Alphabet Inc. (GOOGL) on Q3 2023 Results - Earnings Call Transcript
Operator: Welcome, everyone. Thank you for standing by for the Alphabet Third Quarter 2023 Earnings Conference Call. [Operator Instructions] I would now like to hand the conference over to your speaker today, Jim Friedland, Director of Investor Relations. Please go ahead. James Friedland: Thank you. Good afternoon, everyone, and welcome to Alphabet's Third Quarter 2023 Earnings Conference Call. With us today are Sundar Pichai, Philipp Schindler and Ruth Porat. Now I'll quickly cover the safe harbor. Some of the statements that we make today regarding our business, operations and financial performance may be considered forward-looking. Such statements are based on current expectations and assumptions that are subject to a number of risks and uncertainties. Actual results could differ materially. Please refer to our Form 10-K, including our Risk Factors section and our Form 10-Q. We undertake no obligation to update any forward-looking statement. During this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of non-GAAP to GAAP measures is included in today's earnings press release, which is distributed and available to the public through our Investor Relations website located at abc.xyz/investor. Our comments will be on year-over-year comparisons unless we state otherwise. And now, I'll turn the call over to Sundar. Sundar Pichai: Thank you, Jim, and hello, everyone. I'm pleased with our business results this quarter, which demonstrates strong growth in Search and YouTube and momentum in Cloud. Google turned 25 in September, which offered an opportunity to reflect on our progress over the last quarter century and to look ahead to the opportunities enabled by AI we are so excited and confident about. Our product momentum continued this quarter, as you saw with Cloud Next made on YouTube and made by Google. It's all part of our focus on making AI more helpful for everyone, and we are making good progress across the 4 areas that we shared last quarter. First, improving knowledge and learning. This includes our work with the Search Generative Experience, which is our experiment to bring generative AI capabilities into Search. We have learned a lot from people trying it, and we have added new capabilities like incorporating videos and images into responses and generating imagery. We have also made it easier to understand and debug generated code. Direct user feedback has been positive with strong growth in adoption. In August, we opened up availability to India and Japan with more countries and languages to come. As we add features and expand into new markets, we are engaging with the broader ecosystem, and we'll continue to prioritize approaches that add value for our users, send valuable traffic to publishers and support a healthy open Internet. With generative AI applied to Search, we can serve a wider range of information needs and answer new types of questions, including those that benefit from multiple perspectives. We are surfacing more links with SGE and linking to a wider range of sources on the results page, creating new opportunities for content to be discovered. Of course, ads will continue to play an important role in this new Search experience. People are finding ads helpful here as they provide useful options to take action and connect with businesses. 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. The second area we are focused on is boosting creativity and productivity. Bard is particularly helpful here. It's a direct interface to a conversational LLM and we think of it as an early experiment and complementary experience to Google Search. 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. Our collaborative tools in Workspace and YouTube are also part of how we boost creativity and productivity, and they are seeing great initial traction. Third, we are enabling developers, businesses and other organizations to build their own transformative products and services. For example, thousands of customers and partners are already using Google Cloud to capture the potential of AI, and we'll share more there in a minute. And fourth, we are building and deploying AI responsibly so that everyone can benefit. One area we are focused on is making sure people can more easily identify when they are encountering AI-generated content online, using new technology powered by Google DeepMind SynthID, images generated by Vertex AI can be watermarked in a way that is invisible to the human eye without reducing the image quality. 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. As we expand access to our new AI services, we continue to make meaningful investments in support of our AI efforts. We remain committed to durably reengineering 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. Turning next to YouTube, which saw solid momentum in both its ads and subscription businesses in Q3. NFL Sunday Ticket is now live in receiving excellent reviews. Fans love our multi-view feature, which can live stream up to 4 games on a single screen. We have heard positive feedback from our partners at the NFL about the new features and live stream reliability. This is a clear example of our ability to execute big partnerships with excellence and at scale. I'm really pleased with the growth and engagement on YouTube Shorts. We continue to work on closing the monetization gap here. Shorts now average over 70 billion daily views and are watched by over 2 billion signed-in users every month. At Made On YouTube in September, we announced new tools that make it easier to create engaging content. Dream Screen is an experimental feature that allows creators to add AI-generated video or image backgrounds to Shorts. And YouTube Create is a new mobile app with a suite of production tools for editing Shorts, longer videos or both. Next, Google Cloud. We see continued growth with Q3 revenue of $8.4 billion, up 22%. Today, more than 60% of the world's 1,000 largest companies or Google Cloud customers. At Cloud Next, we showcased amazing innovations across our entire portfolio of infrastructure, data and AI, workspace collaboration and cybersecurity solutions. We offer advanced AI optimized infrastructure to train and serve models at scale. And today, more than half of all funded generative AI start-ups are Google Cloud customers. This includes AI21 Labs, Contextual, Elemental Cognition, Writer and more. We continue to provide the widest choice of accelerator options. Our A3 VMs powered by 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. On top of our infrastructure, our Vertex AI platform helps customers build, deploy and scale AI-powered applications. We offer more than 100 models, including popular third-party and open source models, as well as tools to quickly build Search in 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. Duet AI was created using Google's leading large foundation models and is specially trained to help users to be more productive on Google Cloud. We continue expanding its capabilities and integrating it across a wide range of cloud products and services. With Duet AI, we are helping leading brands like PayPal and Deutsche Bank boost developer productivity, and we are enabling retailers like Aritzia and Gymshark to gain new insights for better and faster business results. In fact, companies are increasingly using AI for the purpose of finalizing 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. In Workspace, thousands of companies and more than 1 million trusted