We begin with Neil’s thoughts on Alphabet’s earnings. The discussion includes commentary on Alphabet/Google CFO Ruth Porat transitioning to a new role at the company. We conclude with Neil’s updated Apple earnings model and how the model has changed over the past three months. Access to Neil’s Apple earnings model is a benefit associated with Above Avalon membership at no additional cost.

Hello everyone.

In keeping with our usual practice, tomorrow’s update (Thursday) will be pushed back a day so that we have a special Friday edition of the update to review Apple’s earnings. Apple will release earnings Thursday at 4:30 pm ET.

For today, we will focus on Alphabet’s earnings.

Alphabet 2Q23 Earnings

Alphabet reported a solid quarter as delays in some expenses and investments helped to boost CY2Q23 profitability.

Revenue was up 7% (up 9% excluding FX) with gross margins up 140 basis points year over year. Operating income was up 12%. Free cash flow was $22B.

While much of Alphabet’s earnings call was dedicated to AI, the more tangible takeaway was continued stabilization in the digital ads market. Like Meta, Google saw additional improvement in its core ads business. As macro issues subside, the purveyors over the most valuable pieces of digital real estate are positioned to see a return to ad revenue growth.

There is an asterisk found with the preceding statement.

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Hello everyone. Yesterday's update regarding Google pulling the plug on Stadia led me to pursue a few additional points when it came to Google and Alphabet. Let's jump right in.

Growing Fallout Surrounding Google Stadia Shutdown

Over at TechCrunch, here’s Devin Coldewey:

“There’s a lot of chatter right now about the ‘surprise’ shutdown of Stadia, Google’s game-streaming service. While it’s true that rivals like Geforce Now and Xbox Cloud Gaming presented entrenched competition and that Google knows next to nothing about gaming, the main trouble — as with most of its products these days — is that no one trusted them to keep it alive longer than a year or two.

It really is that simple: No one trusts Google. It has exhibited such poor understanding of what people want, need and will pay for that at this point, people are wary of investing in even its more popular products…

And here’s where it was really doomed. Because while people will happily drop a couple bucks here and there for a Google service, no one is going to pay hundreds for something they have a sneaking feeling is going to be completely worthless in short order.

Google’s legacy of killing products is infamous. Its twists and turns on priorities, branding, standards and everything else have made it clear to everyone that they cannot be trusted with anything beyond their core services, and they even like to screw those up now and then.”

Coldewey concluded by saying Google has permanently destroyed the trust of stakeholders (developers / game studios / media / creators / consumers etc.) that would be needed to get new products off the ground.

Coldewey raised a number of good points. He was not alone in sharing such feelings either. Various tech publications ran similar opinion pieces regarding Google trust issues. While there is nothing wrong with killing or ending a bad product or business, if a company becomes a habitual product killer, customer trust will suffer. A very good argument can be made that Amazon is suffering from a similar dynamic especially when it comes to devices. In both cases, we have companies conducting too much R&D out in public.

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Alphabet 2Q23 Earnings, Ruth Porat to Oversee Alphabet’s Other Bets, My Updated Apple Earnings Model

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Growing Fallout Surrounding Google Stadia Shutdown, Revisiting the Alphabet Structure, YouTube Testing 4K as Premium Feature (Daily Update)

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