I'd imagine you see 1 ad. Instead of dozens now.
Also, if you're never hitting any individual websites anymore, surely they'll become hostile, protect content, put up walls, or push for legislation.
> In a purely AI chat-style conversation, there simply isn't much real estate to insert ads.
You're thinking of this in the classical ad placement sense. If there's an established sense of trust with an AI, advertising can become much more subtle and even more manipulative than it currently is. Ad campaigns can last years, and span many conversations, where brands can be woven into the subconscious much more deeply than a traditional ad could do.
They could then be surfaced whenever the user is most vulnerable to be swayed into making a purchase.
> In your classic scenario, you navigate the SERP and hit various websites, that's a lot of surface area for ads.
Most of which never get seen or clicked on. It's a lot of wasted real estate. Ad conversion can become much more efficient if the system deeply knows the person they're interacting with.
I'm confident there will be competent LLM's that don't do product placement. Margins will be worse than current search paradigm but that's still billions in profit a year. I'm not sure why anyone would use big tech's product placement AI when there are marginally worse options available that aren't mind killers.
> I'm not sure why anyone would use big tech's product placement AI when there are marginally worse options available that aren't mind killers.
You can ask the same question about social media or any Big Tech product today. The answer is somewhere between convenience, a better product, and inertia ("everyone else uses it", etc.).
If Google comes up with an AI that integrates with Gmail, Docs, Drive, Search, and all their other products, and leverages the amount of information they already know about you, then they can provide a much better UX than any competitor could.
I don't doubt there will be OSS competitors that don't do any mind manipulation to get users to purchase something, but most users won't use them. Just like we have sane alternatives to all Big Tech products today, and they're mostly only used by a niche group of technical users.
Hard disagree. The main reason Google was so successful with advertising is that users weren't wholly aware they were feeding Google private information upon the which to base suggestions. They were out of sight and out of mind.
Users will know they're talking to a corporation and feeding it information in the case of LLMs, and they're likely to give it a loss less information voluntarily than tracking was taking (and will continue to take).
There are people on this forum using ChatGPT as a therapist[1]. If someone technical who's aware of the risks is fine with it, what makes you think nontechnical users who are already fine with social media would think twice about doing that? Even if they were aware of it, they just wouldn't care. Same as today.
LLMs will become an even bigger part of our everyday lives than social media is today. It would be naive to think adtech won't monetize that in the most insidious ways imaginable. Advertising, uh... finds a way.
> Interestingly enough, it looks like everything except cloud grew at a rate less than inflation.
I mean, that's to be expected. Google did this sweeping cost cutting measure with the layoffs they did, rather than the usual “we don't see a future in this product and we're discontinuing it” that they are more famous for. They didn't even seem to try to target a specific performance bar—I think of this as trying to knock out walls which have lower measures of structural stresses in your house, you don't have the architectural plan so you just sledgehammer some walls that look like they're not holding much up.
The problem with these broad cost cutting measures, “everyone is losing 5%-10% of head count” etc. is that even if you do a really good job targeting, 80% of the people you cut were doing something (just, if you are well-targeted, not enough on average to justify their salary) and 20% of those were in fact “load bearing” in some sense (they actually were doing enough to justify their salary, often “and then some”)... your metric just did not apply very well to them. The rest of the building needs to carry the load that you just shed, average performance takes a staggering hit.
The bet is that the cut costs will save more than the performance drops, although they won't immediately due to expensive severances etc. ... Those numbers were carefully timed to be paid out in Q2 so expect those numbers to be worse and then if Pichai’s bet pays off they'll start recouping it in the second half of 2023, or else he'll feel the same pressures in late 2023 that he felt in late 2022, announce another round of layoffs... Things aren't that bad yet but I worry for my friends at Alphabet.
Not sure if this is due to Google "being unhealthy" or overall economy contracting. If the drop / stagnation is due to economy contracting these results are still very good.
Of which Google Cloud uses infrastructure funded by search, youtube, and ads. The Cloud costs would grow drastically if there were not Search/Ads business
Normally, when a company gets 80% of their revenue from one line of business, the market does not see them as "diversified". Are you saying that you think everyone on HN thinks they get a larger precentage of their revenue from ads, or that the 80/20 split in their revenue does not accurately represent their diversification?
Pixel never felt competitive. The camera is good but unless you live only in Google land for everything, it is hard to see it becoming a profitable product.
No, "99% of Android users" don't live in Google land for "everything". I am not talking about degoogled users here. But a vast majority of android users use very few google apps(apps like maps, youtube and iOS) which would be used on iOS as well) and many don't even use google photos.
100% of which have Gmail accounts... which is required for Play Store access and payments. A significant portion are going to have Google One (for cloud backups, including photos...).
What are you talking about then? Pixel is a high-end android device, even if you try not to use google services.
It's even the best choice for de-googled users, since it has regular source drops for security updates and ability to upload custom signing keys for bootloader lock.