testers have used Duet AI. They are writing and refining content in Gmail and Docs, creating original images from text within slides, organizing data and sheets and more. These innovations enable us to provide new services and grow our base of 10 million paying customers including enterprises like Grupo Boticário, Unilever and Warner Music. We also integrated Duet AI across our cybersecurity portfolio to differentiate in the marketplace, providing generative AI-powered assistance in Mandiant Threat Intelligence, Chronicle Security Operations and Security Command Center. This reduces the time security teams spend writing, running and refining searches by 7x. We are the only leading security provider that combines frontline intelligence and expertise, a modern security operations platform and a trusted cloud foundation, all infused with generative AI, helping product customers and partners like BT, Jack Henry and Associates and CoverMyMeds. Turning to Hardware. We unveiled our new products this month. We introduced our new Pixel 8, Pixel 8 Pro and Pixel Watch 2 to very positive consumer feedback and reviews. Pixel is the fastest-growing smartphone brand in our top markets and the only one that grew in units sold year-over-year. Our portfolio of Pixel products are brought to life, thanks to our combination of foundational technologies AI, Android and Google Tensor. Google Tensor G3 is the third generation of our tailor-built chip. It's designed to power transformative experiences by bringing the latest in Google AI research directly to our newest phones. A new AI-powered editing feature in Google photos on Pixel 8 and Pixel 8 Pro remote distractions, generate the best shot from multiple images and reduce distracting sounds in videos. Pixel and our third-party ecosystem are powered by Android. We just released Android 14 with more accessibility features. I also want to mention Chromebook Plus, a new category which provides the best of Chrome on great hardware with built-in Google apps and powerful AI capabilities. We also shared that Chromebooks will now get regular automatic updates for 10 years, more than any other operating system. In Other Bets, Waymo is onboarding more riders to its commercial ride-hailing service as it gradually adds over 100,000 people from its San Francisco waitlist. Austin will follow as its next ride-hail city. Wing and Walmart announced a new partnership to provide drone delivery service in the Dallas-Fort Worth area. Before handing over to Philipp, I want to thank our employees around the world who are working to create innovative products and provide great services to people and businesses who use our products. Philipp? Philipp Schindler: Thanks, Sundar, and hi, everyone. I'll start with our performance for the quarter and then give color into the 3 key priority areas for ads, Google AI, Retail and YouTube, that we've identified on past calls as opportunities for long-term growth and advertising. Google Services revenues of $68 billion were up 11% year-on-year. In Google advertising, Search and other revenues grew 11% year-on-year led by solid growth in the retail vertical. In YouTube ads, revenues were up 12% year-on-year driven by growth in both brand and direct response. In Network, revenues declined 3% year-on-year. Google other revenues were up 21% year-on-year led by strong growth in YouTube subscription revenues. Let's start with Google AI. Recent dramatic advances in everything from foundational research models to LLMs to generative AI are improving our ability to deliver better performance and profitability for advertisers and more helpful, delightful experiences for users. We covered many innovations last quarter after GML like our conversational experience in Google Ads, significant updates to Performance Max and new campaign types like demand gen. And as Sundar said, we're continuing to experiment with new ad formats on SGE. It's extremely important to us that in this new experience, advertisers still have the opportunity to reach potential customers along their search journeys. I'll highlight more ways we're innovating with the best of Google AI as we double-click into our core business. In retail, we had a great quarter. In a market where every dollar counts, our proven AI-powered solutions like Search and PMax are helping retailers drive reliable, strong ROI and meet customers wherever they are across the funnel. In Q3, we also started prepping retailers for what will be a long holiday season. Let me share some things. Number one, with the maximum number of days between Thanksgiving and Christmas and expectations for many micro peaks beyond Cyber 5, we're arming businesses with insights and planning tools, including opti score and Performance Planner to uncover new opportunities, plan budgets and targets to stay competitive and be smarter with their inventory and pricing strategy. Number two, consumer expectations are shifting, especially around price and convenience. We've seen 4x deals queries during the holidays versus other periods. 75% of users say they'll shop with those offering free shipping. Retailers are capitalizing on these trends with our differentiated merchant offerings like merchant promotions and fulfillment options. And we're making improvements to significantly boost the number of deals shown to shoppers in Search this holiday season. Look out for more in the coming days about new ways we'll help shoppers browse deals across the web this year. Number three, no surprise, omnichannel is the way to succeed. With our suite of omni product solutions, including local inventory ads, omni bidding and PMax for store goals, retailers, big and small, are capturing demand and incremental store budgets while engaging with high-value customers. Innovation continues across our shopping and merchant experiences powered by Google AI. Our virtual try-on tool for apparel launched in June and has been a hit with consumers and brands. Users engage with virtual try-on images at a higher rate versus regular brand-provided images. Product Studio is another launch from GML getting positive feedback in pilot mode. It is the best of gen AI to help businesses create unique and tailored imagery for free that they can then scale across their channels. We're seeing early merchant testers using it to seasonalize their content for the holidays. Let's shift to YouTube. It's worth repeating our intense focus on creator success, coupled with our multi-format strategy, are at the center of how we think about YouTube's long-term growth. Shorts Connected TV and our subscription offerings are key drivers here, and we're investing across each to solidify YouTube's position as the best place to create, the best place to watch and the best place to deliver results. Sundar mentioned watch time and engagement momentum on Shorts as well as our monetization progress. He also covered subscription growth and NFL Sunday Ticket. As for Connected TV, we continue to be the #1 overall streaming destination according to Nielsen. 