WEBVTT - Instant Reaction: Alphabet's Q2 Earnings

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>Now, well one of those days where you know, a

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<v Speaker 2>whole third of the market cap of the S and

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<v Speaker 2>P five hundred reports second quarter Google Cloud revenue coming

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<v Speaker 2>above estimates ten point three five billion dollars, meeting estimates

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<v Speaker 2>of ten point h nine billion. Second quarter revenue excluding

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<v Speaker 2>the traffic acquisition costs coming in above estimates at seventy

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<v Speaker 2>one point three billion versus estimates of seventy point seven

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<v Speaker 2>billion dollars. So in some second quarter revenue excluding TAC

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<v Speaker 2>meeting estimates.

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<v Speaker 3>Yeah, so we're and we did see write some pressure

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<v Speaker 3>on shares of Alphabet here in the aftermarket. So let's

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<v Speaker 3>get to it with our team in the house is

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<v Speaker 3>Bloomberg Intelligence Senior Tech Industry Alice man Deep Singh along

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<v Speaker 3>with Bloomberg News Earnings reporter Red Brown, both in our

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<v Speaker 3>Bloomberg Interactive Broker studio. All right, Man Deep, walk us

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<v Speaker 3>through it the surprises, the strength, the weakness, or anything

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<v Speaker 3>that raises questions for you.

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<v Speaker 4>I think search once again performed very well. It was

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<v Speaker 4>better than census, and with Alphabet, whenever search beats consensus,

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<v Speaker 4>you know the operating margin beat will come. And that

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<v Speaker 4>was the same here. The only number that disappointed was

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<v Speaker 4>a YouTube ass revenue that.

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<v Speaker 3>Sing and I watched a lot of YouTube I don't

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<v Speaker 3>know what, because you could pay to get rid of

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<v Speaker 3>the ass. Yeah, we watched.

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<v Speaker 4>So up until last quarter they made it up through

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<v Speaker 4>better YouTube subscription sales. Now that doesn't seem to be

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<v Speaker 4>the case because the YouTube subscription number is reported alongside

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<v Speaker 4>the app store revenue, so it's hard to unpack whether

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<v Speaker 4>that was the weak part or the app store revenue

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<v Speaker 4>was the weak link. But clearly YouTube was a disappointing

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<v Speaker 4>segment and the results.

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<v Speaker 2>Investors don't seem that disappointed. I mean, shares of Google

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<v Speaker 2>right now, they're bouncing between red and grain, but I

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<v Speaker 2>mean we're talking small moves, and look these are after

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<v Speaker 2>a lot more. It was down a lot more. Yeah,

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<v Speaker 2>and this is before the call and deep. But is

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<v Speaker 2>this like a kind of Hohume earnings report?

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<v Speaker 4>I think, Look, when I look at search growing mid teens,

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<v Speaker 4>that just tells me, you know, a company with two

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<v Speaker 4>hundred billion dollars run rate in search business ninety percent

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<v Speaker 4>market share still manages to grow downble did it?

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<v Speaker 2>So it's it's experimental. AI is working, It's working.

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<v Speaker 4>And it's maintaining market share despite competition from chat rept, being,

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<v Speaker 4>you name it. Everyone keeps talking about.

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<v Speaker 2>How they just said Bing, is there really competition from being.

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<v Speaker 4>Well, Bing has integrated chat cipt now, So that was

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<v Speaker 4>what Satynadella was most excited about.

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<v Speaker 2>I am curious about the lack of ads that I

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<v Speaker 2>see when I look for when I do a Google

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<v Speaker 2>search and I see the experimental AI result, it doesn't

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<v Speaker 2>seem like they're making money for me.

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<v Speaker 4>Yeah, but if you go back in time, Google only

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<v Speaker 4>monetized seventy like seventy percent of their queries are now monetized,

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<v Speaker 4>only thirty percent hour monetized, and that too. It's a

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<v Speaker 4>very keyword driven business, so you know, people bid up

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<v Speaker 4>for keywords. That's what drives the ad pricing. And in

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<v Speaker 4>this case, you know, unlike social media that can increase

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<v Speaker 4>ad loads, Google is not increasing ad loads. It's still

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<v Speaker 4>key or driven and they're able to maintain that share.

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<v Speaker 4>You know, despite chat GPET coming in and for certain queries,

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<v Speaker 4>I'm sure people are going more to chat ChiPT then

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<v Speaker 4>coming to traditional search. But I mean, I think Google

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<v Speaker 4>has a competing offering with Gemini Advance and that will

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<v Speaker 4>be a subscription revenues stream down the line. So in short,

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<v Speaker 4>they've been able to maintain their market share despite all

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<v Speaker 4>the threat, and I think that's good news.

