Alphabet (Google parent company) today released its financial report for the first quarter of the 2024 fiscal year ending March 31: total revenue was US$80.539 billion, up 15% year on year, up 16% year on year without taking into account the impact of exchange rate changes; according to US GAAP, Alphabet's net profit for the first quarter was US$23.662 billion, up 57% year over year; and diluted earnings per share were US$1.89, up from US$1.17 in the same period last year.
After the financial report was released, Google CEO Sundar Pichai (Sundar Pichai), President, Chief Investment Officer and CFO Ruth Porat (Ruth Porat), and Chief Commercial Officer Philipp Schindler (Philipp Schindler) held a conference call with analysts to answer questions related to the business.
Here's a summary of the analysts' conference call responses:
Morgan Stanley Analyst Brian Nowak: My first question concerns changes in users' overall search behavior. Philip, you mentioned before that Google's user search trend continues to grow. If you focus on business monetization, is the current Google search business monetization trend also changing? As new users continue to join, business monetization trends may change accordingly.
My second question would be to Ruth. You mentioned earlier that it would further slow the growth rate of the Group's expenses. Can you give us some specific examples? For example, in your opinion, what other work processes can be further optimized within the company in 2024? Or what businesses can further reduce operating expenses?
Sundar Pichai: Regarding your first question. Overall, years of operating experience tell us that if the user ecosystem works well, business monetization will follow. So far, trends in our search business are performing very well. The introduction of generative artificial intelligence (generative AI) into the search business has indeed effectively broadened search types, so that we can provide users with more diverse search methods. Furthermore, the introduction of artificial intelligence allows us to answer various types of more complex questions.
As for the monetization trends you asked about, everything is still in its early stages, so we will put the user experience first. But we're very optimistic about future monetization trends in the search business.
Ruth Borat: Regarding your second question. In fact, Sundar and I both mentioned before that we will continue to make efforts to reduce the company's expense growth rate. This work is internally called “Durably Reengineer Cost Base” (Durably Reengineer Cost Base). In the previous briefing, we also mentioned that we are very aware of the environmental headwinds currently facing the company, such as currency depreciation, higher depreciation rates, and capital expenditure costs. From this perspective, the continuous optimization and redesign of the cost structure will continue.
In the previous conference call, we actually shared with you that our work always starts from the importance and priorities of business, products, and workflows, with the aim of improving organizational efficiency and optimizing the organizational structure. For example, Sundar previously mentioned combining services, devices, and platform ecosystems to integrate team resources. This not only helps us improve product quality and optimize user experience, but also helps us work faster and more efficiently. In addition, I have shared with you the optimization of our technical infrastructure before. Sundar also mentioned that we will use artificial intelligence technology to simplify internal operations and improve efficiency; for example, we are also working with suppliers and sellers to optimize the procurement process while optimizing the company's real estate business, etc. All of the above work is ongoing, and it is also part of the “continuous cost structure optimization” process.
Credit Suisse Analyst Stephen Ju: My question is to Philip. It's been two years since advertising on YouTube Shorts (YouTube vertical screen short video software), and every quarter, you'll share with us the profit changes in the YouTube Shorts advertising business. Starting from this point, I saw that YouTube has launched a series of advertising products and automation tools for advertisers to help them better market vertical advertising products. Could you please share with us the current changes in advertisers' purchasing behavior on YouTube advertising products? Also, based on your observations over the past two years, what structural factors influence the transformation of YouTube ads? How is the YouTube horizontal screen advertising business currently performing?
Philip Schindler: Overall, we think YouTube's performance is still very strong. In the US region in particular, YouTube Shorts's monetization rate has more than doubled this quarter compared to 12 months ago. We're very happy with YouTube Shorts's current performance. Think of it this way. Advertisers will only continue to invest with us if they get a positive return on investment (ROI), so if they don't perform well enough, advertisers won't choose to invest with us. This is very important.
Overall, YouTube Shorts is a long-term job for us, and it helps us meet the strong demand for short videos from creators and viewers. I also shared with you before that YouTube Shorts currently has an average of 70 billion daily views, and the number of multi-channel uploads has increased by 50% over the same period last year.
Finally, about the structural influencing factors you mentioned. At the moment it is difficult for me to give a specific answer; it will take some time to observe.
Justin Post, Merrill Lynch Bank of America analyst: My question is still about capital expenditure. Judging from the data, capital expenditure appears to be the company's largest capital investment project at present. I saw a sharp increase in the company's capital expenditure over the past two quarters, but in fact, Google has been investing in artificial intelligence for many years. My question is, what is the reason behind this increase in capital expenditure? Is it because the current supply is smooth sailing and easier to obtain? Or is it that now is a good opportunity to advance the development of artificial intelligence, and management thinks it is time to invest more?
