Alphabet Announces Third Quarter 2016 Results | Hacker News Reader

Alphabet Announces Third Quarter 2016 Results

abc.xyz

It's interesting to note that Microsoft's revenue, operating income, and net income are all now lower than Google's (https://www.microsoft.com/en-us/Investor/earnings/FY-2017-Q1...).

As someone that is very naive when it comes to earnings reports, do you mind explaining why this is interesting?

Because Microsoft is a more traditional software company, selling software licenses, plus their once dominant market share.

Microsoft used to be the 800 pound gorilla in the tech space. No one even came close to it in size. Now Alphabet (and presumably Apple, though verify the numbers) are bigger than it by every conceivable relevant metric.

Growing up (1996-2006), I remember every software industry article was either excited about what Microsoft would do next in some space or terrified that Microsoft would step in and destroy some business. Due to this, there are now a generation of people with an atavistic fear of Microsoft.

See also embrace, extend and extinguish:

https://en.wikipedia.org/wiki/Embrace,_extend_and_extinguish

And our original host noted the sea change when Microsoft stopped being that 800 pound gorilla: http://www.paulgraham.com/microsoft.html

Apple has more revenue and net income(latest quarter @ $46.9bn and $9bn) than Google and Microsoft combined.

Adding to what others said, slashdot.org was the water-cooler news site back then and the icon for Microsoft was a borgified Bill Gates.

Microsoft did everything it could to destroy openness in the software world. They wrote that the GPL was a virus, hired prominent heads of open source projects like Miguel de Icaza and the name of the Gentoo guy who I forget, and nothing really became of those projects afterwards. And of course there was Netscape and IE up through IE8, IE6 being the most infamous.

Yeah... Microsoft was the bad guy on the block.

(edit: misspelled Gentoo)

It was depressing seeing how MS treated OSS on their own ecosystem (.net). For every good project MS would release there own inferior clone and the whole ecosystem was left worse off.

Microsoft ate their own platform is what it was and then people stopped developing for them. That was one really big reason why the web became a thing. Everything used to run on the desktop. Microsoft quashed that, and then Google came along, made search, maps and mail work. Firefox and Opera (and yes, Safari) circumvented IE; Google pretty much funded Mozilla for Firefox until it came out with Chrome, basing off of Apple's webkit.

It's remarkable that those of us in the Linux world spent so much time trying to unseat Microsoft from the desktop, and what did it in the end was Google and Apple simply working around the Microsoft/Intel (i.e. "Wintel") monopoly.

But the way they quashed it is instructive: every few years they'd come up with some New, Improved way of doing it, and depreciating the old. People got sick and tired of learning the latest arcane, hard to program, generally with some degree of buggyness, poorly documented approach, only to have that become obsolete, and put what they'd created in jeopardy.

Well summed up. Somehow though, the GPL won in the end.

And funded the SCO Group v. The World lawsuit.

On the other hand, in the early days IE beat Netscape fair and square in the technical domain, by engineering a vastly better browser, I think it was faster, and it was definitely a lot more stable. And let's not forget how they got AJAX started.

One of the "secrets" of Microsoft's success in those days was their ability to consistently write software that basically worked, something that allowed the dominance of their Office suite when all their competitors but WordPerfect completely failed to get a working Windows version of their software, and WordPerfect didn't crash but had intolerable bugs, like your figures and tables repeatedly moving themselves to the bottom of your document (as reported by a lawyer co-worker and friend who had been a big fan of it on MS-DOS).

My favorite is the OS/2 2.0 fiasco, of course.

Alphabet is much more diversified than Msft ever was.

No theyre not. Google earns 90% of it's revenue from essentially the same intent based advertising model across platforms.

It's the "across platforms" part that matters here. Microsoft lost the battle in their core business (OS and Apps) when platforms switched to, first Web then Mobile. Google started with Web on desktop and successfully continued their dominance to Mobile web and apps. To add insult to injury, Google added the dominant mobile OS to their arsenal right under Microsoft's nose.

Not sure why were both downvoted. Haha. They broke the mold on advertising via internet.

The key is how and why they got there. They're diversified across platforms and entry points. It also allows them to fund their other "bets" which they don't individually report. Cloud as well.

And Google is zooming past at an incredible 20% YoY growth rate while MSFT is basically stagnant.

Alphabet Revenues: $22,451

Google segment Revenues: $22,254

So everything else Alphabet is a cost center. Even the ROI for the $197M in revenues from Other Bets is offset by Other Bets losses.

By design, right? The other bets are exactly that - bets.

