Speaker 1: This is Bloomberg Business Week with Carol Messer and Tim
Speaker 1: Stenebek on Bloomberg Radio.
Speaker 2: We got some interesting reports and we're all continuing to
Speaker 2: pour over the releases and the results. But let's get
Speaker 2: to it. And first we're going to start with a
Speaker 2: parent of Google. We're talking about Alphabet and we're seeing
Speaker 2: that stuck up about three point eight percent. Here in
Speaker 2: the after hours. Mandeep Sing is with us. He's Bloomberg
Speaker 2: Intelligence senior tech industry analyst. He too is pouring over
Speaker 2: the results. He's here in our Bloomberg Interactive Broker studio. Mandy,
Speaker 2: thank you, thank you, thank you for being here, which
Speaker 2: i'ms out here.
Speaker 1: Well, So clearly the search results actually outperformed, and that
Speaker 1: is why you see the margin beat. They actually did
Speaker 1: quite well on the margins side of their core business,
Speaker 1: right ore business core search. It beat by almost a
Speaker 1: billion dollars. So it was, you know, given the macro environment,
Speaker 1: probably the best print that we have seen, you know,
Speaker 1: from Alphabet in terms of digital ad spending holding up
Speaker 1: and no impact whatsoever from chat GPT. Look, everyone talked about,
Speaker 1: you know, how chatchpt would hurt search volumes none, So
Speaker 1: what did I.
Speaker 2: Tell you then about because we're like insanely all obsessed
Speaker 2: with it.
Speaker 1: It is, and look, it could be a longer term
Speaker 1: threat because we've seen, you know, being downloads go up.
Speaker 1: But in terms of the advertiser allocation of their ad spend,
Speaker 1: it's still going towards Google Search because that's the highest
Speaker 1: ROI in terms of advertiser spend, and they're not changing
Speaker 1: that anytime soon.
Speaker 3: What not when it comes to the cloud.
Speaker 1: Yes, so that number was light and I think it
Speaker 1: was mostly in line. And what it shows is, you know,
Speaker 1: something that we have heard from other cloud providers that
Speaker 1: it spending is slowing down. Everyone is trying to optimize
Speaker 1: their cloud spend. So that number was roughly in line.
Speaker 1: But look, all of the Alphabet's profits come from their search.
Speaker 1: If they beat on search, they always beat in terms
Speaker 1: of their operating income, which is what we see in
Speaker 1: this print. So in the Alphabet's case, sixty percent of
Speaker 1: their search revenue makes up all their free cash flow
Speaker 1: and operating profit.
Speaker 2: So that's what we care about it. Yeah, I'm seeing
Speaker 2: from a competing news service that they're saying the cloud
Speaker 2: business turns. Google's cloud business turns profitable for the first
Speaker 2: time on record.
Speaker 1: Is that the case? Yeah, so like every care every
Speaker 1: quarter it was losing about five hundred million. This quarter
Speaker 1: they broke even, and it's like it's a roughly break
Speaker 1: even slight profits, but essentially it's not losing any money
Speaker 1: going forward.
Speaker 3: Yes, So then when it comes to the cloud, like
Speaker 3: you were talking about before, it doesn't really give us
Speaker 3: a purview then to say company is like Amazon, which
Speaker 3: obviously has AWS since it's just such a smaller component
Speaker 3: compared to search.
Speaker 1: I mean, it's still a thirty billion dollar run rate.
Speaker 1: And as I said, Alphabet used to be entirely searched company.
Speaker 1: Now it's sixty percent of their revenue. Cloud is about,
Speaker 1: you know, fifteen percent. YouTube is another big contributor to
Speaker 1: the overall as we've seen that diversity, top line diversification
Speaker 1: for Alphabet, but none of the other segments generate any profits.
Speaker 1: Is still search driven when it comes to the operating
Speaker 1: profit side.
