Google Q1-25 | Earning & Call
Strong & resilient.
If you want to learn more about Google & why it remains a value even in today’s AI era, it’s all here.
Overview.
And today confirmed that Google will be an AI leader - although I wasn’t skeptical.
Revenue. $88.87B | $90.23B | +1.53% beat
EPS. $2.02 | $2.81 | +39.11% beat
$2.4B of dividends & 5% increase | $15.1B of buybacks & new $70B buyback plan.
Small parenthesis. The net income beat isn’t entirely due to Google’s business. More in the financial portion of the report.
Business.
An overall review before diving into specifics: Google is doing well with double-digit growth from each branch - except an 8.5% YoY growth for advertising which is close enough. We could talk about a slower YoY growth over the last quarters to be really picky, but it is something to expect with the actual macro conditions.
The quarter is globally strong.
Search.
We are now more than two years after the release of ChatGPT & many more LLMs and Google Search disruption is still not happening. On the contrary, over 2B users for more than 5,000,000,000,000 queries per year while Google keeps working on Search, adapating it to AI with Overview first & Mode soon enough.
“AI Overviews is going very well with over 1,500,000,000 users per month and we are excited by the early positive reaction to AI mode […] Nearly a year after we launched AI Overviews in The U. Speaker 3: S, we continue to see that usage growth is increasing as people learn that search is more useful for more of their queries.”
Not 1.5B queries, 1.5B users. For those who do not know Overview, it is the rapid answer you get before the links to your query. Here’s an example.
Not only is it widely used, but it is used for valuable queries.
“with the launch of AI Overviews, the volume of commercial queries has increased.”
And Google is working on the next step which they call Mode, to allow conversation like interactions like you have with LLMs already. There are more challenges though that LLMs, starting with delays.
“On average AI mode queries are twice as long as traditional search queries.”
ChatGPT is wonderful but it remains a niche tool for conversations & users know that they’ll need to wait to have better answers. This can’t happen on Search, users won’t wait a minute. Conversations are available through Gemini in a ChatGPT manner, but search has to be optimized to meet expectations.
Second, Circle to Search & Lens are also more used for commercial purposes. Once again, every query is not a profitable query. Having a conversation with ChatGPT on history can’t be monetized.
“Circle to Search is now available on more than two fifty million devices with usage increasing nearly 40% this quarter. And monthly visual searches with Lens have increased by 5,000,000,000 since October […] On the last earnings call, I mentioned the success we're seeing with Lens, where shoppers use their camera or images to quickly find information in ways they couldn't before. In Q1, the number of people shopping on Lens grew by over 10% and the majority of Lens queries are incremental.”
Having the possibility to circle the product you see on a YouTube video to find where you can buy it in a few seconds is pretty valuable, from a user point of view but also for Google’s point of view. Those are valuable & monetizable queries.
Google Search continues to win.
YouTube.
Twenty years later, the platform became one of the most influential we know of. We are talking about 20M videos uploaded per day, more than a billion monthly active podcast users & YouTube Premium reaching 125M subscribers. For comparison, Spotify has 263M paid subscribers and is 7 years older.
We don’t have much more information on it but this part of Google’s business is really helthy and continues to grow & improve, bringing satisfaction to both content creators & users as the platform remains the #1 in term of hours watched.
Cloud.
More confirmation that demand for their AI cloud services is booming, higher than what they can deliver which explains the confirmation of their $75B CapEx this year, mostly for infrastructure - the best one.
“We were the first cloud provider to offer NVIDIA's groundbreaking B200 and GB200 Blackwell GPUs and will be offering their next generation Vera Rubin GPUs.”
This also highlights the importance of Nvidia in the AI ecosystem. Important to be aware of it as an investor.
Their clouds are used for a wide range of services, from training & inference with their architectures to developments using their tools or final products for different kinds of tasks for their Google suite…
“And of course, Google Workspace. It delivers more than 2,000,000,000 AI assists monthly, including summarizing Gmail and refining docs.”
It is too early to answer the famous question about hyperscalers’ capacity to generate growth from their CapEx spending but so far, demand is really strong and it seems to be working well.