Pixel phones are pretty damn good. My last 3 phones have all been Pixels. And they have damn good cameras/image AI, often coming in #1 for image quality (yes, above the iPhone). I use my phone for taking photographs a LOT, to the point that I barely even get out my mirrorless anymore, so photo quality is hugely important to me. And Google Photos is best in class as well.
Cloud turning a profit is good for Google, but the rest of the picture is not great. Stock buybacks are great for shareholders, but terrible for the employees and long term prospects for the company. Also, WTF is going on with their headcount? Up another 20k employees over the last year including those laid off?
The future for Google almost certainly includes a lot more layoffs in order to keep their EPS up.
> As of March 31, 2023, the number of employees includes almost all of the employees affected by the reduction of our
workforce. We expect most of those affected will no longer be reflected in our headcount by the end of the second quarter
of 2023, subject to local law and consultation requirements.
The layoff isn't counted yet. But I agree, if ads isn't printing as much money, Google layoffs are going to continue.
Stock buybacks are fantastic for employees as part of compensation is in stock.
But even if compensation were just in cash, buybacks are irrelevant for employees and have nothing to do with long term prospects.
Profit is always going to be returned to shareholders via dividends or buybacks (they're basically the same thing) or corporations wouldn't even exist in the first place. And profits being returned to shareholders are the sign of a healthy, profitable, sustainable corporation.
> Profit is always going to be returned to shareholders via dividends or buybacks (they're basically the same thing) or corporations wouldn't even exist in the first place.
Dividends and buybacks are both neutral in the short term for shareholders. Buybacks provide deferred gains if any only if the business grows to justify the buyback.
If you buy back 10% of shares, you have also paid 10% of the market cap of the company out in cash, which is net neutral for share NAV in the present. Ignoring sentiment based factors.
BBBY bought back 50% of shares over the last 10y and what did that amount to for shareholders in the end?
Similarly with dividends, you’re paying out a portion of NAV in a distribution, net neutral. Though if your business can reasonably expect to cash flow steadily over time, of course your total wealth will grow as the business accrues earnings.
Dividends are a return to shareholders in the present, buybacks are a deferred return which may never materialize as tangible value for the stockholder
This doesn't really make sense unless you're making weird assumptions around liquidity/investment that probably don't add up in reality.
Most people who invest in a stock will reinvest dividends, and so a 2% dividend ends up with you holding 2% more of the stock at the same value. A buyback that results in a 2% price increase results in you holding the same # of shares at 2% more value, with the overall market cap the same.
As long as you assume the market is fairly efficient and liquid, you can sell your shares, or not, in either case. If instead you choose not to reinvest your dividends, you can also sell off excess value after a buyback (e.g., say "I will hold no more than $1000 and when the value increases beyond that I will sell excess shares to reduce my value to that number", or sell buyback/market cap% of your holdings, or whatever).
Ultimately the difference is taxation, where buybacks win out (cap gains, not income).
> BBBY bought back 50% of shares over the last 10y and what did that amount to for shareholders in the end?
Well, for the shareholders of the 50% that was bought back, probably pretty well I'd assume.
Why would you reinvest dividends blindly rather than investing in whatever is the best opportunity at the time? Highly doubtful that most are reinvesting, as most money is run through managers who will target a balanced portfolio. I certainly don’t blindly DRIP.
Your understanding of buybacks is wrong. You can’t “sell off” after the buyback as a buyback is mechanically neutral to share price. Cash holdings of the company go down such that NAV per share is the same after the buyback. It may go up due to sentiment or technical reasons, but not for fundamental reasons.
A company buying back their own shares must be judged the same as an investor buying the shares, if a company has a 1% earnings yield and no earnings growth, then a buyback is effectively the same as locking in a 1% annual return on that cash.
If the company shrinks, as it did with BBBY, then the buybacks were dilutive. Shareholders would have more per share today if BBBY had sat on that cash rather than buying back.
The math is simple, straightforward, and not really subject to debate… I’m describing the mechanics behind it. The realized value of a buyback can only be known with hindsight… you get nothing today. It’s a bet on the future of the company/earnings just as it is when an investor purchases shares.
Final note. You will pay capital gains tax on any future stock sales or dividends, so accretive buybacks can only be said to be tax deferred. In the end when you realize the investment you pay tax on that amount, which may or may not be higher tomorrow than it is today.
> You can’t “sell off” after the buyback as a buyback is mechanically neutral to share price. Cash holdings of the company go down such that NAV per share is the same after the buyback. It may go up due to sentiment or technical reasons, but not for fundamental reasons.
You're right, but you're also wrong, you can't sell off after a buyback because the buyback is the action. You can, however, sell off after a buyback is announced, and in that case the value more or less does go up for fundamental reasons, not in the company, but in the market for the company's shares, since you know there's an increased demand. The idea I was getting at was that you'd target owning the same percent of the company before and after the buyback, which you can calculate at least as of the announcement. Obviously since share prices fluxuate over time, you can't know it in general though.
> If the company shrinks, as it did with BBBY, then the buybacks were dilutive.
This is equally true with dividends though. If a company bankrupts itself by paying too many dividends, that's also equally bad for shareholders in the long term.
