Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Now, well one of those days where you know, a
Speaker 2: whole third of the market cap of the S and
Speaker 2: P five hundred reports second quarter Google Cloud revenue coming
Speaker 2: above estimates ten point three five billion dollars, meeting estimates
Speaker 2: of ten point h nine billion. Second quarter revenue excluding
Speaker 2: the traffic acquisition costs coming in above estimates at seventy
Speaker 2: one point three billion versus estimates of seventy point seven
Speaker 2: billion dollars. So in some second quarter revenue excluding TAC
Speaker 2: meeting estimates.
Speaker 3: Yeah, so we're and we did see write some pressure
Speaker 3: on shares of Alphabet here in the aftermarket. So let's
Speaker 3: get to it with our team in the house is
Speaker 3: Bloomberg Intelligence Senior Tech Industry Alice man Deep Singh along
Speaker 3: with Bloomberg News Earnings reporter Red Brown, both in our
Speaker 3: Bloomberg Interactive Broker studio. All right, Man Deep, walk us
Speaker 3: through it the surprises, the strength, the weakness, or anything
Speaker 3: that raises questions for you.
Speaker 4: I think search once again performed very well. It was
Speaker 4: better than census, and with Alphabet, whenever search beats consensus,
Speaker 4: you know the operating margin beat will come. And that
Speaker 4: was the same here. The only number that disappointed was
Speaker 4: a YouTube ass revenue that.
Speaker 3: Sing and I watched a lot of YouTube I don't
Speaker 3: know what, because you could pay to get rid of
Speaker 3: the ass. Yeah, we watched.
Speaker 4: So up until last quarter they made it up through
Speaker 4: better YouTube subscription sales. Now that doesn't seem to be
Speaker 4: the case because the YouTube subscription number is reported alongside
Speaker 4: the app store revenue, so it's hard to unpack whether
Speaker 4: that was the weak part or the app store revenue
Speaker 4: was the weak link. But clearly YouTube was a disappointing
Speaker 4: segment and the results.
Speaker 2: Investors don't seem that disappointed. I mean, shares of Google
Speaker 2: right now, they're bouncing between red and grain, but I
Speaker 2: mean we're talking small moves, and look these are after
Speaker 2: a lot more. It was down a lot more. Yeah,
Speaker 2: and this is before the call and deep. But is
Speaker 2: this like a kind of Hohume earnings report?
Speaker 4: I think, Look, when I look at search growing mid teens,
Speaker 4: that just tells me, you know, a company with two
Speaker 4: hundred billion dollars run rate in search business ninety percent
Speaker 4: market share still manages to grow downble did it?
Speaker 2: So it's it's experimental. AI is working, It's working.
Speaker 4: And it's maintaining market share despite competition from chat rept, being,
Speaker 4: you name it. Everyone keeps talking about.
Speaker 2: How they just said Bing, is there really competition from being.
Speaker 4: Well, Bing has integrated chat cipt now, So that was
Speaker 4: what Satynadella was most excited about.
Speaker 2: I am curious about the lack of ads that I
Speaker 2: see when I look for when I do a Google
Speaker 2: search and I see the experimental AI result, it doesn't
Speaker 2: seem like they're making money for me.
Speaker 4: Yeah, but if you go back in time, Google only
Speaker 4: monetized seventy like seventy percent of their queries are now monetized,
Speaker 4: only thirty percent hour monetized, and that too. It's a
Speaker 4: very keyword driven business, so you know, people bid up
Speaker 4: for keywords. That's what drives the ad pricing. And in
Speaker 4: this case, you know, unlike social media that can increase
Speaker 4: ad loads, Google is not increasing ad loads. It's still
Speaker 4: key or driven and they're able to maintain that share.
Speaker 4: You know, despite chat GPET coming in and for certain queries,
Speaker 4: I'm sure people are going more to chat ChiPT then
Speaker 4: coming to traditional search. But I mean, I think Google
Speaker 4: has a competing offering with Gemini Advance and that will
Speaker 4: be a subscription revenues stream down the line. So in short,
Speaker 4: they've been able to maintain their market share despite all
Speaker 4: the threat, and I think that's good news.
