Alphabet Earnings, Amazon Earnings

Monday’s update concluded with the following:

“Meta has reported more than $38B of operating losses on its AR/VR efforts. The company needs products like Quest 3 and Ray-Ban Meta to do well and generate revenue to reduce pressure on what are mounting losses.”

There is more to say about the mounting losses in Meta’s Reality Labs and why I think generating some revenue is important. We will focus on that topic today. Our Big Tech earnings reviews will continue tomorrow.

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Thoughts on Google’s “Made by Google” Event, The Apple vs. Google Awkwardness

We kick things off with Neil’s thoughts on Google’s “Made by Google” event in NYC. The discussion goes over how Apple’s relationship with Google is becoming complicated (again). Let’s jump right in.

Thoughts on Google’s “Made by Google” Event

Last week, Google held its annual fall product event. A video of the presentation is available here. Google’s event came at the tail end of what has been a very busy two months. There is a limited window for Big Tech to host product events and launch new products in time for the holidays.

In what has become a theme with many of this year’s tech events, Google kicked things off by saying 2023 has been the year of AI breakthroughs and research. Rick Osterloh, who oversees Google’s hardware play, said he has never seen anything like the speed of innovation taking place at Google.

Last year, Google emphasized screens, device ecosystems, and smartwatches. While those items remained a focus last week, Google dialed up the AI talk. Google looks at hardware as a vehicle for showing off the company’s AI acumen. As shown in the following side, AI is right up there with hardware and software.

It’s difficult to see those three elements truly

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

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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Alphabet Earnings, Pichai Comments on Google's Mobile Search Deals, Microsoft Earnings

Hello everyone. We wrap up Big Tech earnings reviews with Alphabet and Microsoft. There are a handful of earnings from smaller companies worth going over – we will do that at some point next week. We kick off today’s update with Neil’s thoughts on Alphabet’s 1Q23 earnings. The update goes over Sundar Pichai’s comments on Google’s various services partnerships with Android OEMs as well as Apple for mobile search. We conclude with a look at the main takeaways from Microsoft’s FY3Q23 earnings.

Let’s jump right in.

Alphabet Earnings

Alphabet reported 1Q23 earnings back on April 25th. From a financial perspective, results were good. In a quarter that won’t be remembered for any particular financial line item, Alphabet reported $17B of free cash flow. That is testament to Google’s ad machine kicking off an incredible amount of cash quarter in and quarter out. The company possesses some of, if not the most, valuable pieces of digital real estate. As seen with a growing list of much smaller companies, most other ad-funded digital paths are nowhere near as attractive as Google’s.

Here are Alphabet’s major financial line items compared to those of Apple, Meta, and Amazon:

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Alphabet FY4Q22 Earnings, The Subscription War, Peloton FY2Q23 Earnings (Daily Update)

Hello everyone. We kick off today’s update with Neil’s thoughts on Alphabet’s earnings. The discussion also goes over an observation regarding the changing competitive landscaping involving Google, Amazon, and Apple. We then examine Peloton’s earnings. Let’s jump right in.

An anecdote regarding Apple TV+ and Hollywood star branding.

Looking over my Apple TV+ usage over the past few months, actors/actresses have played a key role in my watch habits. Apple’s heavy marketing around the new Jennifer Lawrence movie "Causeway" included making her Hunger Games films available to TV+ subscribers for free for a limited time. Those movies represented a decent amount of my TV+ watch time in the back half of 2022.

It is fair to question if this star power emphasis appeals to certain age demographics (i.e. older) over others. However, considering that all Apple TV+ subs are essentially family subs, Apple only needs to appeal to one family member to do well in the subscription engagement/dollars battle.

Alphabet FY4Q22 Earnings

Continuing our earnings reviews, we turn to Alphabet. The company reported 4Q22 earnings back on February 2nd.

Here are the major financial line items compared to those of peers:

(click / tap here to view table)

In what has become a theme with these releases, a main takeaway from Alphabet’s earnings call was a focus on cost controls. There was talk of economic anxiety, softness in various businesses, and a resulting push for optimization and improved profitability.

A big difference between Google and Amazon is that Google Search remains highly profitable.

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Alphabet 3Q22 Earnings, Three Google Yellow Flags, What Apple May Say About FY1Q23 (Daily Update)

We begin today’s update with Neil’s thoughts on Alphabet’s 3Q22 earnings. The discussion then turns to three yellow flags found in Google’s numbers. We conclude with a few of Neil’s closing remarks heading into Apple’s earnings release. The update includes access to Neil’s updated Apple earnings model.

Hello everyone.

As a reminder, there won’t be a daily update published tomorrow due to Apple earnings. Instead, the update will be pushed to Friday. In today's update, we will conclude our Apple earnings preview discussion.

CY3Q22 earnings season is in full swing. Tesla reported results a few days ago. Alphabet, Microsoft, and Spotify reported earnings yesterday. Meta reported results today.

The game plan is to go through these earnings reports with an eye out for trends and developments that will either have a direct impact on Apple or cause Apple competitors to change / modify strategies. We will kick things off with Alphabet earnings.

Alphabet 3Q22 Earnings

Heading into Alphabet’s earnings release, consensus was already aware of various headwinds impacting digital advertising trends. Macro issues were clearly hitting advertising revenue growth. In addition, temporary behavioral change caused by the pandemic was still producing an overhang on year-over-year revenue growth metrics. The unknown was found with how competition, namely TikTok and Apple, were impacting business trends.

In a nutshell, Alphabet’s 3Q22 numbers were alarming. Revenue growth has imploded.

The following exhibit contains the primary financial metrics for Alphabet’s 3Q22.

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

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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