Like fundamentally, there is zero difference between the following two situations:
1. A company announces and implements a 1% dividend
2. A company announces a 1% buyback, and every shareholder sells 1% of their holdings to the company.
In both cases, the exact same transaction has taken place. Everyone owns the same percentage of the company before and after, and everyone has the same increase or decrease in cash holdings.
Some things that stood out to me, changing depreciation rules to “magically” generate $770M in revenue. Traffic acquisition costs down for the quarter (I think this is the first time in like 10 years it has gone down). And a stock buyback which does the “let’s pretend our stock is going up” trick. (IBM has been a master of this for years).
None of it looked very hopeful for the future of Alphabet. A friend of mine who was in the “sudden layoff of entire projects” wave is starting to feel better about having gotten out with a severance package. I told them (as a survivor of a couple of layoffs back in the dot.com days) that there are pluses and minuses to being picked or being passed over. But everyone gets reminded to polish up their resume and start looking at the alternatives. If you still work there, keep an eye on the people you know are the ones who “get things done” as they will often be the first to leave as it is easier for them. Folks who have moved from cancelled project to cancelled project will find it harder as interviewers will be unconsciously biased against applicants who have never worked on a successful project/product.
Take heart though, when “gorilla/monster/dominant” technology companies die, their former employees fertilize the field of new ideas and, at least as I’ve observered over the last 40 years, new greatness emerges.
> Folks who have moved from cancelled project to cancelled project will find it harder as interviewers will be unconsciously biased against applicants who have never worked on a successful project/product.
Interviewers don't know whether your projects were successful or not (and often don't care, I don't remember ever being asked this type of questions, SWE interviewing has always been mainly technical for me).
Yes? I'm not sure how that's even a question. Passing on someone that seems like a good hire because they worked on a technically impressive thing which had some major non-technical problems would be really stupid. Both of those are things which would make me more interested in bringing them in for an interview, not less.
At least in the SF Bay Area, I'd be careful with this assumption: "Interviewers don't know whether your projects were successful or not ..."
The number of degrees of freedom between any two people is remarkably small. As someone who has interviewed and hired perhaps two or three hundred people over my career, it was rare that as an interviewer I didn't know more about the interviewer than their resume stated. Later in my career, the depth of information in "ATS" (Applicant Tracking Systems) applications at companies has only gotten deeper. Social media posts, comments on HN :-), peer analysis from others hired from the same company, Etc.
What is more, from Google's perspective, a lot of their hiring teams who used these systems to screen candidates were contractors and have often been laid off when Google needed to make better numbers. They didn't just "forget" everything they knew, a number of them with whom I worked, contacted me post Google employment after setting up their own business as recruiters.
Not saying its good or bad, just that it is important that a lot of information exists that "follows you" around. The longer you work, the more senior you become, the more it fills with a ratio of "haters/meh/supporters" info.
The thing that always annoyed me and I had to ASK recruiters to send me candidates that matched but their "whisper network" suggested they were problems/losers. Sometimes just getting past that screen is really tough for someone.
I think I only ever interviewed and worked in big tech companies that recruits candidates at global scale. When interviewing a candidate, we try to avoid bias and pick objective signals. Whether their past projects got canceled is the type of things we actively don't want to know about. But now I suppose that in companies with smaller pools of local candidates, this type of information can make a difference.
That is great. Does your company ever use third party recruiters (aka "head hunters")? If so, how do you structure your recruiting contract with them so that you avoid bias and use objective signals? I'm wondering what language one could put in such a contract. I'm imagining something like this:
"Recruiter will supply all sources of information consulted prior to offering candidate for consideration, if it is discovered that undisclosed sources were used, recruiter agrees to forfeit their fee."
I don't think we do. The modus operandi is to cast a wide net, interview any potential candidate that have at least some chance to pass the technical interviews (based on resume or referral, recruiters don't dig very deep). Pre-screener is 1-2 coding interviews, then if ok, on-site interviews. I believe lots of big tech companies, including FAANGs, proceed this way.
Fair enough. My experience is that contract recruiters will not even pass pre-screen candidates that they "hear negative scuttlebutt about". I understand it, they want to send candidates with what they think are the most likely to be hired, and my experience is that the recruiters understanding of "likely" may unconsciously bias them.
Employed on site recruiters you can have a good conversation with and say "Even if you hear they are not good, if they check the boxes on where we're looking I would like to review." Which, given they are evaluated by candidates delivered rather than candidates hired, works out.
Public companies can change their depreciation schedules at any time and accountants use that fact to change their "losses" in a way that is most beneficial to the company. Too much profit so have to pay taxes? Depreciate things faster. Not enough profit to appease the investors? Depreciate things more slowly.
> And a stock buyback which does the “let’s pretend our stock is going up” trick. (IBM has been a master of this for years).
Not sure what trick you're referring to. Buybacks are the new dividends; they accomplish the same thing but in a more tax-efficient manner for investors.