Speaker 3: For stock is down about one percent here in the aftermarket,
Speaker 3: but it's been bouncing around. Stocks up about thirty percent
Speaker 3: year to day forward pe of twenty four. Alphabet is
Speaker 3: game more than sixteen percent since it's blowout first quarter
Speaker 3: report and red brand. I want to bring you into
Speaker 3: it watching it as well, you know, join the conversation
Speaker 3: here with Mandeep. I mean, I'm wondering too if this
Speaker 3: is a quarter that you know safely easily lives up
Speaker 3: to expectations.
Speaker 1: I think man deeperly hit on the Obviously, the two
Speaker 1: biggest things that jumped off the page to me as well,
Speaker 1: which was search and YouTube coming in a little softer.
Speaker 1: But the other thing that's really jumping out to me
Speaker 1: is actually quebecs. If we think about, you know, how
Speaker 1: are they competing with these other companies on gen ai.
Speaker 1: That's where we'll see that investment. And from what I
Speaker 1: can see CAPEX coming thirteen billion, that's I think the
Speaker 1: biggest ever for Alphabet. I think that kind of really
Speaker 1: speaks to where they are headed and kind of another
Speaker 1: doubling down on this commitment and it seems to be
Speaker 1: paying off. So between the search business continuing to grow
Speaker 1: despite its size. Yeah, so definitely interesting there.
Speaker 4: And I just wanted to since he brought up Capex.
Speaker 4: You know, Capex is directly related to their cloud revenue.
Speaker 4: So the fact that cloud sales grew twenty nine percent,
Speaker 4: that Capex is paying off and.
Speaker 3: You know money well spent basically.
Speaker 4: Money we'll spend. And actually cloud margins grew six hundred
Speaker 4: and fifty basis points. So for the longest time, Alphabet
Speaker 4: was criticized because cloud wasn't making money, it was a
Speaker 4: dragon profit. Well guess what in just the past two
Speaker 4: three quarters they have shown over five hundred basis point
Speaker 4: of margin expansion in the business. And that seems to
Speaker 4: be the trend I think based on the guide they're
Speaker 4: saying this will continue.
Speaker 3: Well, this is what we always talk about, right because
Speaker 3: they behind what Microsoft and Amazon right have lagged in
Speaker 3: terms of the cloud. This shows what that they're making progress.
Speaker 4: Well, they had a slower start, so they were always
Speaker 4: the third player, the distant third player. But look at
Speaker 4: the cloud revenue run right now, forty billion dollars. Compare
Speaker 4: that to Microsoft Azure seventy six billion and Amazon Aws
Speaker 4: one hundred billion. But at least they are growing thirty percent.
Speaker 4: So we'll find out whether Microsoft Azure is also growing
Speaker 4: thirty percent. But we know Amazon AWS is growing seventeen percent,
Speaker 4: so clearly their faster growth will help them narrow that gap.
Speaker 1: And deep speaking of Aws and Microsoft, what do these
Speaker 1: results tell you about what we should expect for those
Speaker 1: companies when they report later this quarter.
Speaker 4: I think for Microsoft as again, it's going to be
Speaker 4: a very strong quarter. You will see more than thirty
Speaker 4: percent growth. And Microsoft actually quantifies the contribution from generative
Speaker 4: AI workloads. Last quarter it was seven percentage points. I'm
Speaker 4: expecting it will be slightly highed this quarter, but clearly
Speaker 4: that's where I spend is going is in, you know,
Speaker 4: the generative AI workloads. And I think Microsoft will do
Speaker 4: better than Ada BLUs because Adawlus has been coming from
Speaker 4: behind when it comes to generative AI.
Speaker 3: I just want to mention Amazon. I'm just looking the aftermarket,
Speaker 3: very little movement, maybe up about one third of one percent,
Speaker 3: and I just want to look at Microsoft thir it's
Speaker 3: down about two tents so I don't know that they
Speaker 3: weren't necessari seeing any kind of significant reaction.