Speaker 2: Yeah, with poor at right, the CFO is saying, starting
Speaker 2: the conversation with our revenue reflects resilience in search and
Speaker 2: momentum in cloud. We are focused on growth innovation, especially
Speaker 2: in our advancement on AI. What else they're cutting you know,
Speaker 2: recording charges related to office space reductions, taking actions to
Speaker 2: optimize their global office space. We've seen this from a
Speaker 2: lot of tech players, right cutting their costs, reducing their
Speaker 2: space they don't need it.
Speaker 1: Yes, and Alphabet announced the six percent layoff, so that
Speaker 1: in our view would equate to about you know, five
Speaker 1: billion off cost cuts this year on an analyzed basis.
Speaker 1: Probably next year it's going to be seven billion. And look,
Speaker 1: I think these companies have the levers. What Meta has
Speaker 1: showed us they've cut about twenty five percent of their workforce,
Speaker 1: so clearly you will see this being a repeated story
Speaker 1: that you know they're focused on optimizing cost I don't
Speaker 1: think they're hiring anytime soon, so that will be a
Speaker 1: lever in terms of boosting profits for the foreseeable future.
Speaker 2: Our ed Ludlow apparently on the phone with Alphabet CFO report,
Speaker 2: reiterating that the company remains committed to long term growth,
Speaker 2: with particular emphasis on AI and how it can boost
Speaker 2: the search business, so kind of playing it all.
Speaker 1: And they gave us deep Mind disclosures, so that is
Speaker 1: the first time they've told us how much money they're
Speaker 1: losing on deep Mind, which is north of billion dollars.
Speaker 1: But that's their investments into competing with the open chat GPT.
Speaker 2: Last question, you were sitting down with the CEO of Alphabet,
Speaker 2: what would you ask him?
Speaker 1: I would ask him about the long term impact of
Speaker 1: chat GPT on the overall gross margin profile of the
Speaker 1: search business, because that's the cash cow. If search gets
Speaker 1: expensive to run, that will hurt Google's profit.
Speaker 2: All right, good to know, Thank you, thank you. I
Speaker 2: know a busy afternoon, and TV wants you, radio wants you,
Speaker 2: everybody body we always want man deep saying senior tech
Speaker 2: industry analyst at Bloomberg Intelligence here in studio. Just a
Speaker 2: reminder that shares of Alphabet continuing to trend hire in
Speaker 2: the app market, up about three point seven percent. Do
Speaker 2: you want to mention Chapot layout first quarter EPs adjusted
Speaker 2: EPs ten dollars fifty cents a share versus an estimate
Speaker 2: of eight dollars ninety two, So big out performance. First
Speaker 2: quarter com sales up ten point nine percent the estimate
Speaker 2: was eight and a half percent. And I'm looking at
Speaker 2: first quote a revenue of two point four billion versus
Speaker 2: an estimate of two point thirty four operating margin for
Speaker 2: the first quarter fifteen and a half percent versus an
Speaker 2: estimate of fourteen percent. So a quick check on what
Speaker 2: that stock is doing in the after market. This company
Speaker 2: has shown some resiliency in being able to raise prices
Speaker 2: with higher costs. It is up three point two percent
Speaker 2: in the after market.
Speaker 3: And continue to see that with the consumer type oriented companies. Carrol.
Speaker 3: Then I have to point out what's happening with pack Wes.
Speaker 3: Its first quarter adjusted EPs did beat estimates, and its
Speaker 3: total deposits for the first quarter we're around twenty eight
Speaker 3: billion dollars. The estimates were about for twenty eight point
Speaker 3: five billion dollars. You're looking at that stock and that sticker.
Speaker 3: Simple pacw up about eighteen percent after hours.
Speaker 2: Carrol, down about though a lot this year. Yes, all right,
Speaker 2: so let's get to it now. Let's get to Microsoft,
Speaker 2: because it's up four point seven percent in the aftermarket.
Speaker 2: I feel like if investors wanted to gift, they got
Speaker 2: it from Microsoft and Google today. Mandy and not Mandy,
Speaker 2: forgive me go to another member of our Bloomberg Intelligence team.