150 million-plus people are watching YouTube on CTV screens every month in the U.S. Whether it's music videos, NFL Sunday Ticket, free movies shorts, a continuous stream of Mr. Beast or some other creator-led content, viewers want choice and variety, and we're giving it to them all in one place. And to help creators and advertisers connect with these billions of viewers across moments, screens and formats, we're bringing Google AI to awesome new creation tools and ad solutions. AI will do wonders for creation and storytelling. From Dream Screen and YouTube Create, which Sundar talked about, to features that audit up content in multiple languages, flip interim existing assets, remix and clip videos and more, we're just getting started. We're also helping brands break through its speed and scale across the funnel to drive results. Spotlight Moments launched last week. It uses AI to identify trending content around major cultural moments for brand sponsorship opportunities. There's video reach campaigns, which are expanding to in-feed and Shorts, and will be generally available in November. AI is helping advertisers find as many people as possible and their ideal audience for the lowest possible price. Early tests are delivering 54% more reach at 42% lower cost. And then with video view campaigns, AI is serving skippable ads across in-stream, in-feed and Shorts and helping advertisers earn the maximum number of views at the lowest possible cost. So far, they're driving 40% more views on average versus in-stream alone. Then for YouTube and other feed-based services, there's our new demand-gen campaign, which launched in April, rolled out worldwide last week and was designed for the needs of today's social marketers to engage people as they stream, scroll and connect. It combines video and image ads in one campaign with access to 3 billion users across YouTube and Google and the ability to optimize and measure across the funnel using Google AI. Demand gen is already driving successful brands like Samsung and Toyota. Before I wrap, one quick highlight on our close collaboration and commitment to our most important ecosystems and partners. In July, we launched Google News Showcase in the U.S., our curated online news experience and licensing program with more than 150 news publications, 90% of which are local or regional. Globally, over 2,500 news publications have signed on to News Showcase and the product is live in 23 countries today. Our commitment to open access to news and information remains strong. With that, I'll end with a thank you to our customers and partners around the world for their continued trust and collaboration and our Googlers everywhere for their incredible hard work and dedication. Ruth, over to you. Ruth Porat: Thank you, Philipp. We are very pleased with our financial results for the third quarter, driven by meaningful growth in Search in YouTube and Momentum in Cloud. My comments will be on year-over-year comparisons for the third quarter, unless I state otherwise. I will start with results at the Alphabet level followed by segment results and conclude with our outlook. For the third quarter, our consolidated revenues were $76.7 billion, up 11% in both reported and constant currency. Search remained the largest contributor to revenue growth. In terms of expenses, total cost of revenues was $33.2 billion, up 7%, primarily reflecting other cost of revenues of $20.6 billion, which was up 6%. Growth here was primarily driven by content acquisition costs mainly for YouTube subscription offerings. As noted in our earnings release, the overall increase in data center and other operations costs was partially offset by a reduction in depreciation expense due to the change in estimated useful lives we made starting in the first quarter of the year. 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 and marketing expenses, which were relatively flat to last year. Operating income was $21.3 billion, up 25%, and our operating margin was 28%. Other income and expense was a loss of $146 million. Net income was $19.7 billion. This reflects an effective tax rate of 7% in the third quarter from an IRS change related to the use of foreign tax credits, which had an outsized impact on the third quarter rate because the change resulted in a catch-up for prior periods. We delivered free cash flow of $22.6 billion in the third quarter and $78 million for the trailing 12 months. We ended the quarter with $120 billion in cash and marketable securities. As a reminder, our cash balance and free cash flow in the second and third quarters benefited from the deferral of certain tax payments to the fourth quarter of 2023. As noted in our earnings release, on October 16, we made an estimated tax payment of $10.5 billion related to this deferral, which will be reflected in our cash balance and free cash flow in the fourth quarter. 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. Network advertising revenues of $7.7 billion were down 3%. Other revenues were $8.3 billion, up 21%, primarily reflecting growth in YouTube nonadvertising revenues driven by subscriber growth in YouTube TV followed by YouTube Music Premium. TAC was $12.6 billion, up 7%. Google Services operating income was $23.9 billion, up 27%, and the operating margin was 35%. Turning to the Google Cloud segment. Revenues were $8.4 billion for the quarter, up 22%. GCP revenue growth remained strong across geographies, industries and products, although the Q3 year-on-year growth rate reflects the impact of customer optimization efforts. Google Workspace also delivered strong revenue growth, primarily driven by increases in average revenue per seat. Google Cloud had operating income of $266 million, and the operating margin was 3%. As to our Other Bets, for the third quarter, revenues were $297 million and the operating loss was $1.2 billion. Turning to our outlook for the business with respect to Google Services. First, within advertising. After a period of historic volatility, we were pleased with the year-on-year revenue growth of Search and YouTube advertising in the third quarter. Second, within other revenues. In our YouTube subscription products the substantial growth in revenues primarily reflects subscriber growth. Looking ahead, a full quarter of NFL Sunday Ticket revenues as well as associated content acquisition costs will be reflected in Q4 results compared to only a few weeks in the third quarter. Play had solid growth in the third quarter driven primarily by an increase in the number of buyers. With respect to Hardware, there is a headwind to revenues in the fourth quarter, reflecting efforts to optimize the portfolio with tighter targeting of our go-to-market investments as well as the ongoing impact from the difference in launch timing for the Pixel 6A and 7A that we mentioned last quarter. Turning to Google Cloud. We are pleased with the ongoing customer engagement with GCP and Workspace and the potential benefit of our AI solutions, including infrastructure and services such as Vertex AI and Duet. We continue to invest aggressively given the significant potential we see while remaining focused on profitable growth. In terms of expenses and profitability, we're pleased with our operating performance. As we have repeatedly stressed, we remain focused on durably reengineering our cost base to create investment capacity to support our growth priorities, most important of which is with AI. We have a number of work streams in place. First, we are maintaining a slower pace of head count growth, reflecting product prioritization and reallocation of talent to support our most important growth opportunities. Second, we remain focused on optimizing our real estate footprint, including how and where we work to reduce our expense growth. As you can see from our earnings release, we incurred $207 million in accelerated rent and depreciation in the third quarter related to these actions. Third, we have engineering work streams underway to improve productivity across Alphabet. Given the magnitude of