Buybacks are increasingly viewed as a better way to return money to shareholders, for companies, not individual shareholders. They prop up the stock obviously, but also allow greater flexibility for the company in removing what becomes an expected obligation (dividend payment). In exchange, you can have a discretionary buyback program that can fluctuate in amount over time, and is viewed as less of a bell weather for the company's health.
What is good about buybacks for investors is that you can choose how to time your sales, which can result in tax benefits. Dividends you pay tax on a schedule that might be less suitable to whatever financial massaging investors might want to engage in.
Dividends, in addition to creating an expectation, are also a ratchet because an ever-increasing streak of dividends is tracked as a metric to gauge the health of a company.[1] If a company wants to return one-time excess money to investors, buybacks are the only way.
It’s not new, buybacks have been increasing for decades.
A bonus 1% tax on buybacks was recently added by the Inflation Reduction Act, and Biden has called for that to be increased to 4%. If the tax is high enough, more companies will go back to paying dividends.
They were legalized in 1982, so no, definitely not new. Simply put, it took norms and customs awhile to develop around using them, plus the Net Investment Tax came into effect making the tax savings more substantial.
Sundar Pichai becomes CEO on October 24th, 2015, GOOG stock price is ~$36.87
On Apr 25, 2023 GOOG stock price is ~$103.85.
I don't understand this narrative against Pichai. This is objectively a massive success in any reasonable metric. I can think of one glaring reason why there's this crusade against him.
You're on a rocket ship that goes into space. It has already achieved the speed and is on the correct trajectory.
Some of those on Earth started to assume the trajectory had to be corrected a year or two ago, but most people still feel like the ship is on track.
In other words, Sundar is not a war CEO; he is there to ensure things are "on track" for the foreseeable future, while many people expect him to be a trailblazer who comes up with new innovative products (and not just tweaks to Ads UI).
The consensus seems to be that their stock has gone up due to laying off thousands of people, thus increasing their "efficiency". It's hard to tell how much it would be worth if ChatGPT wasn't a thing, but my guess is that it would be doing at least a bit better. To put it into words, post-2022 Google is a mildly handicapped version of itself.
ChatGPT is talked about a lot but who is actually replacing search with it?
Also no one has poured more money into AI hardware and software than Google, it's pretty naive to think OpenAI/Microsoft has a huge lead by releasing a nice product a year or two earlier.
So hard to watch, Google failing with ~70B in revenue in a SINGLE QUARTER, with 30% of margin. But...enough is enough, we had to give a signal and teach them a lesson.
Accusing Google of missing out on LLMs is shortsighted, in my opinion. They were the ones who invented the entire LLM infrastructure, and they publicly released their own chat LLM just a few months after OpenAI. It's actually quite impressive to me that a company of this ridiculous size is able to pivot and execute so quickly when needed.
And let's be realistic. Had Google been the first to introduce a publicly accessible chat LLM, all the regulators that were already concerned about Google being too powerful would have intensified their calls for antitrust action against Google.
Also recall that Google was not the first to ship a modern smartphone OS and it took them years to achieve a similar quality to iOS, but now they dominate the worldwide smartphone OS market.
OpenAI is ahead at the moment, nobody's disputing that. But if anyone is able to challenge OpenAI's supremacy in that space, it's Google.
And if LLMs will indeed be the revolution that some make them out to be, and Google is able to capture 70+% market share within a few years as they were able with mobile OSes, that's not a bad place to be in.
github was 5 years ago linkedin was 7. Times have changed, the techno skeptics are in control. Microsoft didn't acquire openAI so didn't face regulatory hurdles.
I am not sure why people defend Google results so much.
When they IPO in 2004, Google was expecting to dominate the world. First trillion dollars company, 10x the size of Apple, and Microsoft being acquired as a fun side project for them. They are so far behind this and the future does look dark.
I remember the ipo and also not buying because google only has search and that seemed to be an issue for me. I remember the ipo being botched. Also I didn’t buy apple thinking while the iPod was nice one product won’t bring a company back from near bankruptcy. Both companies are over a trillion dollars, have significant cash and if you bought and held you would be doing quite well. This was also during the most decade of Microsoft where people were predicting the down fall of microsoft too. So it’s hard to really gauge what a company with so much money and low debt can pull off and continue to grow.
Anyone can post a course/youtubelink/article on how to read these earnings sheet? I am not a business person but would love to learn it from people who actually understand it.
Ad revenue seems flat, it's likely paying interest for the overgrowth during the pandemic period. At the moment, Google looked like afraid of the unforeseen level of recession so it put all the tricks to pull all the short-term revenue stream. Ironically, it was completely reverse; combining this to overflowing money in the market led it to the crazy level of growth (66% YoY? are you serious?). The real question would be whether Google can match its growth to inflation rates after this adjustment.
> Reflecting DeepMind’s increasing collaboration with Google Services, Google Cloud, and Other Bets ...
Will be interesting to see where the focus of the "significantly accelerated AI strategy" will be. AI for adtech customers or AI for Cloud customers?
The adtech business model seems stagnant but its not obvious (to me) what AI could do to revive its fortunes.