Speaker 2: There's a lot going on on a rag rana of course,
Speaker 2: Bloomberg Intelligence senior analysts for us. No wrong person, My god,
Speaker 2: honorag How can I not get it right?
Speaker 1: There's too many people.
Speaker 2: Sorry, sorry sorry, so many earnings come in, come in
Speaker 2: on rag Rana is here? Microsoft?
Speaker 1: What do we need to know?
Speaker 4: I mean, thanks, It's far better than what I had
Speaker 4: expected going in. They beat the you know, revenue numbers
Speaker 4: by a big amount. They actually expanded margins than what
Speaker 4: everybody was expecting. So all in all, a broadba you know,
Speaker 4: broad based beat across all lines. You know, cloud came
Speaker 4: in exactly what they had guided to. Now the big
Speaker 4: question is what kind of guidance do they give going
Speaker 4: into the next quarter.
Speaker 2: Why don't they give guidance?
Speaker 4: That is the history of the company. They've always been
Speaker 4: doing it that way. It's not unusual, so it's just
Speaker 4: normal practice. They don't change things just because it's a
Speaker 4: different quarter. So that really where we'll see how the
Speaker 4: things trend. The stock's doing well and I think that
Speaker 4: you know, it boats well for the other tech stocks tomorrow.
Speaker 3: Well, you mentioned the cloud, another concern that has gone
Speaker 3: on as PC sales, Right, what are we seeing on
Speaker 3: that front?
Speaker 4: They were still better than what they were expecting. Even
Speaker 4: they said that, I mean even those were better. That
Speaker 4: is not one I would say area that things didn't
Speaker 4: come out better than what you know, the people will
Speaker 4: they guided before and they beat their own guidance.
Speaker 2: I mean this is real top line growth.
Speaker 4: Yeah, ten percent, I mean constant currency.
Speaker 2: Are you surprised by the strength?
Speaker 4: Very surprised? That's not I mean that's that's that's an understatement. Actually,
Speaker 4: because the constant currency growth was supposed to be around
Speaker 4: six percent. It came at at ten in this current environment.
Speaker 4: I mean, that's pretty impressive.
Speaker 2: What does it tell you?
Speaker 4: It tells me that.
Speaker 2: It is it a Microsoft story or is it something
Speaker 2: more broader?
Speaker 4: They know it has to be broader. Microsoft is one
Speaker 4: third of the software market. So it shows to me
Speaker 4: that TEX spending is slightly more resilient than what we
Speaker 4: had thought a few days ago.
Speaker 3: How much does AI really for its earnings yet?
Speaker 4: None at this point or very little at this point,
Speaker 4: and you know that's not going to be another two
Speaker 4: years or so where we start to see some you know,
Speaker 4: significant addition to that and even cost sight. I mean,
Speaker 4: margins were almost two hundred basis points better than what
Speaker 4: people were expecting. I mean, this is a this is
Speaker 4: a fairly good quarter.
Speaker 2: I asked this to man deep about Google or Alphabet.
Speaker 2: What would be the question you would want to ask
Speaker 2: the Microsoft CEO on their call, what's the most important
Speaker 2: thing at this But seeing what they did this quarter.
Speaker 4: Just three months ago you came and said you're growing
Speaker 4: at six percent. You beat it by you know, a
Speaker 4: massive margin. What happened during the quarter. I mean that's
Speaker 4: one and second, you know, are they seeing a stabilization
Speaker 4: in customers spending or do they think do they expect
Speaker 4: things to go bad because of all the banking issues
Speaker 4: that's happening.
Speaker 2: That's interesting, right, like to see what kind of impact.
Speaker 2: Thank you, love you, thank you so much. Anna Agrana,
Speaker 2: Senior Technology analyst at Bloomberg Intelligence. Here in our interactive
Speaker 2: broker studio on a day when we are seeing both
Speaker 2: Microsoft an Alphabet just on a terror shares a Microsoft
Speaker 2: by the way up four point two percent,