WEBVTT - Alphabet, Microsoft Kickoff Big Tech Earnings

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<v Speaker 1>This is Bloomberg Business Week with Carol Messer and Tim

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<v Speaker 1>Stenebek on Bloomberg Radio.

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<v Speaker 2>We got some interesting reports and we're all continuing to

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<v Speaker 2>pour over the releases and the results. But let's get

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<v Speaker 2>to it. And first we're going to start with a

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<v Speaker 2>parent of Google. We're talking about Alphabet and we're seeing

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<v Speaker 2>that stuck up about three point eight percent. Here in

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<v Speaker 2>the after hours. Mandeep Sing is with us. He's Bloomberg

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<v Speaker 2>Intelligence senior tech industry analyst. He too is pouring over

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<v Speaker 2>the results. He's here in our Bloomberg Interactive Broker studio. Mandy,

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<v Speaker 2>thank you, thank you, thank you for being here, which

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<v Speaker 2>i'ms out here.

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<v Speaker 1>Well, So clearly the search results actually outperformed, and that

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<v Speaker 1>is why you see the margin beat. They actually did

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<v Speaker 1>quite well on the margins side of their core business,

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<v Speaker 1>right ore business core search. It beat by almost a

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<v Speaker 1>billion dollars. So it was, you know, given the macro environment,

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<v Speaker 1>probably the best print that we have seen, you know,

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<v Speaker 1>from Alphabet in terms of digital ad spending holding up

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<v Speaker 1>and no impact whatsoever from chat GPT. Look, everyone talked about,

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<v Speaker 1>you know, how chatchpt would hurt search volumes none, So

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<v Speaker 1>what did I.

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<v Speaker 2>Tell you then about because we're like insanely all obsessed

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<v Speaker 2>with it.

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<v Speaker 1>It is, and look, it could be a longer term

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<v Speaker 1>threat because we've seen, you know, being downloads go up.

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<v Speaker 1>But in terms of the advertiser allocation of their ad spend,

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<v Speaker 1>it's still going towards Google Search because that's the highest

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<v Speaker 1>ROI in terms of advertiser spend, and they're not changing

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<v Speaker 1>that anytime soon.

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<v Speaker 3>What not when it comes to the cloud.

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<v Speaker 1>Yes, so that number was light and I think it

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<v Speaker 1>was mostly in line. And what it shows is, you know,

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<v Speaker 1>something that we have heard from other cloud providers that

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<v Speaker 1>it spending is slowing down. Everyone is trying to optimize

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<v Speaker 1>their cloud spend. So that number was roughly in line.

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<v Speaker 1>But look, all of the Alphabet's profits come from their search.

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<v Speaker 1>If they beat on search, they always beat in terms

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<v Speaker 1>of their operating income, which is what we see in

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<v Speaker 1>this print. So in the Alphabet's case, sixty percent of

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<v Speaker 1>their search revenue makes up all their free cash flow

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<v Speaker 1>and operating profit.

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<v Speaker 2>So that's what we care about it. Yeah, I'm seeing

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<v Speaker 2>from a competing news service that they're saying the cloud

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<v Speaker 2>business turns. Google's cloud business turns profitable for the first

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<v Speaker 2>time on record.

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<v Speaker 1>Is that the case? Yeah, so like every care every

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<v Speaker 1>quarter it was losing about five hundred million. This quarter

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<v Speaker 1>they broke even, and it's like it's a roughly break

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<v Speaker 1>even slight profits, but essentially it's not losing any money

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<v Speaker 1>going forward.

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<v Speaker 3>Yes, So then when it comes to the cloud, like

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<v Speaker 3>you were talking about before, it doesn't really give us

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<v Speaker 3>a purview then to say company is like Amazon, which

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<v Speaker 3>obviously has AWS since it's just such a smaller component

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<v Speaker 3>compared to search.

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<v Speaker 1>I mean, it's still a thirty billion dollar run rate.

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<v Speaker 1>And as I said, Alphabet used to be entirely searched company.

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<v Speaker 1>Now it's sixty percent of their revenue. Cloud is about,

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<v Speaker 1>you know, fifteen percent. YouTube is another big contributor to

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<v Speaker 1>the overall as we've seen that diversity, top line diversification

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<v Speaker 1>for Alphabet, but none of the other segments generate any profits.

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<v Speaker 1>Is still search driven when it comes to the operating

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<v Speaker 1>profit side.