The cloud business model seems to be growing and selling AI services (IBM Watson style) an apparently natural fit but does this mean I could use gcp to run a LLM based search service? :-)
> The adtech business model seems stagnant but its not obvious (to me) what AI could do to revive its fortunes.
This is really a "shitty-futurism" situation for me, but it would be quite possible for ChatGPT-style assistants to do product placements in their conversations.
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[ 3.2 ms ] story [ 232 ms ] threadGoogle advertising in 2023 54,548
If you buy a truck you expect to use for 10 years for $50k, the company's cash goes down by $50k but its capital assets go up by $50k to match that. This purchase has no impact on the company's net income, because the cost and the value of the asset are the same. Every year the value of the truck is considered to be $5k less, so its assets go down by that amount. To make the books balance out, there's a $5k depreciation expense for that year.
This is totally standard accounting, every company does it with any kind of capital goods. See the depreciation line item in the cash flow statement.
This is them saying that a server's expected lifetime is now 6 years rather than 4 years, so the amount of depreciation "expense" per quarter is lower.
Interestingly enough, it looks like everything except cloud grew at a rate less than inflation.
Ad revenue is falling. What implications does this have for internet companies reliant on the assumption advertising revenue will be going up forever?
The market is reacting to Cloud turning a profit for the first time, and faster than expected.
Youtube was a large contributor to growth in 2021-2022, and that engine appears to have slowed. (Not just the "Youtube ads" line that is separated out.)
Most likely the market is reacting to these results not being any worse. Cloud gains were already priced into the stock, in my opinion.
So:
- ad revenue is down (that's 80-90% of all of their revenue)
- all their expenses are way up (cost of revenue 1B up, R&D expenses 2.3 B up, sales and marketing costs ~0.7 B up)
- "other bets" losses increased are 400 million higher YoY
- unallocated corporate losses are 3B higher YoY
But google cloud (which includes both GCP and Google Workspace) is 191 million in profit. Must be nice, I guess.
That would make Cloud by itself one of the 50 biggest companies in the world in terms of profits...
Companies are valued at profits for 10+ years. So Cloud continuing its promising growth trajectory is a very good thing for investors.
Obviously growth rates are unlikely to stay as high as they are for 5+ years - but the outlook for Cloud & Google - is still very promising.
If. Would. etc.
It could also not grow, and slip back to losing billions.
> Companies are valued at profits for 10+ years.
Wat?
It's been growing at similar rates for 13 years - rate of growth slowly decreasing.
It's way more likely to continue at it's rough trajectory than to have a sudden massive reversal.
But, sure, anything is possible. Google could also get obliterated by an alien civilization. Not gonna bet on that scenario, though.
$2.5 billion of that is charges related to the layoffs.
> - all their expenses are way up (cost of revenue 1B up, R&D expenses 2.3 B up, sales and marketing costs ~0.7 B up)
Likewise half of this (i.e. you're double counting). See the table on page 3.
> - ad revenue is down (that's 80-90% of all of their revenue)
78% is not 80-90%. It's impressive that you managed to quote a ridiculously large range, and still get it wrong, in a discussiong about the earnings report.
The ad revenue from Google properties, not from the display ad network, is up.
I couldn't care less to calculate it this time. It fluctuates around the same number YoY
> The ad revenue from Google properties, not from the display ad network, is up.
And that somehow makes it less of an ad revenue? Or different? Or something?
Uh-huh. It was 77% in Q4, 79% in Q3, 80% in Q2. It has not been 90% for a decade.
> And that somehow makes it less of an ad revenue? Or different? Or something?
So you weren't making any kind of point when saying that ad revenue was down? If that's the case, I'm happy to also pretend that I'm also a member of the non sequitur club.
Who has that assumption? At some point ads just reach steady state as a percentage of an economic sector, and therefore their growth simply mirrors GDP growth. Yes it will grow forever as the economy grows forever, but no faster.
I don't think anybody thinks advertising is going to eat the whole economy, so I don't think there are any implications in that not happening.
Economic growth might not stop in next 10 or 100 years, but natural limits exist and eventually growth will stop.
You can get 5% GDP growth without any actual growth by just devaluing dollars by 5% more than you measure inflation.
Theoretically, there's nothing stopping people from paying more money for monkey JPEGs indefinitely.
Physically, there's limits to how efficient things can get.
To the contrary, if you figure out a way to manufacture the same widget X but using 25% less energy, that's economic growth.
Long-term economic growth is primarily a phenomenon of increasing human efficiency which is enabled mainly via improved education which leads to ongoing technological progress.
Sure we need energy to heat our homes and grow our food and power our transportation and build our phones and so forth, but those needs are not growing exponentially whatsoever. Homes in the developed world, for example, are becoming more energy efficient rather than less.
I don't pay so much attention to investment news, but the last time I heard of huge buybacks was when Intel decided to drastically cut back its research and development. It seemed to not be good for Intel. Or maybe it was good for the ones making those decisions, if they are getting bailed out by billions of government money, I don't know. Maybe I have cause and effect mixed? It could be possible.