investment in our technical infrastructure, we have a superb team focused on efficiency of our operations there. We are also making progress in streamlining operations across Alphabet through the use of AI. Finally, there are ongoing work streams that are improving the efficiency of our spend with suppliers and vendors through our central procurement organization. And to be clear, across the portfolio of Other Bet companies, we have also been working to identify opportunities to create sharper focus and to operate more efficiently and effectively. With respect to sequential quarter-on-quarter trends, two further points. First, cost of sales in the fourth quarter will reflect both higher Hardware costs given Pixel family launches as well as increased CAC for YouTube as previously noted. Second, as usual, we expect sales and marketing expenses to be more heavily weighted to the end of the year, in part to support product launches and the holiday season. Finally, our reported CapEx in Q3 was $8 billion driven overwhelmingly by investment in our technical infrastructure with the largest component for servers followed by data centers, reflecting a meaningful increase in our investments in AI compute. The growth in reported cash CapEx in Q3 is somewhat muted due to the timing of supplier payments which can cause variability from quarter-to-quarter. We continue to invest meaningfully in the technical infrastructure needed to support the opportunities we see in AI across Alphabet and expect elevated levels of investment, increasing in the fourth quarter of 2023 and continuing to grow in 2024. In closing, we remain very excited about the opportunities ahead and committed to deliver sustainable financial value. Thank you. Sundar, Philipp and I will now take your questions. Operator: [Operator Instructions] And our first question comes from Brian Nowak with Morgan Stanley. Brian Nowak: I have two. The first one, maybe just a little bit of a jump ball. There's somewhat of an investor debate about sort of the incremental return on capital to Search when it comes to AI. I know it's early, but are there any examples that you're seeing with SGE or Bard on higher utility, higher conversion rates, more engagement, just something to sort of show signal around the return that could come from these investments? And the second one, Ruth, I know you've spoken a lot about durably reengineering the cost base. I think in the past, you've talked about how expenses could grow slower than revenue in 2024. Is that sort of still the high level way to think about it? Or is that potentially changing a bit as investments are continuing? Sundar Pichai: Ruth, do you want to take the second part? I'll take the first. Ruth Porat: Sure. Thanks for that, Brian. So overall, that's sort of a truism, as you know well, looking to grow revenues at a faster rate than expenses as we're focused on delivering sustainable financial value. And so that really takes us to the work streams, which I tried to tick through. Again, those remain the driver. They're the real priority. Those are the efforts that are going to enable us to expense growth. And it's moderated as possible while supporting the investment growth that is so exciting in front of us, in particular, around AI. Sundar Pichai: And to your first part, obviously, we see AI as a foundational platform shift and are excited about the opportunities across our business. It starts with Search. And I've been pretty pleased with how the user feedback has been on SGE. We are rolling it out to more users. Through it all, we are making sure the product works well, and we are generating value for our ecosystem, and that adds transitions well. And I think I view this as, with AI, the opportunity to evolve Search and Assistant over the next decade ahead. And I think as we've always seen, when you continue to invest and build great experiences, you can get value on the other side. And I do think over time, there will be newer paths, just like we have done on YouTube. I think with the AI work, there are subscription models as a possible path as well. And obviously, all of the AI investments we are doing applies across Cloud, too, and I'm pretty optimistic about what's ahead there as well. Operator: Your next question comes from Doug Anmuth with JPMorgan. Douglas Anmuth: One for Sundar and one for Ruth. Sundar, you talked a lot about AI. I was hoping you could talk more about Gemini and how it will differentiate from other models some of the multimodal capabilities and what new experiences or agents do you think it could unlock and how we should think about timing? And then also just on Cloud, hoping you can talk about some of the factors there on the decel in cloud and just what you're seeing in terms of optimizations? And is there any sign of new workload deployments taking place? Sundar Pichai: Thanks. Good questions. On Gemini, obviously, it's effort from our combined Google DeepMind team. I'm very excited at the progress there as we're working through getting the model ready. To me, more importantly, we are just really laying the foundation of what I think of as the next-generation series of models we'll be launching throughout 2024. The pace of innovation is extraordinarily impressive to see. We are creating it from the ground up to be multimodal, highly efficient tool and API integrations and, more importantly, laying the platform to enable future innovations as well. And we are developing Gemini in a way that it is going to be available at various sizes and capabilities, and we'll be using it immediately across all our products internally as well as bringing it out to both developers and cloud customers through Vertex. So I view it as a journey, and each generation is going to be better than the other. And we are definitely investing, and the early results are very promising. On Cloud, maybe what I would say is, overall, we had definitely started seeing customers looking to optimize spend. We leaned into it to help customers given some of the challenges they were facing. And so that was a factor. But we are definitely seeing a lot of interest in AI. There are many, many projects underway now. Just on Vertex alone, the number of projects grew over 7x. And so we see signs of stabilization, and I'm optimistic about what's ahead. Operator: Your next question comes from Eric Sheridan with Goldman Sachs. Eric Sheridan: Two, if I could. Sundar, you guys led over a year ago, starting with Performance Max. And I wanted to know if we could get your updated thoughts on how AI might impact the broader advertising industry and how you're aligning Alphabet and Google's goals with AI and where it might take the advertising industry in the years ahead. That would be the first question. And then about a year ago, Philipp and Ruth started talking about some of the brand advertising headwinds that YouTube was facing. As we start to lap those headwinds, how should we be thinking about a broad recovery in brand advertising versus elements of still headwinds that are being faced in the broader ad space, specifically with YouTube? Philipp Schindler: So maybe I'd take the first one. We're very pleased with how Performance Max is performing. It gives advertisers really maximum performance across all inventory from, one, really AI-powered campaign, and it's probably the ultimate example of AI in action across our ads product. It's delivering excellent ROI. Those using it achieve like, on average, over 18% more conversions at a similar cost per action. So since rolling it out 2 