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<v Speaker 3>For stock is down about one percent here in the aftermarket,

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<v Speaker 3>but it's been bouncing around. Stocks up about thirty percent

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<v Speaker 3>year to day forward pe of twenty four. Alphabet is

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<v Speaker 3>game more than sixteen percent since it's blowout first quarter

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<v Speaker 3>report and red brand. I want to bring you into

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<v Speaker 3>it watching it as well, you know, join the conversation

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<v Speaker 3>here with Mandeep. I mean, I'm wondering too if this

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<v Speaker 3>is a quarter that you know safely easily lives up

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<v Speaker 3>to expectations.

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<v Speaker 1>I think man deeperly hit on the Obviously, the two

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<v Speaker 1>biggest things that jumped off the page to me as well,

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<v Speaker 1>which was search and YouTube coming in a little softer.

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<v Speaker 1>But the other thing that's really jumping out to me

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<v Speaker 1>is actually quebecs. If we think about, you know, how

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<v Speaker 1>are they competing with these other companies on gen ai.

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<v Speaker 1>That's where we'll see that investment. And from what I

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<v Speaker 1>can see CAPEX coming thirteen billion, that's I think the

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<v Speaker 1>biggest ever for Alphabet. I think that kind of really

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<v Speaker 1>speaks to where they are headed and kind of another

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<v Speaker 1>doubling down on this commitment and it seems to be

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<v Speaker 1>paying off. So between the search business continuing to grow

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<v Speaker 1>despite its size. Yeah, so definitely interesting there.

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<v Speaker 4>And I just wanted to since he brought up Capex.

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<v Speaker 4>You know, Capex is directly related to their cloud revenue.

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<v Speaker 4>So the fact that cloud sales grew twenty nine percent,

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<v Speaker 4>that Capex is paying off and.

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<v Speaker 3>You know money well spent basically.

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<v Speaker 4>Money we'll spend. And actually cloud margins grew six hundred

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<v Speaker 4>and fifty basis points. So for the longest time, Alphabet

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<v Speaker 4>was criticized because cloud wasn't making money, it was a

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<v Speaker 4>dragon profit. Well guess what in just the past two

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<v Speaker 4>three quarters they have shown over five hundred basis point

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<v Speaker 4>of margin expansion in the business. And that seems to

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<v Speaker 4>be the trend I think based on the guide they're

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<v Speaker 4>saying this will continue.

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<v Speaker 3>Well, this is what we always talk about, right because

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<v Speaker 3>they behind what Microsoft and Amazon right have lagged in

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<v Speaker 3>terms of the cloud. This shows what that they're making progress.

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<v Speaker 4>Well, they had a slower start, so they were always

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<v Speaker 4>the third player, the distant third player. But look at

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<v Speaker 4>the cloud revenue run right now, forty billion dollars. Compare

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<v Speaker 4>that to Microsoft Azure seventy six billion and Amazon Aws

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<v Speaker 4>one hundred billion. But at least they are growing thirty percent.

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<v Speaker 4>So we'll find out whether Microsoft Azure is also growing

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<v Speaker 4>thirty percent. But we know Amazon AWS is growing seventeen percent,

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<v Speaker 4>so clearly their faster growth will help them narrow that gap.

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<v Speaker 1>And deep speaking of Aws and Microsoft, what do these

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<v Speaker 1>results tell you about what we should expect for those

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<v Speaker 1>companies when they report later this quarter.

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<v Speaker 4>I think for Microsoft as again, it's going to be

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<v Speaker 4>a very strong quarter. You will see more than thirty

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<v Speaker 4>percent growth. And Microsoft actually quantifies the contribution from generative

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<v Speaker 4>AI workloads. Last quarter it was seven percentage points. I'm

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<v Speaker 4>expecting it will be slightly highed this quarter, but clearly

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<v Speaker 4>that's where I spend is going is in, you know,

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<v Speaker 4>the generative AI workloads. And I think Microsoft will do

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<v Speaker 4>better than Ada BLUs because Adawlus has been coming from

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<v Speaker 4>behind when it comes to generative AI.

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<v Speaker 3>I just want to mention Amazon. I'm just looking the aftermarket,

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<v Speaker 3>very little movement, maybe up about one third of one percent,

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<v Speaker 3>and I just want to look at Microsoft thir it's

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<v Speaker 3>down about two tents so I don't know that they

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<v Speaker 3>weren't necessari seeing any kind of significant reaction.