Search for "$big_company stock buyback" and you'll find just about any of them there
Who needs messy user tracking when users will voluntarily feed you their deepest secrets? Why fight ad blockers, and waste resources on ad placement research, click-through rate optimization and all that noise, when you can just slip subtle ads into conversations with humans?
Ad revenue isn't going anywhere but up. This is just a minor blip in the grand scheme of things.
In your classic scenario, you navigate the SERP and hit various websites, that's a lot of surface area for ads. In this supposed new situation, you don't browse and scan, you just get the answer. The end. It's a way shorter interaction. I'd imagine you see 1 ad. Instead of dozens now.
Also, if you're never hitting any individual websites anymore, surely they'll become hostile, protect content, put up walls, or push for legislation.
This is not a done deal.
You're thinking of this in the classical ad placement sense. If there's an established sense of trust with an AI, advertising can become much more subtle and even more manipulative than it currently is. Ad campaigns can last years, and span many conversations, where brands can be woven into the subconscious much more deeply than a traditional ad could do.
They could then be surfaced whenever the user is most vulnerable to be swayed into making a purchase.
> In your classic scenario, you navigate the SERP and hit various websites, that's a lot of surface area for ads.
Most of which never get seen or clicked on. It's a lot of wasted real estate. Ad conversion can become much more efficient if the system deeply knows the person they're interacting with.
You can ask the same question about social media or any Big Tech product today. The answer is somewhere between convenience, a better product, and inertia ("everyone else uses it", etc.).
If Google comes up with an AI that integrates with Gmail, Docs, Drive, Search, and all their other products, and leverages the amount of information they already know about you, then they can provide a much better UX than any competitor could.
I don't doubt there will be OSS competitors that don't do any mind manipulation to get users to purchase something, but most users won't use them. Just like we have sane alternatives to all Big Tech products today, and they're mostly only used by a niche group of technical users.
Users will know they're talking to a corporation and feeding it information in the case of LLMs, and they're likely to give it a loss less information voluntarily than tracking was taking (and will continue to take).
LLMs will become an even bigger part of our everyday lives than social media is today. It would be naive to think adtech won't monetize that in the most insidious ways imaginable. Advertising, uh... finds a way.
[1]: https://news.ycombinator.com/item?id=35302305
I mean, that's to be expected. Google did this sweeping cost cutting measure with the layoffs they did, rather than the usual “we don't see a future in this product and we're discontinuing it” that they are more famous for. They didn't even seem to try to target a specific performance bar—I think of this as trying to knock out walls which have lower measures of structural stresses in your house, you don't have the architectural plan so you just sledgehammer some walls that look like they're not holding much up.
The problem with these broad cost cutting measures, “everyone is losing 5%-10% of head count” etc. is that even if you do a really good job targeting, 80% of the people you cut were doing something (just, if you are well-targeted, not enough on average to justify their salary) and 20% of those were in fact “load bearing” in some sense (they actually were doing enough to justify their salary, often “and then some”)... your metric just did not apply very well to them. The rest of the building needs to carry the load that you just shed, average performance takes a staggering hit.
The bet is that the cut costs will save more than the performance drops, although they won't immediately due to expensive severances etc. ... Those numbers were carefully timed to be paid out in Q2 so expect those numbers to be worse and then if Pichai’s bet pays off they'll start recouping it in the second half of 2023, or else he'll feel the same pressures in late 2023 that he felt in late 2022, announce another round of layoffs... Things aren't that bad yet but I worry for my friends at Alphabet.
What about their hardware business?
It was never taken seriously (source: worked there)
Pixel sells as many phones per year as iPhone sells on the first day.
As with anything that is not ads, it's losing money.
Yikes. that's a steep drop. Youtube revenue is almost flat too.
Pretty worrying as a shareholder :-/
Google Search & other 40B YouTube ads 6.7B Google Network 7.5B Google other 7.4B Google Cloud 7.5B Other Bets 0.288B
You mean like, 99% of Android users?
It's the fringe that use de-googled-yet-still-android phones - not the norm.
If you're into Android, Pixel is a great offering.
What are you talking about then? Pixel is a high-end android device, even if you try not to use google services.
The future for Google almost certainly includes a lot more layoffs in order to keep their EPS up.
The layoff isn't counted yet. But I agree, if ads isn't printing as much money, Google layoffs are going to continue.
For Google historically the buybacks have exceeded SBC, but looks like in the recent quarter that was not the case.
Meta was famous for its buybacks being fully canceled out by SBC, though recently buybacks have started to exceed employee comp.
Which is why FCF is a poor metric to use for a company that has a large portion of SBC. Completely hides the actual economics of the business.
https://www.macrotrends.net/stocks/charts/GOOG/alphabet/shar...
https://www.macrotrends.net/stocks/charts/META/meta-platform...
But even if compensation were just in cash, buybacks are irrelevant for employees and have nothing to do with long term prospects.
Profit is always going to be returned to shareholders via dividends or buybacks (they're basically the same thing) or corporations wouldn't even exist in the first place. And profits being returned to shareholders are the sign of a healthy, profitable, sustainable corporation.