Speaker 2: Okay, it's not just Alphabet, but one company that is
Speaker 2: seeing a more significant reaction after hours right now is Tesla,
Speaker 2: down four point six percent as we speak. Second quarter
Speaker 2: adjusted earnings per share missed estimates EPs. Excuse me, adjusted
Speaker 2: earnings per share for the second quarter miss the average
Speaker 2: channel this the estimate. They're also getting quite a bit
Speaker 2: of information on the in from the long presentation about
Speaker 2: how many cars they plan to deliver, fewer than the
Speaker 2: one point eight million cars they delivered in twenty twenty three.
Speaker 2: I know you guys are here to talk about Alphabet,
Speaker 2: but we can't let you leave without talking a little
Speaker 2: bit about what we saw with Tesla, Mandy, what sticks
Speaker 2: out to you.
Speaker 4: I mean, look with Tesla, the fact that they shifted
Speaker 4: out the robotaxi event. That's where all the excitement was,
Speaker 4: and you know right now, I mean, they don't have
Speaker 4: a near term catalyst. Everyone is excited about AI. That
Speaker 4: is where they could have shown their AI. I mean,
Speaker 4: I know, humanoid robots are also a big deal, but
Speaker 4: they gave a date and then they backed off. So
Speaker 4: to me, you know, that's that was never a good
Speaker 4: sign going into the print. What about for you?
Speaker 1: Read well, I think it's interesting that the thing to
Speaker 1: get excited about is kind of this pie and the
Speaker 1: sky idea of a robotaxi that no one has really
Speaker 1: been able to successfully monetize yet. I think that kind
Speaker 1: of speaks to where the company is at, maybe get
Speaker 1: in a little bit away from its true mission, which
Speaker 1: has always been selling evs. You know. But I think
Speaker 1: there are some positives to take away from the support
Speaker 1: they did. They did actually beat gross margin expectations. I
Speaker 1: think that's going to be really important for investors going forward,
Speaker 1: is how can this company continue to trim expenses if
Speaker 1: they aren't going to be seeing really aggressive top line
Speaker 1: growth as they were in the past. So good to
Speaker 1: see them focusing there on improving the efficiency a little bit.
Speaker 3: All right, So just to wrap up top question for
Speaker 3: Tesla that you would make on the call real quickly.
Speaker 1: I mean, it's got to be the roadmap to continuing
Speaker 1: Where does robotaxi? When, where is the robotaxi, when is
Speaker 1: it coming? And again where the is there anywhere we
Speaker 1: can continue trim costs?
Speaker 4: Read?
Speaker 2: Just show me the robotax that elon that I want to.
Speaker 3: Know about the mass market car that's going to like
Speaker 3: sell tons.
Speaker 2: Of the Model three.
Speaker 3: Yeah, I guess I don't know. Go ahead.
Speaker 4: Investors care about FSD software attach rate. That's where the margins.
Speaker 2: Attach rate real quick.
Speaker 4: So attach rate is anyv Tesla AV owner that buys
Speaker 4: the software so you know attaches. If I end up
Speaker 4: buying twelve thousand dollars off FSD software for autonomous driving,
Speaker 4: that's like ninety percent plus gross margin. That's what investors
Speaker 4: get excited about Tesla because they think that gramp will
Speaker 4: continue to grow, the attachment will continue.
Speaker 2: The software company, not a car.
Speaker 3: Come ten seconds. Top question for Alphabet on the call.
Speaker 4: Alphabet, it's really about cloud growth. I mean, how fast
Speaker 4: can it grow and how long the durability of that
Speaker 4: cloud growth. The thirty percent cloud growth unbelievable.
Speaker 3: Man deep saying of Bloomberg Intelligence and Bloomberg News earnings
Speaker 3: report of Red Brown guys, thank you so much, so
Speaker 3: appreciate it. This is Bloomberg BusinessWeek