The point of Alphabet is to surface visibility as to how much these bets cost. Not to showcase their profitability.

I don't think so. As I understand it the "other bets" are supposed to be the things that become big businesses and can shore of the shrinking margins on search advertising and the market share loss to Bing.

Shrinking margins don't seem like a problem yet. Operating margin went up YoY from 25% -> 26% and revenue was up 20%. For the record, here's the discussion we had last year about search advertising margin: https://news.ycombinator.com/item?id=10796448. Odds for your prediction of widespread Google layoffs in 2016 are looking worse by the day.

And market share loss to Bing? Don't make me laugh. Bing revenues are up 9% YoY (https://www.microsoft.com/en-us/Investor/earnings/FY-2017-Q1...) while Google website income is up 23% YoY (note we don't have breakdown into search but conference call says this was primarily generated by mobile search & YouTube).

I agree widespread layoffs are probably not in the cards unless the next quarter really tanks. I don't count cutting back projects like Google Fiber as "widespread".

Bing's growth and CPC improvement in the Americas comes at the cost of the only other search engine.

I wouldn't get too excited about the 20% revenue growth, it didn't quite match the 21% total growth of the segment[1].

[1] https://www.iab.com/news/first-quarter-u-s-internet-ad-reven...

Those numbers are rather suspicious when Microsoft is not getting meaningful revenue from bing.

Do you have any evidence that Google is losing market share? The latest reports I could find (from Feb 2016) showed that Bing's incredibly small increase in market share in the Americas is actually less than Google's growth, and at the expense of Yahoo and Ask.

https://www.searchenginejournal.com/bings-share-search-marke... sees it a bit differently.

0.2% change in one month does not make a trend.

Desktop market share is also increasingly less relevant to the search engine game.

> market share loss to Bing

wut?

And by the time that happens, they have become proper revenue-generating businesses rather than "bets".

Alphabet is becoming the Bell-Lab, Xerox Park of this generation?

- Invent a lot of cool tech (self driving car, AI) and lets others (Uber, Tesla) to make $ from it.

It's hard to say google invented either of those things with a straight face. Advanced the state of the art, certainly.

Depends on if their top employees get poached by some of the other companies. In that way, it could happen.

Alphabet did not invent the self-driving car or AI lol. C'mon dude, most of Alphabet is PR to recruit the <<best and the brightest>>. Half of the stuff they start up at X they shut down in a year and then don't even release the source.

As much as I want your analogy to be true, it just isn't.

They must be kicking themselves for spinning off Niantic. With Pokemon Go I guess their revenues in Other Bets segment would have been significantly higher. Why make bets in the first place if they're not going to see it through?

  Stock Repurchase

  In October 2016, the board of directors of Alphabet authorized the company to repurchase up to $7,019,340,976.83 of its Class C capital stock. The repurchase is expected to be executed from time to time, subject to general business and market conditions and other investment opportunities, through open market purchases or privately negotiated transactions, including through Rule 10b5-1 plans.

Is it typical for Google to have stock repurchases? I haven't heard of them doing that before.

Happened last year but I think that was the first time:

http://www.nytimes.com/2015/10/23/technology/google-q3-earni...

Does anyone know what the number $7,019,340,976.83 refers to? The previous buyback amount referred to the square root of 26, the number of letters in the alphabet.

Looks like it's 10^6 * 26^e.

How did you do that??? That's amazingly accurate!

A colleague next desk saw this on some internal group, and told me. (I work for the Alphabet's main Bet)

That's sheds light on an entire branch of functions for representing real numbers that I had no idea about.

Thanks to someone for being creative!

Awesome! If you to try it out in ruby:

    10**6 * 26**Math::E => 7019340976.833626

Pretty accurate!

Can someone shed light on why companies do a stock repurchase?

It is a mean to return money to shareholders. The reason it is used over paying dividends is tax optimization. If you pay out the dividend, the shareholders need to pay income tax. If you do stock buyback, the shareholders need to pay capital gains tax, which is deferred until sale, and can even be offset by losses incurred on other capital holdings.

There is also a different level of expectation: investors expect dividends to continue and to increase year-by-year. Stock buybacks produce much weaker investor expectations.

Oh, and stock-option holders (employees/management) benefit from share buybacks, but not from dividends.

Basically a way to reward shareholders. They're more or less equivalent to dividend, but considered more tax efficient, because capital gains tax is lower than tax on dividends.

Long term capital gains and qualified dividends (which is most of them) are generally taxed at identical rates. Capital gains have a choice of timing advantage over dividends. (You can choose to take them now, or next year if you don't want the income exposure this year.)