[Citation needed]
1) Corporations exist for a purpose that they have to outline in their charter which is never "because I want to make a lot of money" 2) https://en.wikipedia.org/wiki/Nonprofit_corporation
If you buy back 10% of shares, you have also paid 10% of the market cap of the company out in cash, which is net neutral for share NAV in the present. Ignoring sentiment based factors.
BBBY bought back 50% of shares over the last 10y and what did that amount to for shareholders in the end?
https://www.macrotrends.net/stocks/charts/BBBY/bed-bath-beyo...
Similarly with dividends, you’re paying out a portion of NAV in a distribution, net neutral. Though if your business can reasonably expect to cash flow steadily over time, of course your total wealth will grow as the business accrues earnings.
Dividends are a return to shareholders in the present, buybacks are a deferred return which may never materialize as tangible value for the stockholder
Most people who invest in a stock will reinvest dividends, and so a 2% dividend ends up with you holding 2% more of the stock at the same value. A buyback that results in a 2% price increase results in you holding the same # of shares at 2% more value, with the overall market cap the same.
As long as you assume the market is fairly efficient and liquid, you can sell your shares, or not, in either case. If instead you choose not to reinvest your dividends, you can also sell off excess value after a buyback (e.g., say "I will hold no more than $1000 and when the value increases beyond that I will sell excess shares to reduce my value to that number", or sell buyback/market cap% of your holdings, or whatever).
Ultimately the difference is taxation, where buybacks win out (cap gains, not income).
> BBBY bought back 50% of shares over the last 10y and what did that amount to for shareholders in the end?
Well, for the shareholders of the 50% that was bought back, probably pretty well I'd assume.
Your understanding of buybacks is wrong. You can’t “sell off” after the buyback as a buyback is mechanically neutral to share price. Cash holdings of the company go down such that NAV per share is the same after the buyback. It may go up due to sentiment or technical reasons, but not for fundamental reasons.
A company buying back their own shares must be judged the same as an investor buying the shares, if a company has a 1% earnings yield and no earnings growth, then a buyback is effectively the same as locking in a 1% annual return on that cash.
If the company shrinks, as it did with BBBY, then the buybacks were dilutive. Shareholders would have more per share today if BBBY had sat on that cash rather than buying back.
The math is simple, straightforward, and not really subject to debate… I’m describing the mechanics behind it. The realized value of a buyback can only be known with hindsight… you get nothing today. It’s a bet on the future of the company/earnings just as it is when an investor purchases shares.
Final note. You will pay capital gains tax on any future stock sales or dividends, so accretive buybacks can only be said to be tax deferred. In the end when you realize the investment you pay tax on that amount, which may or may not be higher tomorrow than it is today.
You're right, but you're also wrong, you can't sell off after a buyback because the buyback is the action. You can, however, sell off after a buyback is announced, and in that case the value more or less does go up for fundamental reasons, not in the company, but in the market for the company's shares, since you know there's an increased demand. The idea I was getting at was that you'd target owning the same percent of the company before and after the buyback, which you can calculate at least as of the announcement. Obviously since share prices fluxuate over time, you can't know it in general though.
> If the company shrinks, as it did with BBBY, then the buybacks were dilutive.
This is equally true with dividends though. If a company bankrupts itself by paying too many dividends, that's also equally bad for shareholders in the long term.
Like fundamentally, there is zero difference between the following two situations:
1. A company announces and implements a 1% dividend
2. A company announces a 1% buyback, and every shareholder sells 1% of their holdings to the company.
In both cases, the exact same transaction has taken place. Everyone owns the same percentage of the company before and after, and everyone has the same increase or decrease in cash holdings.
Some things that stood out to me, changing depreciation rules to “magically” generate $770M in revenue. Traffic acquisition costs down for the quarter (I think this is the first time in like 10 years it has gone down). And a stock buyback which does the “let’s pretend our stock is going up” trick. (IBM has been a master of this for years).
None of it looked very hopeful for the future of Alphabet. A friend of mine who was in the “sudden layoff of entire projects” wave is starting to feel better about having gotten out with a severance package. I told them (as a survivor of a couple of layoffs back in the dot.com days) that there are pluses and minuses to being picked or being passed over. But everyone gets reminded to polish up their resume and start looking at the alternatives. If you still work there, keep an eye on the people you know are the ones who “get things done” as they will often be the first to leave as it is easier for them. Folks who have moved from cancelled project to cancelled project will find it harder as interviewers will be unconsciously biased against applicants who have never worked on a successful project/product.
Take heart though, when “gorilla/monster/dominant” technology companies die, their former employees fertilize the field of new ideas and, at least as I’ve observered over the last 40 years, new greatness emerges.
Interviewers don't know whether your projects were successful or not (and often don't care, I don't remember ever being asked this type of questions, SWE interviewing has always been mainly technical for me).