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<v Speaker 2>Okay, it's not just Alphabet, but one company that is

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<v Speaker 2>seeing a more significant reaction after hours right now is Tesla,

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<v Speaker 2>down four point six percent as we speak. Second quarter

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<v Speaker 2>adjusted earnings per share missed estimates EPs. Excuse me, adjusted

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<v Speaker 2>earnings per share for the second quarter miss the average

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<v Speaker 2>channel this the estimate. They're also getting quite a bit

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<v Speaker 2>of information on the in from the long presentation about

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<v Speaker 2>how many cars they plan to deliver, fewer than the

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<v Speaker 2>one point eight million cars they delivered in twenty twenty three.

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<v Speaker 2>I know you guys are here to talk about Alphabet,

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<v Speaker 2>but we can't let you leave without talking a little

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<v Speaker 2>bit about what we saw with Tesla, Mandy, what sticks

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<v Speaker 2>out to you.

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<v Speaker 4>I mean, look with Tesla, the fact that they shifted

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<v Speaker 4>out the robotaxi event. That's where all the excitement was,

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<v Speaker 4>and you know right now, I mean, they don't have

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<v Speaker 4>a near term catalyst. Everyone is excited about AI. That

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<v Speaker 4>is where they could have shown their AI. I mean,

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<v Speaker 4>I know, humanoid robots are also a big deal, but

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<v Speaker 4>they gave a date and then they backed off. So

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<v Speaker 4>to me, you know, that's that was never a good

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<v Speaker 4>sign going into the print. What about for you?

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<v Speaker 1>Read well, I think it's interesting that the thing to

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<v Speaker 1>get excited about is kind of this pie and the

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<v Speaker 1>sky idea of a robotaxi that no one has really

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<v Speaker 1>been able to successfully monetize yet. I think that kind

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<v Speaker 1>of speaks to where the company is at, maybe get

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<v Speaker 1>in a little bit away from its true mission, which

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<v Speaker 1>has always been selling evs. You know. But I think

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<v Speaker 1>there are some positives to take away from the support

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<v Speaker 1>they did. They did actually beat gross margin expectations. I

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<v Speaker 1>think that's going to be really important for investors going forward,

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<v Speaker 1>is how can this company continue to trim expenses if

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<v Speaker 1>they aren't going to be seeing really aggressive top line

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<v Speaker 1>growth as they were in the past. So good to

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<v Speaker 1>see them focusing there on improving the efficiency a little bit.

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<v Speaker 3>All right, So just to wrap up top question for

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<v Speaker 3>Tesla that you would make on the call real quickly.

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<v Speaker 1>I mean, it's got to be the roadmap to continuing

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<v Speaker 1>Where does robotaxi? When, where is the robotaxi, when is

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<v Speaker 1>it coming? And again where the is there anywhere we

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<v Speaker 1>can continue trim costs?

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<v Speaker 4>Read?

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<v Speaker 2>Just show me the robotax that elon that I want to.

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<v Speaker 3>Know about the mass market car that's going to like

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<v Speaker 3>sell tons.

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<v Speaker 2>Of the Model three.

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<v Speaker 3>Yeah, I guess I don't know. Go ahead.

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<v Speaker 4>Investors care about FSD software attach rate. That's where the margins.

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<v Speaker 2>Attach rate real quick.

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<v Speaker 4>So attach rate is anyv Tesla AV owner that buys

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<v Speaker 4>the software so you know attaches. If I end up

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<v Speaker 4>buying twelve thousand dollars off FSD software for autonomous driving,

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<v Speaker 4>that's like ninety percent plus gross margin. That's what investors

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<v Speaker 4>get excited about Tesla because they think that gramp will

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<v Speaker 4>continue to grow, the attachment will continue.

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<v Speaker 2>The software company, not a car.

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<v Speaker 3>Come ten seconds. Top question for Alphabet on the call.

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<v Speaker 4>Alphabet, it's really about cloud growth. I mean, how fast

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<v Speaker 4>can it grow and how long the durability of that

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<v Speaker 4>cloud growth. The thirty percent cloud growth unbelievable.

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<v Speaker 3>Man deep saying of Bloomberg Intelligence and Bloomberg News earnings

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<v Speaker 3>report of Red Brown guys, thank you so much, so

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<v Speaker 3>appreciate it. This is Bloomberg BusinessWeek