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What are some tips on how to read Google's financial reports? Advertising business, cloud, and shareholder returns are the key points!

What are the tips on how to read Google's financial statements?
The advertising business, the cloud, and shareholder returns are the key points!
A hugely popular financial results explanation series.
This timeAlphabet (ticker: GOOGL), the parent company of GoogleIt is.
What has become the center of conversation in the 2023 marketGenerative AI related, starting with ChatGPTThat's right. It was a market where the spotlight was on stocks that seemed to have room for growth due to the expansion of generative AI, but pessimistic opinions were scattered about Google in the market.
because a lot of peopleSupported by ChatGPTBing, Microsoft's search engineBut rapidlyGoogle searchIt was anticipated that it would erode the market share of and threaten Google search, which is Google's core businessIt's from there. In light of heightened expectations for Microsoft as a generative AI-related brand, Google was in a relatively bearish position.
But is that really the case? You may be able to find the answer by looking closely at Google's financial reports and data. GoogleAfter the US market on January 30Financial results were announced on
Will the results exceed expectations this time around?
Now, I will explain the points to decipher financial results.
1. Advertising business as a source of revenue
When analyzing a company's financial results, it is necessary to focus on the business that generates the highest percentage of revenue
In the case of Google, ad revenue accounts for approximately 80% of the company's total revenue. In other words, the advertising business is Google's core business. When it comes to Google's advertising business, it's a good idea to focus on two points.
Point ① Growth in advertising revenue
There is a certain periodicity in the advertising business.When the world's economic outlook is poor, companies generally need to reduce operating costs and conduct business efficiently.At that time, advertising costs may be reduced and reviewed first, which will put pressure on the growth of the advertising industry as a whole.
Looking back, Google's ad revenue growth rate peaked in 2021 Q2 and then declined.In particular, after the second quarter of 2022, when the Fed entered an interest rate hike cycle and the economic outlook deteriorated, Google's ad growth rate plummeted,We have been in negative growth for the second consecutive quarter since 2022 Q4.
What are some tips on how to read Google's financial reports? Advertising business, cloud, and shareholder returns are the key points!
However, in the second quarter of 2023, ad revenue was more stable than expected, achieving growth of approximately 3.3% compared to the same period last year. According to the financial results report for the fourth quarter of 2023, advertising revenue grew for the third consecutive quarter, and achieved rapid growth of a whopping 11% compared to the same period last year. In future financial reports, it seems necessary to pay attention to whether the growth trend in advertising revenue can be maintained.
Perhaps expectations for Google's advertising revenue in the market up until now have been too high, so stock prices have fallen. In other words, it seems that this expectation was factored into Google's stock price, which has risen rapidly for 3 consecutive months since 2023/11. Google has a certain amount of short-term risk like this. Stock prices plummeted at the closing price the day after the financial results report was announced.
Point ② Pay attention to changes in Google's market share
Google's advertising business derives the majority of sales from Google search ads. It goes without saying that Google Search ad revenue is at the center of the company's development.
According to statistical data from Statcounter (a website that performs English web traffic analysis established in 1999), the market share of Bing under the umbrella of Microsoft incorporating ChatGPT certainly increased slightly during the period from January to December 2023. Meanwhile, although Google's market share has declined slightly, it still remains above 90% and maintains a monopoly position. Today, that differentiation and competitiveness may not be greatly affected. Nonetheless, we must keep a close eye on whether Google's market share remains stable in the future.
What are some tips on how to read Google's financial reports? Advertising business, cloud, and shareholder returns are the key points!
2. Growth driver Google Cloud
Advertising is Google's core business, and the cloud is Google's main growth driver.As of 2023 Q2, Google Cloud is only a small percentage of total revenueLess than 10% (9.29%)It only accounts forIt is one of the company's main growth engines. Let's also focus on two points regarding Google's cloud business.
Point ① Can Google Cloud maintain a high growth rate
Currently, Google Cloud is in 3rd place in the cloud computing service industry, and it is said that the market size is quite small compared to Amazon and Microsoft (from Synergy Research Group). The growth rate of the cloud is superior to the other two companies. However, due to the slowing growth of the overall cloud services market, Google Cloud's growth rate also slowed drastically. In the third quarter of 2023, there was a sudden drop of less than 23%. However, it recovered to around 25.7% in the fourth quarter of 2024.
What are some tips on how to read Google's financial reports? Advertising business, cloud, and shareholder returns are the key points!
In order to measure Google Cloud's sales growth rate expectations, we can focus on the item called revenue backlog (revenue backlog) disclosed in financial reports.