The number of degrees of freedom between any two people is remarkably small. As someone who has interviewed and hired perhaps two or three hundred people over my career, it was rare that as an interviewer I didn't know more about the interviewer than their resume stated. Later in my career, the depth of information in "ATS" (Applicant Tracking Systems) applications at companies has only gotten deeper. Social media posts, comments on HN :-), peer analysis from others hired from the same company, Etc.
What is more, from Google's perspective, a lot of their hiring teams who used these systems to screen candidates were contractors and have often been laid off when Google needed to make better numbers. They didn't just "forget" everything they knew, a number of them with whom I worked, contacted me post Google employment after setting up their own business as recruiters.
Not saying its good or bad, just that it is important that a lot of information exists that "follows you" around. The longer you work, the more senior you become, the more it fills with a ratio of "haters/meh/supporters" info.
The thing that always annoyed me and I had to ASK recruiters to send me candidates that matched but their "whisper network" suggested they were problems/losers. Sometimes just getting past that screen is really tough for someone.
EDIT: sometimes the wording is tricky.
"Recruiter will supply all sources of information consulted prior to offering candidate for consideration, if it is discovered that undisclosed sources were used, recruiter agrees to forfeit their fee."
Employed on site recruiters you can have a good conversation with and say "Even if you hear they are not good, if they check the boxes on where we're looking I would like to review." Which, given they are evaluated by candidates delivered rather than candidates hired, works out.
Changing depreciation schedule has no impact on revenue. It only affects costs and therefore profit.
Public companies can change their depreciation schedules at any time and accountants use that fact to change their "losses" in a way that is most beneficial to the company. Too much profit so have to pay taxes? Depreciate things faster. Not enough profit to appease the investors? Depreciate things more slowly.
Not sure what trick you're referring to. Buybacks are the new dividends; they accomplish the same thing but in a more tax-efficient manner for investors.
What is good about buybacks for investors is that you can choose how to time your sales, which can result in tax benefits. Dividends you pay tax on a schedule that might be less suitable to whatever financial massaging investors might want to engage in.
[1] https://en.wikipedia.org/wiki/S%26P_500_Dividend_Aristocrats
A bonus 1% tax on buybacks was recently added by the Inflation Reduction Act, and Biden has called for that to be increased to 4%. If the tax is high enough, more companies will go back to paying dividends.
On Apr 25, 2023 GOOG stock price is ~$103.85.
I don't understand this narrative against Pichai. This is objectively a massive success in any reasonable metric. I can think of one glaring reason why there's this crusade against him.
In other words, Sundar is not a war CEO; he is there to ensure things are "on track" for the foreseeable future, while many people expect him to be a trailblazer who comes up with new innovative products (and not just tweaks to Ads UI).
edit: but the NASDAQ 100 pays dividends, so Google's stock price has underperformed over that period
Good test for the Efficient Markets Hypothesis: how does this make any sense?
Also no one has poured more money into AI hardware and software than Google, it's pretty naive to think OpenAI/Microsoft has a huge lead by releasing a nice product a year or two earlier.
revenue only grew 3%. while they had increased costs via massive hiring during the pandemic.
certainly, they need to cut back on other bets and personnel and salaries.
This is reckless.
Cutting the number of employees is fine, but reducing salaries leads to reduced quality of the employees, which is a stupid move.
How is he still CEO? Not to even mention his insane salary.
And let's be realistic. Had Google been the first to introduce a publicly accessible chat LLM, all the regulators that were already concerned about Google being too powerful would have intensified their calls for antitrust action against Google.
Also recall that Google was not the first to ship a modern smartphone OS and it took them years to achieve a similar quality to iOS, but now they dominate the worldwide smartphone OS market.
Now just like in cloud they're gonna be playing catch up forever.
> but now they dominate the worldwide smartphone OS market
And now they are slowly losing market share to Apple, another major Sundar mistake.
And if LLMs will indeed be the revolution that some make them out to be, and Google is able to capture 70+% market share within a few years as they were able with mobile OSes, that's not a bad place to be in.
Google could have surely at least bought a gaming company instead trying to start a new one and then killing it a year or two later.
> revenue only grew 3%. while they had increased costs via massive hiring during the pandemic.
The operating margin is still 25% up from 20% in 2019Q4. So compared to pre-pandemic each employee brings in more money now (post-pandemic).
When they IPO in 2004, Google was expecting to dominate the world. First trillion dollars company, 10x the size of Apple, and Microsoft being acquired as a fun side project for them. They are so far behind this and the future does look dark.
It seems like there's a new edition that came out. [2]
[1] https://www.amazon.com/Financial-Statements-Step-Step-Unders...
[2] https://www.amazon.com/Financial-Statements-Step-Step-Unders...
Will be interesting to see where the focus of the "significantly accelerated AI strategy" will be. AI for adtech customers or AI for Cloud customers?
The adtech business model seems stagnant but its not obvious (to me) what AI could do to revive its fortunes.
The cloud business model seems to be growing and selling AI services (IBM Watson style) an apparently natural fit but does this mean I could use gcp to run a LLM based search service? :-)
This is really a "shitty-futurism" situation for me, but it would be quite possible for ChatGPT-style assistants to do product placements in their conversations.