“growth in GCP across core and AI products at a rate that was much higher than cloud's overall revenue growth rate.”
Google Cloud was a bit late on its competition - Amazon & Microsoft. Still is, but they are working hard to catch up & the acquisition of Wiz will help. We detailed it here.
Other comments.
Some more comments on AI at large & how it boosts Google’s business. First in terms of usage as the entire world learns to work with those new tools & needs to.
“Third, turning to products and platforms. All 15 of our products with a half a billion users now use Gemini models.“
On advertising, as shared many times by Meta over the last quarters, AI tools are more & more used and drive more engagement & conversions.
“Thanks to dozens of AI part improvements launched in 2024, businesses using DemandGen now see an average 26% year on year increase in conversions per dollar spent for goals like purchases and leads. And when using DemandGen with product feed, on average, they see more than double the conversion per dollar spent year over year.”
Google continues to leverage AI to propose cheaper services for better conversion. More value.
Waymo is scaling fast with 250,000 paid trips per week while only deployed in 4 cities. A 5x YoY growth. This confirms the strong demand for the service and its potential, with 4 more cities to come during the next two years.
Management also highlighted the importance of Uber for the service. Why? Because they have the tech but missed the users.
“Obviously, a highlight of it is a partnership with Uber. We are very pleased with what we are already seeing in Austin in terms of rider satisfaction. We look forward to offering the first paid rides in Atlanta via Uber later this year.“
I said it many times & will say it again, Uber will be the winner with AVs because they have the users & can leverage others’ tech.
Financials.
Lots of things to note here.
A constant YoY growth at 12% but even better, a lower growth in expenses & costs which were only up 8.2%, growing operating margins - up from 31.6% to 33.9%. This shows improvements, probably due to their AI services which are higher margins products.
Important to note that Google booked an $11.183B unrealized gain from investments - $8B coming from SpaceX according to Bloomberg. It’s great to see our companies’ investments flourish but this has nothing to do with Google’s business. Without it, Google would have $26.8B of income for a net margin of 29.7% & EPS of $2.22. Remains impressive & above expectations.
Cash remains a fortress, with $19B of FCF & $84B of net debt. This strong position will help Google invest in their long-term objectives even if we enter a more complicated period for global advertising.
“And we're still focused on driving efficiency and productivity throughout the organization, both in our operating expenses and in our CapEx. I've mentioned some of these during my prepared remarks. But certainly, this helps us as we think about the investments we need to make in innovation to drive long term sustainable growth profile for the company.”
To finish with some thoughts, the increase in dividend & new buyback program might be a way of boosting the attractivity of their stock during what could be a complex period. Just an idea, time will tell.
My Take & Valuation.
Strong. Nothing else to say.
As for valuation, Google is a blue-chip fundamentally & part of the companies which can be bought no matter price action - to my opinion. We still are under a great accumulation price to me, which I believe around $190.
Assuming Google’s fair multiples are its 10Y average, we’d need the company to grow 5% & some peanuts over the next five years to return as much as the SPY. Any growth superior to this or improvement in margins - both I believe them capable of, should yield better returns than the SPY.
I wasn’t worried for Google’s business or competition from LLMs but it’s always nice to have confirmations - and we had many through the quarters by now. Let’s see how the actual macro impacts future growth.
“I mean, we're obviously not immune to the macro environment”
On one hand, Google is so integrated in our life that some advertising sectors will rely on them no matter the economic conditions. During consumption periods, retailers will do volume & slow down during tougher times - especially from APAC recently. But others will step up during those tough times - financials & insurances lately, as shared by management.
Some advertisers slow down, others step up. This is the power of having billions daily users around the world. Keeping in mind that most of Google’s services are free to use - YouTube, Search, Gmail, Maps… Exactly like Meta, a period of slower consumption can slow advertisers spending but won’t slow the usage on their platforms by retails.
So far, so good. Will need to keep an eye on how advertising will evolve over the next years but as long as Google retains its users, revenues will come back once the economy is healthier - and it will.
Looks like a bright future ahead for google... Haven't looked much into it, but will do so 😁