Google | Q3-24 Earning & Call
The Beast.
If you do not know about Google or still have doubts about its business & stickiness, you can find everything you need here.
This quarter is nothing but a show of strength - once more.
Overview.
EPS. $1.85 | $2.12 | +14.59% beat
Revenue. $86.33B | $88.27B | +2.24% beat
$15.3B of buyback & $2.45B of dividends.
"The momentum across the company is extraordinary. Our commitment to innovation, as well as our long-term focus and investment in AI, are paying off with consumers and partners benefiting from our AI tools."
Very strong numbers.
Business.
This quarter will certainly quiet the narrative according to which ChatGPT & others will kill Google Search. The famous LLM was released almost two years ago now and cumulates 200M weekly active users and yet, Google has never been that strong.
The biggest interrogation was about how & when they would be able to optimize their AI tools for monetization and even if we're not there yet, users find a real value in them and gave Google a very easy way to monetize as they use them to gather information… For shopping.
“First, as you heard from Sundar, every month Lens is used for almost 20 billion visual searches, with one in four of these searches having commercial intent.“
These tools also allow Google to have a better understanding of their users through new usages, not only queries. This helps building better profiles & increase targeting & ads efficiency.
“They saw a 15 times higher conversion rate at a 50% more efficient cost per action when compared to Video Action Campaigns alone.”
We already saw that with Meta so, nothing surprising, but it is nice to confirm it is globally true and not only due to Meta's execution. Either way, the demand for AI products is really strong globally, especially with young users.
“In Search, recent advancements, including AI Overviews, Circle to Search, and new features in Lens, are transforming the user experience, expanding what people can search for and how they search for it. This leads to users coming to Search more often for more of their information needs, driving additional search queries.“
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“A third of the people who have tried Circle to Search now use it weekly, a testament to its helpfulness and potential. Meanwhile, Lens is now used for over 20 billion visual searches per month.”
Google Search & Advertising at large is thriving, as you can see below - worth noting that many times during the call, management mentioned that APAC-based retailers were a big part of it… That's Alibaba & co. Probably some signs there.
And despite this perfection, they still have comments like “And specifically to your question of monetizing queries, that we’re weak in monetization potentially at the moment, yes, I can see that there's an opportunity for that.“
It is only starting.
Their Cloud business is in the same state of grace, up more than 30% YoY with an accelerated growth, led by a demand for all their products be it storage, AI compute power, AI modeling, data analysis or Cybersecurity solutions…
YouTube crossed $50B of yearly revenues for the first time - cumulating both subscriptions & advertising. This is 50% more revenues than Netflix last year, to give you an idea.
It still is the most used streaming platform with constant usage & watched time growth for all format it proposes, be it shorts, movies or classic YouTube content.
Waymo is also doing well. You guys already know my opinion about the tech behind and how it doesn't compete to Tesla's FSD, but there are no doubts that they are doing wonderful and that their product is a great one, now driving 150,000 paid rides per week, and soon available in new places.
On other subjects, the company is doing a really great job at optimizing its infrastructures as hardware sure costs a lot to buy, but also allows much finer configurations for almost everything.
“For example, we shared that since we first began testing AI Overviews, we've lowered machine costs per query significantly. In eighteen months, we reduced costs by more than 90% for these queries through hardware, engineering, and technical breakthroughs, while doubling the size of our custom Gemini model.“
This also comes with the internal use of their own AI softwares.
“Today, more than a quarter of all new code at Google is generated by AI, then reviewed and accepted by engineers. This helps our engineers do more and move faster.“
Engineers' time isn't over. But bad engineers will have a harder life in the next years - although I'm not sure Google has many bad ones. Google is also one of the first companies working on using nuclear power for its energy consumption.
“We're also making bold clean energy investments, including the world's first corporate agreement to purchase nuclear energy from multiple small modular reactors, which will enable up to five hundred megawatts of new 24/7 carbon-free power.”
Amazon or OpenAI are also interested but this is to my knowledge the first move towards it.
Project Astra, the concurrent to Meta’s Smart glasses - not Orion, is also set to launch by 2025. Another war for market shares from two giants is starting, and many will join.
Revenues.
You’ve seen the overview already, perfection is in the business & the financials.
Revenue is growing with a very healthy & stable double digit, both gross & net margins are expanding due to never-ending optimization & EPS are growing thanks to it all, plus enormous buybacks. Balance sheet now sits at $97B of net debt with a $17.6B of FCF & $55.8B of FCF for the last 12 months.
Regarding Capex, we've had lots of worrying about the giants' spending for hardware and it seems that Google is still planning to grow it, but less than it did this year. Still spending but lower spending.
My Take.
I'm not sure I need to write any conclusion. The quarter is so very strong it speaks for itself. Sundar rapidly commented on the DoJ investigation but without giving any information, as it is ongoing. They of course plan to fight and believe that they did not do anything wrong. As I said in a weekly some time ago, I believe it all to be a lot of noise to tune out.
Was lucky enough to have the tick under $150 early September and there are no reasons not to hold strong on such a wonderful company.