This mainly refers to the amount of Google Cloud customer orders that have not yet been executed, and can be thought of as Google Cloud's potential remaining profit (remaining anticipated revenue). By focusing on this leading indicator, it is possible to evaluate Google Cloud's sales growth rate expectations.
What are some tips on how to read Google's financial reports? Advertising business, cloud, and shareholder returns are the key points!
Google Cloud's revenue backlog reached approximately $74.1 billion in the fourth quarter of 2023, falling slightly from the first quarter to the second quarter, and then increasing significantly for the second consecutive quarter. This upward trend may indicate a positive sign for Google Cloud's growth prospects.
Point ② Pay attention to Google Cloud's profit margin
The cloud computing industry has a certain amountscale effectThere is. Simply put, the scale effect means there is a possibility that profits will expand when a certain scale is reached. For example, if more customers use products developed with the same R&D investment, profit margins are likely to increase. Google Cloud's sales growth rate far exceeds that of Amazon and Microsoft, but since the revenue scale is the smallest, profit margins are always at the lowest level.
What are some tips on how to read Google's financial reports? Advertising business, cloud, and shareholder returns are the key points!
For a long time, Google Cloud continued to incur losses, so it was a drag in terms of the overall profitability of the company. Losses are currently limited, and profit was recorded for the first time in the first quarter of 2023, when the expansion of the scale of earnings and cost reduction paid off. Google Cloud continued to make a positive contribution to the company's profitability from the second quarter to the fourth quarter of 2023. During the fiscal period of the fourth quarter of 2023, Google Cloud's operating margin reached 9.4%, approaching double-digit profitability.
In future quarterly financial results, it is necessary to observe whether Google Cloud will maintain rapid growth, scale effects will further expand, and operating profit margins will rise as a resultThat's right.If Google Cloud's profit margins continue to improve, there is a possibility that it will push Google's overall profitability to a higher levelIt's from there.
3. Shareholder returns through stock buybacks
Big tech such as Google has finished a growth phase of rapid expansion in revenue and profit scale and reigns supreme in its current position. For such companies, it is considered difficult to replicate the miracle of rapid growth in the early days of their founding. As a future outlook, there seems to be a high possibility that growth will be moderate from rapid growth and rapid expansion.
Well, when it comes to stock price trends, as long-term support materials① Performance Growth ② Shareholder Returns (Company Stock Repurchases)There are 2 points that can be mentioned. If business performance does not grow sufficiently, it is also conceivable to make up for it with shareholder returns. Shareholder returns are specifically share buybacks and dividend payments, and Google is carrying out large-scale stock buybacks.
Through stock buybacks, it is possible to reduce the number of issued shares, thereby increasing EPS (profit per share). In general, stock buybacks are positive for investors, and it can be interpreted that companies that are active in returning shareholders are also popular with investors, making it easier to buy, and therefore liquidity increases.
Finally, it can also lower a company's net worth and increase return on equity (ROE). All of these aspects have the potential to have a very positive impact on stock prices.
*Keep in mind that this is just a possibility, and if expectations for stock buyouts are too high, it may backfire in terms of stock prices.
How much was Google's stock buyback amount in the most recent quarter$15 billionIn terms of extent, it is second only to Apple among all big tech companies. Also, in recent years, ROE (return on equity) has remained mainly at a high level of around 20%. Let's continue to focus on the status of Google's share buybacks. If large-scale stock buybacks continue, there is a possibility that market participants will judge this as positive material.
What are some tips on how to read Google's financial reports? Advertising business, cloud, and shareholder returns are the key points!
[Summary]
Google's core business is advertising
Earnings have returned to growth in the most recent quarter, so pay attention to the sustainability of growth
Google search is the foundation of the advertising business
Whether it is possible to maintain a high level of market share
Google Cloud is an important growth driver
Top growth rate among big tech companies
Google Cloud's sales backlog is a leading indicator of future revenue growth
Google Cloud's operating profit margin is relatively low, so pay attention to that improvement
Return to shareholders
Pay attention to large-scale stock buybacks and their sustainability
What are some tips on how to read Google's financial reports? Advertising business, cloud, and shareholder returns are the key points!
[Supplement]
Alphabet, which is the parent company of Google, has Class A (ticker: GOOGL) and Class C (ticker: GOOG). What is the differenceThe presence or absence of voting rightsIt is, and Class C does not have voting rights. On the other hand, there is no particular advantage, soAs a general investor, no matter which one you buy, there won't be much of a problem.
※Stock price comparison
What are some tips on how to read Google's financial reports? Advertising business, cloud, and shareholder returns are the key points!
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only. Read more
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