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<v Speaker 2>Yeah, with poor at right, the CFO is saying, starting

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<v Speaker 2>the conversation with our revenue reflects resilience in search and

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<v Speaker 2>momentum in cloud. We are focused on growth innovation, especially

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<v Speaker 2>in our advancement on AI. What else they're cutting you know,

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<v Speaker 2>recording charges related to office space reductions, taking actions to

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<v Speaker 2>optimize their global office space. We've seen this from a

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<v Speaker 2>lot of tech players, right cutting their costs, reducing their

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<v Speaker 2>space they don't need it.

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<v Speaker 1>Yes, and Alphabet announced the six percent layoff, so that

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<v Speaker 1>in our view would equate to about you know, five

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<v Speaker 1>billion off cost cuts this year on an analyzed basis.

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<v Speaker 1>Probably next year it's going to be seven billion. And look,

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<v Speaker 1>I think these companies have the levers. What Meta has

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<v Speaker 1>showed us they've cut about twenty five percent of their workforce,

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<v Speaker 1>so clearly you will see this being a repeated story

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<v Speaker 1>that you know they're focused on optimizing cost I don't

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<v Speaker 1>think they're hiring anytime soon, so that will be a

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<v Speaker 1>lever in terms of boosting profits for the foreseeable future.

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<v Speaker 2>Our ed Ludlow apparently on the phone with Alphabet CFO report,

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<v Speaker 2>reiterating that the company remains committed to long term growth,

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<v Speaker 2>with particular emphasis on AI and how it can boost

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<v Speaker 2>the search business, so kind of playing it all.

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<v Speaker 1>And they gave us deep Mind disclosures, so that is

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<v Speaker 1>the first time they've told us how much money they're

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<v Speaker 1>losing on deep Mind, which is north of billion dollars.

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<v Speaker 1>But that's their investments into competing with the open chat GPT.

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<v Speaker 2>Last question, you were sitting down with the CEO of Alphabet,

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<v Speaker 2>what would you ask him?

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<v Speaker 1>I would ask him about the long term impact of

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<v Speaker 1>chat GPT on the overall gross margin profile of the

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<v Speaker 1>search business, because that's the cash cow. If search gets

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<v Speaker 1>expensive to run, that will hurt Google's profit.

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<v Speaker 2>All right, good to know, Thank you, thank you. I

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<v Speaker 2>know a busy afternoon, and TV wants you, radio wants you,

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<v Speaker 2>everybody body we always want man deep saying senior tech

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<v Speaker 2>industry analyst at Bloomberg Intelligence here in studio. Just a

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<v Speaker 2>reminder that shares of Alphabet continuing to trend hire in

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<v Speaker 2>the app market, up about three point seven percent. Do

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<v Speaker 2>you want to mention Chapot layout first quarter EPs adjusted

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<v Speaker 2>EPs ten dollars fifty cents a share versus an estimate

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<v Speaker 2>of eight dollars ninety two, So big out performance. First

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<v Speaker 2>quarter com sales up ten point nine percent the estimate

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<v Speaker 2>was eight and a half percent. And I'm looking at

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<v Speaker 2>first quote a revenue of two point four billion versus

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<v Speaker 2>an estimate of two point thirty four operating margin for

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<v Speaker 2>the first quarter fifteen and a half percent versus an

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<v Speaker 2>estimate of fourteen percent. So a quick check on what

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<v Speaker 2>that stock is doing in the after market. This company

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<v Speaker 2>has shown some resiliency in being able to raise prices

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<v Speaker 2>with higher costs. It is up three point two percent

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<v Speaker 2>in the after market.

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<v Speaker 3>And continue to see that with the consumer type oriented companies. Carrol.

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<v Speaker 3>Then I have to point out what's happening with pack Wes.

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<v Speaker 3>Its first quarter adjusted EPs did beat estimates, and its

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<v Speaker 3>total deposits for the first quarter we're around twenty eight

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<v Speaker 3>billion dollars. The estimates were about for twenty eight point

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<v Speaker 3>five billion dollars. You're looking at that stock and that sticker.

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<v Speaker 3>Simple pacw up about eighteen percent after hours.

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<v Speaker 2>Carrol, down about though a lot this year. Yes, all right,

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<v Speaker 2>so let's get to it now. Let's get to Microsoft,

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<v Speaker 2>because it's up four point seven percent in the aftermarket.

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<v Speaker 2>I feel like if investors wanted to gift, they got

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<v Speaker 2>it from Microsoft and Google today. Mandy and not Mandy,

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<v Speaker 2>forgive me go to another member of our Bloomberg Intelligence team.

