Alphabet (Google) will grow further with Gemini and the cloud ❗️
Supported by the growth of search engines, YouTube, and Google Cloud, we announced our first cash dividend and share buybacks of up to $70 billion.
The statement emphasized strong performance and is focusing on AI research and global expansion.
Polat CIO emphasized the contribution of AI solutions and the strength of Google Cloud.
Let's take a closer look!
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◽️ Key points to decipher performance
◽️ In the case of the advertising business Google, which is the source of revenue, advertising revenue accounts for approximately 80% of the company's total revenue.
In other words, the advertising business has become Google's core business.
When it comes to Google's advertising business, it's a good idea to focus on two points.
・Points ①
Growth in advertising revenue There is a certain periodicity in the advertising business.
When the economic outlook for the world is poor, it is generally necessary for companies 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 Q2 2021 and then declined.
In particular, after 2022 Q2, when the Fed entered an interest rate hike cycle and the economic outlook deteriorated, Google's ad growth rate plummeted, and it has landed on negative growth for 2 consecutive quarters from 2022 Q4.
However, in Q2 2023, ad revenue was more stable than expected, achieving growth of approximately 3.3% compared to the same period last year.
According to the 2023/Q4 financial results report, advertising revenue grew for 3 consecutive quarters, 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.
・Points ②
Pay attention to changes in Google's market share Google's advertising business derives most of its sales from Google search ads.
It goes without saying that Google search advertising revenue is at the center of the company's development.
According to Statcounter's statistical data, it can be seen that the market share of Microsoft's Bing, which has teamed up with ChatGPT, increased slightly during the period from 2023/1 to 2024/3.
Meanwhile, although Google's market share has declined slightly, it remains above 90%, holds a monopoly position, and is likely not having a significant impact on its superiority or competitiveness.
It is necessary to continue to observe whether Google search's market share remains stable in the future.
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◽️ Google Cloud as a growth driver
As of Q2 2023, Google Cloud accounts for just under 10% (9.29%) of total revenue, yet it is one of the company's main growth engines.
Let's also focus on two points regarding Google's cloud business.
・Points 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 2024 Q4.
Google Cloud's revenue backlog reached approximately $74.1 billion in Q4 2023, falling slightly from Q1 to Q2, and then increasing significantly for the second consecutive quarter.
This upward trend may indicate a positive sign for Google Cloud's growth prospects.
・Points ②
The cloud computing industry, which focuses on Google Cloud's profit margins, has some scale effect.
Simply put, the scale effect means that 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 may 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.
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 2023/Q1 due to the expansion of profit scale and cost reduction.
Google Cloud continued to make a positive contribution to the company's profitability from Q2 to Q4 2023.
During the 2023/Q4 fiscal period, Google Cloud's operating margin reached 9.4%, approaching double-digit profitability.
In future quarterly results, it will be necessary to observe whether Google Cloud maintains rapid growth, further expands the scale effect, and increases operating margins as a result.
This is because if Google Cloud's profit margins continue to improve, there is a possibility that it will push Google's overall profitability to a higher level.
◽️ Shareholder returns through share buybacks
・First dividend implemented: Declared a cash dividend of 20 cents per share.
It is scheduled to be implemented every quarter from now on.
・Additional Stock Buyback Program: Approved a stock buyback program of up to $70 billion.
We plan to pay cash dividends every quarter in the future, and we also plan to continue our share repurchase program.
◽️ Key points to decipher the business
◽️ Google's core business is advertising
Earnings have returned to growth in the most recent quarter, and attention is being paid to the sustainability of growth
・Is Google search the foundation of the advertising business? Can we continue to maintain a high level of market share
・Google Cloud is an important growth driver Top growth rate among big tech Google Cloud's sales backlog is a leading indicator of future revenue growth Google Cloud's operating margin is relatively low, so we will also pay attention to that improvement
・Return to shareholders Pay attention to large-scale share buybacks and their sustainability
◽️ Detailed analysis
• Search engines: This once again shows Alphabet's dominant position in the online advertising market.
• YouTube: Shows that YouTube is an important entertainment platform for users around the world.
・Google Cloud: Shows Alphabet's competitiveness in the cloud computing market.
• Artificial intelligence: The CEO emphasized the company's R&D and infrastructure investments in artificial intelligence in a statement.
◽️ Executive statements
◽️ CEO Sander Pichai
・At the recent financial results briefing, he stated that he was satisfied with the development progress of Gemini AI.
・In particular, they emphasized the release of Gemini 1.5 Pro and breakthroughs in long-term context understanding.
・They also expressed confidence that costs associated with new search experiences, including generative answers, can be managed.
・There have been reports that Google is considering charging for searches using AI.
◽️ Key Developments
・Gemini 1.5 Pro Release The Gemini 1.5 Pro, which was released in February, has achieved significant performance improvements in various aspects.
In particular, breakthroughs were achieved in long-term context understanding in large-scale language models with the longest context windows.
・Gemini app progress The Gemini and Gemini Advanced Android and iOS apps are also progressing smoothly, and are being used by many developers and companies.
・Other model development In addition to Gemini, development of other useful models, such as the Gemma open model and the Imagine visual model, is also underway.
◽️ Assignments
Google has decided to temporarily disable the AI image generation function.
Gemini's image generation capability, which was launched in February, was intended to compete with OpenAI's ChatGPT and Microsoft's Copilot.
However, as Google itself acknowledged, Gemini was assessed as “off target.”
Future prospects There are still issues to be overcome, such as AI ethics and the competitive environment.
◽️ In the future
・Expansion of investment in AI products Capital investment is expected to increase further by the end of the year
・Advances in the Gemini AI model and increased infrastructure investment
・Start deploying AI overviews to major search pages
Disclaimer: Community is offered by Moomoo Technologies Inc. and is for educational purposes only.
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かぶざる OP : YouTube explanation is here
[First dividend] Alphabet's financial results are ridiculous!