Also, about the return on capital expenses for the advertising business and the cloud business. Do you think higher capital expenditure means higher business costs as well? Or does management think that increasing capital expenditure will provide the company with stronger and better return opportunities than in the past?
Ruth Borat: As Sandall and I shared with you before, the increase in the company's capital expenditure means that we are actually seeing growth opportunities in many of the company's businesses, including the large-scale language model Gemini, cloud services, Google Cloud Platform (GCP), and infrastructure, such as the search business, YouTube, etc. These are all growing business priorities, and we need to ensure that we have sufficient financial capacity to support these business development opportunities.
This brings up your second question. We believe that increasing the capital expenditure of each business can bring us higher revenue opportunities. We are very concerned about monetization opportunities, which is the key foundation that supports Google services, Google Cloud business, etc. Furthermore, Sundar also pointed out earlier that we are also very concerned about the company's efficiency. We will optimize processes and improve efficiency as much as possible to ensure that software, hardware, and computing capabilities match the company's rapid development.
Evercore ISI Analyst Jane Lee: My first question was about Google's search business. Google also launched an artificial intelligence chatbot before. In this context, management believes that the application of artificial intelligence technology in the search business can help the search business achieve drastic changes in search volume? Or can the application of artificial intelligence technology bring about creative changes in search functions? Could you ask management to share with us your views on this and what you're looking forward to in the future?
My second question is about YouTube and the cloud business. Currently, the operating rate of Google's YouTube business and cloud business has reached 100 billion. What does management think about the future of these two businesses? Will there be an inflection point in future cloud business requirements? What dramatic changes will generative artificial intelligence technology bring to business? Could you please ask management to share the details with us.
Sundar Pichai: Regarding your first question. I've shared this opinion with you before, and I'll make it clear once again.
In our opinion, now is a good time for the search business to grow. The application of generative artificial intelligence technology allows us to expand our products in depth. Everyone should know that searching is a very unique experience. Users choose to search because they want answers, want to explore more, get new knowledge and opinions from the Internet, and want to understand the content of their queries in terms of both depth and breadth. We need to ensure that technological innovation keeps up with user needs, and this is what we have always done. Looking at it so far, I'm very satisfied with our progress, and I'm particularly proud of the company's current innovations.
Overall, I think this is a good time for search business growth.
Ruth Borat: I agree with what Sandal mentioned in the briefing. Currently, we are observing strong performance and growth momentum in these businesses. We will continue to grow and scale our business as time progresses. Last quarter's earnings conference actually mentioned that we are satisfied with the progress made in the company's team's work. They have created many opportunities, provided multiple services to users, customers, and advertisers, and helped the company expand its business scale over the years.
Wells Fargo Analyst Ken Gawrelski: My first question is about GCP. I saw that Google's GCP business grew well this quarter. If GCP wants to achieve accelerated growth and gain more market share, what opportunities does management think GCP is currently facing? What other factors are limiting the development of GCP? Will GCP focus more on sales or products and solutions in the future? Or a combination of both? Also, for GCP business, does management plan to cooperate with external companies? Or will the GCP business belong entirely to Google's internal ecosystem?
My second question concerns YouTube's license to broadcast sporting events. What are the management's plans or opinions on future YouTube sports broadcast licenses? We know that broadcast rights for more major events may enter the market in the next few years. Can you ask management to talk about your core ideas about this business? For example, NFL Major League Soccer, Major League Soccer “Sunday Tickets”, etc.
Sundar Pichai: Cloud business aspects. The introduction of artificial intelligence technology will definitely bring an inflection point to the business.
The business transformation brought about by artificial intelligence technology is making everyone think about how to get involved. For example, given the depth and breadth of Google's artificial intelligence model, people hope that VertexAI (managed machine learning platform launched by Google) will help them improve efficiency or increase productivity through Google Workspace. Artificial intelligence technology has indeed brought us a lot of opportunities.
As for whether it's internal work or whether to seek external cooperation, I think it's a combination of the two. Part of the work takes place within Google, and we don't refuse to cooperate with external partners. Everyone should know that there are always challenges, and it is costly for users to migrate to the cloud. The challenge we need to solve is how to make the process of migrating users to the cloud easier and smoother? We will continue to invest in this to bring more convenience to users.
Philip Schindler: A question about broadcasting rights for sporting events. Google has established long-term and important partnerships with many of the most popular sports leagues, teams, athletes, broadcasters, etc. in the US and around the world. These partnerships, combined with the huge sports fan base on YouTube, can bring in large numbers of subscriptions and product investments. But I don't have any new content to share with you right now. Of course, we've always been looking for ways to create higher value opportunities for users, advertisers, and video creators.
(Continuously updated...)