years ago, we've continued to expand the features, give advertisers additional ways to steer how it works and do a lot of things like account-level negative keywords, other details here. We launched new life cycle goals, customer life cycle goals, we call them; a revamped asset creation flow that really helps business adapt and scale their most successful creatives. I think that's one to watch. We will also continue to build other new PMax features based on all the advertiser feedback we're seeing. So we're very, very encouraged by the progress here. Overall, maybe -- there was a second part to your question a bit, on what we're hearing from the customers out there. Look, driving ROI and efficiency is still top of mind for many, right? It's a rapidly shifting and still quite unpredictable consumer landscape out there. Our AI tools are very well received, AI, gen AI are top of mind for everybody, really. There's a ton of excitement, lots of questions about it. Many understand the value. Nearly 80% of our advertisers already use at least one AI-powered search ads product. And yes, we're hearing a lot of good feedback on, number one, our ads AI Essentials, which are really helping to unlock the power of AI and set up for durable ROI growth on the advertiser side, this is -- those are products like the foundation for data and measurement, things like Google Tech, consent mode and so on; and obviously, Search and PMax, we talked about it; and then all the gen AI products, all those different ones. So there's a whole lot of interest in those products, yes. Ruth Porat: And then on to your second question regarding YouTube, as we said, overall year-on-year growth in revenues was driven by both brand advertising and direct response. But very much to your question, yes, there was a stabilization in spending by advertisers. We're really pleased about that. We're particularly pleased about the ongoing performance in the Living Room and on Shorts. And as I said, that's both watch time growth and monetization. I'd say the other thing benefiting YouTube is the retail strength we talked about with Search, retail strength in APAC in both Search and YouTube. And that really began in the second quarter, continued in the third quarter, but that was another contributor. So quite a number of things going on. I feel good about the results the team was able to deliver here. Operator: Your next question comes from Lloyd Walmsley with UBS. Lloyd Walmsley: Two, if I can. First, as we just think about the rollout of SGE across the user base, like how far along is that? And how do you balance the product rollout and consumer uptake versus monetization in that transition? And then the second one, also sort of generative AI related, how quickly are you guys finding new ways of optimizing whether that's shrinking model sizes, chip efficiencies or anything else? And do you think overall capital intensity of the business scales up or do you just find ways to do this more efficiently as usage scales? Anything you could share there would be great. Sundar Pichai: On the first part about SGE, we are still in very, very early days in terms of how much we have rolled it out, but we have definitely gotten it out to enough people both geographically across user segments and enough to know that the product is working well, it improves the experience and -- but there are areas to improve, which we are fine-tuning. Our true north here is getting at the right user experience we want to, and I'm pretty comfortable seeing the trajectory. And we've always worked through these transitions, be it from desktop to mobile or from now mobile to AI and then to experience. And so it's nothing new. And I feel very comfortable that as we go through it, the strength of our teams, both on the organic side as well as at site, to drive the right experience for users, including ads, will pay dividends. And I think we'll continue to make improvements and make progress there. On your second question, at a high level, I would say, all through the -- we just celebrated 25 years. And of all the things I was proud about, when I looked at the strength of the work we have done across our infrastructure as a company, our technical infrastructure as a company, and various given stages, at a given moment in time when we adopted new generations of technology, we have looked at the cost of it. But then the curves, the efficiency curves, we have driven on top of it has always been phenomenal to see. And I see the current moment as no different. Already through this year, we are driving significant efficiencies both in our models, in training costs and serving costs and our ability to adapt what's needed to the right use case. And so I think we'll do everything that is needed to make sure we have the leading AI models and infrastructure in the world, bar none, and we'll continue driving efficiencies from there. Operator: Your next question comes from Michael Nathanson with MoffettNathanson. Michael Nathanson: I'm going to ask you guys a multipart question on YouTube TV. So firstly, what were the broader objectives for getting Sunday Ticket? How does it perform versus those objectives? What lessons have you learned from having the NFL Sunday Ticket? How does that affect your appetite for more sports going forward? Philipp Schindler: So as Sundar said earlier, we're several weeks into our first season, and we're very pleased with how it's going. I think, in the broader context, you have to look at it as an overall YouTube subscription strategy. The great feedback we've gotten so far in the YouTube experience is very, very significant. People love the navigation. They love multi-view, they love the chats and the polls. And frankly, people are very happy with the lack of latency here. The #1 piece of concrete feedback the team has gotten is actually that people want the ability to pick their own games from multi-view, which is multi-view is the awesome feature we started rolling out on YouTube TV, that gives sense to the ability to basically watch multiple streams at once. And yes, overall, the teams are working hard to build a fantastic experience, and we are really trying to stay focused on getting our first season right and providing the best possible experience really for fans here. Operator: Your next question comes from Justin Post with Bank of America. Justin Post: A couple of questions on Q4. Can you provide any color if there's been any pause in advertising around the Middle East conflict in October, anything we should be aware of for Q4? And then second, when we do think about the Sunday Ticket impact, I know you can't give us revenues or expenses, but overall, would that be a headwind to margins in Q4 or something we should be thinking about? Ruth Porat: So look, on the first question, obviously, this is tragic. There are no words to talk about what's going on. And all of our focus has been on supporting our people there and how our products can be as helpful as possible in this very painful time broadly, and so nothing really to add. And then in terms of the second question, Sunday Ticket, the only thing I tried to call out there is that clearly, this is the first full quarter of Sunday Ticket that is contributing overall to the subscription revenues that we see. That's in part of other revenues. Also, obviously, it is contributing to higher CAC in the fourth quarter. So we try to make that really clear. And as we look longer term, we expect to generate an attractive return over the life of the deal. We're continuing