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<v Speaker 2>There's a lot going on on a rag rana of course,

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<v Speaker 2>Bloomberg Intelligence senior analysts for us. No wrong person, My god,

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<v Speaker 2>honorag How can I not get it right?

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<v Speaker 1>There's too many people.

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<v Speaker 2>Sorry, sorry sorry, so many earnings come in, come in

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<v Speaker 2>on rag Rana is here? Microsoft?

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<v Speaker 1>What do we need to know?

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<v Speaker 4>I mean, thanks, It's far better than what I had

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<v Speaker 4>expected going in. They beat the you know, revenue numbers

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<v Speaker 4>by a big amount. They actually expanded margins than what

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<v Speaker 4>everybody was expecting. So all in all, a broadba you know,

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<v Speaker 4>broad based beat across all lines. You know, cloud came

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<v Speaker 4>in exactly what they had guided to. Now the big

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<v Speaker 4>question is what kind of guidance do they give going

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<v Speaker 4>into the next quarter.

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<v Speaker 2>Why don't they give guidance?

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<v Speaker 4>That is the history of the company. They've always been

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<v Speaker 4>doing it that way. It's not unusual, so it's just

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<v Speaker 4>normal practice. They don't change things just because it's a

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<v Speaker 4>different quarter. So that really where we'll see how the

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<v Speaker 4>things trend. The stock's doing well and I think that

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<v Speaker 4>you know, it boats well for the other tech stocks tomorrow.

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<v Speaker 3>Well, you mentioned the cloud, another concern that has gone

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<v Speaker 3>on as PC sales, Right, what are we seeing on

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<v Speaker 3>that front?

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<v Speaker 4>They were still better than what they were expecting. Even

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<v Speaker 4>they said that, I mean even those were better. That

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<v Speaker 4>is not one I would say area that things didn't

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<v Speaker 4>come out better than what you know, the people will

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<v Speaker 4>they guided before and they beat their own guidance.

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<v Speaker 2>I mean this is real top line growth.

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<v Speaker 4>Yeah, ten percent, I mean constant currency.

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<v Speaker 2>Are you surprised by the strength?

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<v Speaker 4>Very surprised? That's not I mean that's that's that's an understatement. Actually,

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<v Speaker 4>because the constant currency growth was supposed to be around

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<v Speaker 4>six percent. It came at at ten in this current environment.

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<v Speaker 4>I mean, that's pretty impressive.

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<v Speaker 2>What does it tell you?

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<v Speaker 4>It tells me that.

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<v Speaker 2>It is it a Microsoft story or is it something

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<v Speaker 2>more broader?

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<v Speaker 4>They know it has to be broader. Microsoft is one

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<v Speaker 4>third of the software market. So it shows to me

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<v Speaker 4>that TEX spending is slightly more resilient than what we

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<v Speaker 4>had thought a few days ago.

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<v Speaker 3>How much does AI really for its earnings yet?

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<v Speaker 4>None at this point or very little at this point,

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<v Speaker 4>and you know that's not going to be another two

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<v Speaker 4>years or so where we start to see some you know,

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<v Speaker 4>significant addition to that and even cost sight. I mean,

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<v Speaker 4>margins were almost two hundred basis points better than what

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<v Speaker 4>people were expecting. I mean, this is a this is

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<v Speaker 4>a fairly good quarter.

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<v Speaker 2>I asked this to man deep about Google or Alphabet.

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<v Speaker 2>What would be the question you would want to ask

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<v Speaker 2>the Microsoft CEO on their call, what's the most important

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<v Speaker 2>thing at this But seeing what they did this quarter.

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<v Speaker 4>Just three months ago you came and said you're growing

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<v Speaker 4>at six percent. You beat it by you know, a

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<v Speaker 4>massive margin. What happened during the quarter. I mean that's

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<v Speaker 4>one and second, you know, are they seeing a stabilization

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<v Speaker 4>in customers spending or do they think do they expect

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<v Speaker 4>things to go bad because of all the banking issues

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<v Speaker 4>that's happening.

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<v Speaker 2>That's interesting, right, like to see what kind of impact.

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<v Speaker 2>Thank you, love you, thank you so much. Anna Agrana,

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<v Speaker 2>Senior Technology analyst at Bloomberg Intelligence. Here in our interactive

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<v Speaker 2>broker studio on a day when we are seeing both

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<v Speaker 2>Microsoft an Alphabet just on a terror shares a Microsoft

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<v Speaker 2>by the way up four point two percent,