to invest in support of this and excited about the additional opportunities that come out of it, working with partners to deliver clips and other opportunities. As we've said, we've heard positive feedback from our partners at the NFL about the new features and live stream reliability. And this is really a clear example of our ability to execute big partnerships with excellence at scale and really leverage a lot of the extraordinary magic at YouTube and across Google, and that's what we're excited about. Operator: Your next question comes from Ken Gawrelski with Wells Fargo. Kenneth Gawrelski: Two questions, if I may. First, how do you think about the future structure of AI-driven Search capabilities? Will activity remain centralized in a search bar or will it be decentralized and present in many different applications, including on third-party applications? You alluded to Bard being integrated into multiple Google experiences earlier in the call. And then the second question is, any update on the Chrome cookie deprecation plan to begin in 1Q '24? What have you seen so far based on your early testing of Privacy Sandbox? And what advertiser feedback have you received? Sundar Pichai: On your first question, look, I broadly think of it as people are looking for information. They always look for it in many, many different ways. We've given the product search example. People can directly go to Amazon, as an example, or come to Google. So if you zoom back and take an information view of the world, there's always been many different ways to get it. And part of our work we do in making Search be world-class and give users what they're looking for is so that we can get as much of that intent as possible. So I don't see that changing. With mobile, there were more ways people could get information, but we worked out to make Search work better in the mobile world. And similarly, a view with AI, there'll be many ways people get information, but it also offers us an opportunity in Search and in Assistant to take it to the next level and answer use cases, which we couldn't have done before, and expand the diverse set of needs where we are sourced. So that's how I see the opportunity ahead. Philipp Schindler: And to the second part of your question, yes, Chrome still plans to begin phasing out third-party cookies in the second half of '24. In the last several months, Chrome has really made significant progress on the Privacy Sandbox with APIs for developer testing, and they're now generally available in Chrome. Our ads team is testing these APIs. And as we shared back in April, the preliminary results of our interest-based ads testing showed that a combination of what we call privacy preserving signals and AI optimization actually provides positive results for businesses preparing for a cookie-less future. We also recently announced that in Q1 of '24, we plan to deprecate third-party cookies for 1% of Chrome users, and this will support developers, obviously, in conducting their real-world experiments to assess the readiness and effectiveness of their products without third-party cookies. And we're overall encouraged by the ecosystem engagement on Privacy Sandbox. We'll continue to work with the industry and regulators in how these technologies can support the transition to, frankly, a more private web. Operator: And our last question comes from Mark Mahaney with Evercore. Mark Stephen Mahaney: Two questions, please. Ruth, you talked about these elevated levels of investments in Q4 and in '24. I'm sorry, were you referring to just CapEx or CapEx and total expenses? And then on the comments around stabilization in Cloud, is this something that you just started to see in the September quarter? Or had you seen that starting earlier in the year? And if you just started seeing it in the September quarter, would you have any thoughts on why you would have seen it, like Google Cloud would have seen it maybe later than some of the other hyperscalers? Ruth Porat: So I think what you're referring to is my CapEx comment. I was trying to make the point that we are committed to meaningfully investing in CapEx given all the opportunities we see. We do continue to expect elevated levels of investment in our technical infrastructure. It will be increasing in the fourth quarter. And I talked about some of the difference in timing, muted timing, in the third quarter due to the timing of supplier payments and then tried to make it clear that we will continue to grow CapEx in 2024. Or more specifically, to your question, 2024 aggregate CapEx will be above the full year 2023. So that was the main one. And then as it relates to Cloud, as Sundar said, what we're really excited about is the revenue growth does reflect healthy customer adoption across the portfolio, and that's infrastructure, data analytics and security. And so I can't comment on others, but we feel good about where we're sitting here looking forward, and we'll let you do the forecasting. GCP growth in the third quarter was above the growth rate for Cloud overall, and we feel really good about the work that they're doing there. And then, of course, in addition to that is all of the contribution from Google Workspace. Operator: And that concludes our question-and-answer session for today. I'd like to turn the conference back over to Jim Friedland for any further remarks. James Friedland: Thanks, everyone, for joining us today. We look forward to speaking with you again in our fourth quarter 2023 call. Thank you, and have a good evening. Operator: Thank you, everyone. This concludes today's conference call. Thank you for participating. You may now disconnect.
Wells Fargo Updates Alphabet Inc. Price Target to $187
- Wells Fargo has increased the price target for Alphabet Inc. to $187 from $168, reflecting a positive outlook on Alphabet's AI investments and market position.
- Alphabet's shares were trading at $190.6, slightly above the new target, indicating market confidence in the company's future growth prospects.
- The company's focus on artificial intelligence (AI) is seen as a key driver for future growth, aligning with industry trends and investor interest in AI technology.
Ken Gawrelski of Wells Fargo recently updated the price target for NASDAQ:GOOGL, Alphabet Inc., to $187, a notable adjustment from the previous target of $168. This revision, announced on July 8, 2024, reflects Wells Fargo's refined analysis and outlook on Alphabet's stock performance. At the time of this announcement, Alphabet's shares were trading at $190.6, slightly above the new target, indicating a potential adjustment in the market's valuation of the company. Alphabet, the parent company of Google, is a major player in the tech industry, particularly known for its significant contributions and investments in artificial intelligence (AI), a sector experiencing rapid growth and transformation.
The importance of AI in today's economy cannot be overstated, with its early stages already demonstrating substantial growth and potential. Alphabet Inc. is at the forefront of this technological revolution, leveraging AI to enhance its services and create new opportunities for innovation and market leadership. The recent analysis by Wells Fargo, as highlighted by TheFly, suggests that Alphabet's strategic positioning and investments in AI are key factors considered in the revised stock price target. This is in line with the broader industry trend, where AI technology is becoming a critical element for companies aiming to maintain competitive advantages.
InvestorPlace's recent article underscores the significance of investing in AI stocks, pointing out the potential for substantial gains in the future. While Amazon is explicitly mentioned as a top contender in the AI space, Alphabet's pioneering role in AI development and application implies its strong potential to benefit from the sector's growth. This aligns with Wells Fargo's updated price target, suggesting confidence in Alphabet's ability to capitalize on AI market opportunities.
The AI industry's rapid evolution presents a unique investment opportunity, especially for companies like Alphabet that are leading the charge in AI innovation. With a market capitalization of approximately $2.36 trillion and a notable year-high stock price of $190.85, Alphabet's financial metrics reflect its robust position in the market. The company's strategic focus on AI not only enhances its product offerings but also positions it favorably for future growth and investor interest.
Given the current market dynamics and Alphabet's strategic investments in AI, Wells Fargo's revised price target of $187 seems to reflect a positive outlook on the company's ability to navigate the challenges and opportunities within the AI sector. As the AI market continues to expand, Alphabet's role as a key player in this space is likely to contribute significantly to its stock performance and appeal to investors looking for exposure to innovative technology and AI-driven growth.
Needham Reiterates Buy on Alphabet, Estimates Youtube's Value at $455-$634 Billion
Needham analysts reaffirmed a Buy rating for Alphabet (NASDAQ:GOOGL) with a $210 price target on the stock. Needham analyzed YouTube's potential value as an independent entity through three metrics: revenue ($530 billion), users ($455 billion), and engagement ($624 billion).
The analysts estimated YouTube's worth between $455 billion and $634 billion if traded separately, accounting for 20%-30% of Alphabet's current enterprise value.
The analysts suggested that if just 5% of YouTube's market cap ($27 billion) were separately tradable, it could increase Alphabet's share value by 8%, or $15 per share.
Alphabet Downgraded by Rosenblatt Due to Transitional Risks and AI Impact
Rosenblatt analysts downgraded Alphabet (NASDAQ:GOOGL) to Neutral from Buy, citing several transitional risks that warrant caution.
The investment bank highlighted concerns about the impact of AI on search, suggesting that AI Overviews might reduce search ad revenues. Additionally, there is growing evidence of Alphabet losing search market share to Bing.
The shift of search ad revenue to retail media networks is another concern, with companies like Walmart increasingly adopting strategies similar to Amazon.
Moreover, Amazon's aggressive push into video advertising, including making ads default on Prime Video and launching a strong upfront sales campaign in May, could pose a threat to YouTube's ad sales.
The analysts also noted the risk of Alphabet facing higher-than-expected capital expenditure due to competitive pressures in the AI space.
Alphabet Inc. Price Target Update and Key Insights
- Brent Thill of Jefferies has raised the price target for Alphabet Inc. to $215, indicating a potential upside of approximately 16.83%.
- Alphabet's advancements in AI and its role in the tech industry highlight its potential for long-term success and market leadership.
- The expansion of Waymo's driverless taxi service in San Francisco underscores Alphabet's commitment to innovation and leadership in emerging tech markets.
Brent Thill of Jefferies has recently adjusted the price target for NASDAQ:GOOGL, Alphabet Inc., to $215 from its current trading price of $184.03. This new target suggests a significant potential upside of approximately 16.83% for the stock. The adjustment, announced on Wednesday, June 26, 2024, and covered by TheFly, indicates a bullish outlook on Alphabet's future performance in the financial markets. Alphabet, a leading name in the tech industry, is renowned for its extensive advancements in artificial intelligence (AI) and its dominant position in internet technology, particularly through its search engine and various online services.
Alphabet's strategic deployment of AI tools across multiple sectors underscores its pivotal role in shaping the future of the tech industry. This move not only highlights Alphabet's innovative capabilities but also positions it alongside other industry leaders, like Taiwan Semiconductor, in the AI sector. Such advancements are crucial for investors looking to diversify their portfolios with AI stocks, as detailed in an analysis by The Motley Fool. Furthermore, Alphabet's inclusion in the "Magnificent 7" stocks to buy and hold indefinitely, as per InvestorPlace, reflects confidence in its growth-oriented business model, attractive valuations, and consistent long-term success.
The company's autonomous-vehicle subsidiary, Waymo, has also made headlines with the expansion of its driverless taxi service in San Francisco. This development, now open to the general public, marks a significant step forward in making autonomous transportation solutions more accessible. It demonstrates Alphabet's commitment to innovation and its potential to lead in emerging tech markets.
On the financial front, Alphabet's stock performance has been noteworthy, with a recent increase of $4.81, or approximately 2.68%, closing at $184.03. This trading session saw the stock reach its highest price in the past year at $184.29, indicating strong market confidence. With a market capitalization of about $2.28 trillion and a trading volume of 23.18 million shares for the day, Alphabet stands as a robust investment choice in the current market environment.
These developments collectively paint a promising picture for Alphabet Inc., reinforcing its status as a compelling investment opportunity. The company's strategic focus on AI, its successful expansion into autonomous vehicles, and its strong financial performance are key factors driving its optimistic outlook. As Alphabet continues to innovate and expand its reach, it remains a top pick for investors looking for growth and stability in the tech sector.
Alphabet Inc. (NASDAQ:GOOGL) Faces a Bearish Outlook Despite Strategic Investments in AI and Cloud Computing
- Wedbush analyst Seth Basham sets a bearish price target of $85 for Alphabet Inc., indicating a potential decrease of approximately 51.68% from its current price.
- Google's $2 billion investment in Malaysia for its first data center and Google Cloud region underscores its aggressive expansion into Southeast Asia, aiming to capitalize on the growing demand for cloud computing and AI.
- The launch of "Project Astra" highlights Google's advancements in AI, potentially opening new monetization avenues and positioning it as a superior investment option compared to competitors like Meta.
Alphabet Inc. (NASDAQ:GOOGL), the parent company of Google, is a global technology leader with a diverse range of services, including search engines, cloud computing, artificial intelligence (AI), and more. Recently, Seth Basham of Wedbush set a price target of $85 for GOOGL, indicating a significant decrease of approximately 51.68% from its current price of $175.9. This analysis, published on May 30, 2024, suggests a bearish outlook on the stock's future performance.
Google's strategic investment of $2 billion in Malaysia to establish its first data center and Google Cloud region highlights the company's aggressive expansion into Southeast Asia. This move is driven by the increasing demand for cloud computing services and data centers, a direct result of the rapid growth in the AI sector. The investment not only signifies Google's commitment to capturing the rising AI demand but also positions the company to leverage extensive datasets necessary for training AI models.
The introduction of "Project Astra," a personalized agent-like service, marks a significant advancement in Google's AI capabilities. This development is expected to open new monetization avenues for the company, potentially boosting its investment returns. Despite Meta's efforts to enhance its AI features across its communication platforms, Google's innovations in AI position it as a superior investment option, according to a recent analysis by Seeking Alpha. This comparison underscores Google's promising position in the AI race, suggesting that its latest innovations could lead to substantial growth.
Alphabet Inc.'s stock performance, with a trading price of $175.9 and a market capitalization of about $2.18 trillion, reflects the company's significant presence in the technology sector. Despite the bearish price target set by Wedbush, Google's strategic investments and advancements in AI indicate a strong focus on future growth and expansion. The company's efforts to enhance its global infrastructure and services, particularly in the burgeoning Southeast Asian market, demonstrate a proactive approach to capturing emerging opportunities in the AI and cloud computing spaces.
Alphabet’s Overweight Rating Maintained at Barclays
Barclays analysts reaffirmed their Overweight rating on Alphabet (NASDAQ:GOOGL) stock with a price target of $200. The analysts highlighted significant advancements in AI, particularly multi-modal products running efficiently on a single neural network with low latency, showcasing potential future trends.
The analysts noted that the introduction of effective voice inputs and voice/text/image outputs might encourage healthier technology usage, reducing prolonged screen time and extensive text input in favor of quick, actionable interactions. While the technology demonstrated by OpenAI (GPT-4) and Google's Project Astra is not yet ready for widespread use—requiring a smartphone upgrade cycle and other refinements—it remains highly promising. This technology could become mainstream as iOS and Android integrate AI capabilities into phones.
The analysts observed that despite the rise of new products like ChatGPT and smaller competitors such as Perplexity gaining substantial user bases, there is no significant evidence of Google losing web search query share. They suggested that AI products might complement existing services or are still too nascent to have a major impact.
Looking ahead, the analysts expect concerns about AI cannibalizing Google's core search business to intensify in the second half of 2024. This will likely be driven by new developments, including Apple potentially launching Siri 2.0 with OpenAI-powered capabilities and the emergence of more AI products from established companies like META.
Google's Antitrust Legal Battle and Alphabet's $2 Trillion Milestone
Google's Legal Battle and Alphabet Inc.'s Financial Milestone
Google, a leading tech giant, has recently been in the spotlight due to a legal battle with the federal government over antitrust allegations. The Department of Justice (DOJ) has accused Google of dominating the online advertising market, claiming it holds a 70% market share. However, Google has countered these claims, arguing that the DOJ has created a fictitious market to support its lawsuit. This dispute has caught the attention of many, as reported by PYMNTS on April 28, 2024. In a bold move, Google has requested the dismissal of the lawsuit, challenging the government's allegations and asserting that the DOJ has not substantiated its claims of market dominance.
Amidst this legal turmoil, Alphabet Inc. (GOOGL:NASDAQ), Google's parent company, has achieved a remarkable financial milestone. As highlighted by Business Insider on April 27, 2024, Alphabet has reached a market capitalization of $2 trillion. This achievement is significant, marking the first time the company has sustained this valuation for an entire trading day. Previously, Alphabet had briefly touched this threshold but had not maintained it. This financial accomplishment underscores Alphabet's robust market presence and investor confidence in its long-term growth prospects.
The surge in Alphabet's market capitalization is reflected in the performance of its stock on the NASDAQ. Alphabet Inc. (GOOGL) has experienced a notable increase in its stock price, climbing by $15.95 or 10.22%, to reach $171.95. This upward trend in the stock price has propelled the company to a new 52-week high of $174.71, a significant leap from its 52-week low of $103.71. The trading volume for Alphabet's shares has been substantial, with about 64.53 million shares changing hands. This heightened trading activity and the stock's impressive performance highlight the market's positive response to Alphabet's strategic initiatives and its resilience amidst legal challenges.
The company's market capitalization now stands at approximately $2.15 trillion, a testament to its financial strength and the value it delivers to shareholders. This valuation not only reflects Alphabet's dominance in the tech industry but also its ability to navigate legal and regulatory challenges effectively. Despite the ongoing antitrust lawsuit, Alphabet's financial achievements demonstrate its continued growth and the confidence investors have in its future prospects.
In conclusion, Alphabet Inc. (GOOGL) has demonstrated remarkable financial performance and resilience in the face of legal challenges. The company's successful rebuttal against the DOJ's antitrust allegations, coupled with its achievement of a $2 trillion market capitalization, highlights its strong market position and investor confidence. As Alphabet continues to navigate the complexities of the tech industry and regulatory landscape, its financial milestones and stock performance will be key indicators of its long-term success and stability.