The holding period required for long-term treatment is more than enough to qualify for the qualified dividend treatment.

This is misleading. A dividend is a taxable event, with stock buybacks people who hold the stock can defer taxes indefinitely.

In theory, a hypothetical company with a 1$ dividend every year would see it's stock price rise and fall by 1$ through this cycle. A buyback would see a continuous increase in price.

It is misleading? How could I have made that not (or less) the case?

I specifically called out that choice of timing in my second sentence and explained it further in my third.

There is a tax advantage, it is due do the zero tax rate on assets before they where sold. Sure, if you happened to want to cash out exactly the same amount or more than the dividend then it's the same. But that's not the general case.

Recently to inflate the stock price. They take advantage of near zero interest rates to borrow and then repurchase stock, the resulting price increase more than covers the debt service fees.

To return money to shareholders. In the case of a stock buyback, it also reduces the amount of outstanding shares, which makes every other share more valuable.

It has a tax benefit too. Dividends are taxed at a higher rate compared to capital gains.

Not generally. https://news.ycombinator.com/item?id=12811433

There is the unmentioned benefit that if you die your stock receives a step-up in basis while you have no such choice with a qualified dividend. It's fair to say that a capital gain is strictly better tax-wise than a dividend.

Qualified dividends are also a nuisance when you are trying to reduce MAGI for various reasonable tax-planning reasons.

I agree with that. What I was trying to correct was a common misconception that "dividends are taxed as ordinary income, and LTCG are taxed at a wildly different rate".

The tax rate on capital gains is the same as the tax on qualified dividends. It's the timing of the taxation that differs. With dividends you pay tax now, with capital gains you pay when you sell the stock.

Distributing cash via dividend or buyback usually happens when a company has more cash than they can productively use. There are a few advantages of distributing money via dividend instead of buyback:

* With a share buyback, the company is actually making a bad investment if the stock ends up being overpriced. There are plenty of instances of companies buying back shares and then having the share price drop, because companies can't reliably time the market any better than the rest of us.

* Investors receive a tangible reward when a dividend is paid. In theory, you can mimic dividends by periodically selling small portions of a non-dividend stock holding. However, this means that you're subject to fluctuations of the stock market, so your "dividend" sale might be 20% more or less depending on the month. Dividend-paying companies, on the other hand, typically aim to have predictably-increasing dividends.

The predictability of dividends, however, is a negative if you're a company that doesn't want to set aside cash for investors on an ongoing basis, which is the case for many tech companies.

10,000 employees added in a year? Wow, that's alot!

Also interesting the shift in the UK operations from a +5% UK Growth rate based on earlier Sterling currency planning and a real -1% Growth rate thanks to the effect of Brexit.

The most real short term effect is a shocking loss of stability.

As someone not even living in Europe, but with friends living in the UK, I feel that the best path forward is for Europe to continue to refuse to negotiate anything, for the leaders in the UK to stew and not actually press the self-district button they voted to remove the safety cover from, and for a new set of elections to be held allowing those who are now more cognizant of the terrible decision they allowed emotionally charged rhetoric to goad them in to making to show they've changed their minds.

Agreed, we just moved back to the Ireland from UK and it's been painful currency wise. The UK used to be such a stable place for business but now definitely not...

> [...] a new set of elections to be held allowing those who are now more cognizant of the terrible decision they allowed emotionally charged rhetoric to goad them in to making to show they've changed their minds.

Amusingly, it's primarily the Remain camp's predictions of total economic catastrophe that have proven false.

One might even describe it as "emotionally charged rhetoric"

The majority of the bad things that the "Remainers" are worried about haven't taken effect yet. The vote happened but things are largely unchanged. I don't think you can use the last several months as proof that the worries of those who voted to Remain were incorrect. That's the same logic as those people who blamed Obama for the 2008 Bailout, when it was very clearly in motion for a long time before he even took office.

> Amusingly, it's primarily the Remain camp's predictions of total economic catastrophe that have proven false.

I didn't knew that UK had already leaved the UE. When was that?

The remain camp predicted total economic catastrophe after the actual Brexit. You can't say anything about it is proven yet because it's still a few years in the future and will depend on the negotiations, what Scotland does, how ongoing law suits will go, and so on.

So democracy is only OK so long as you get the "right" result? And UK should be forced to remain in a union despite their will?

> So democracy is only OK so long as you get the "right" result? And UK should be forced to remain in a union despite their will?

I want to agree with you but I can't because I want a new referendum for Scotland well as for alternate voting. Opponents will use the (fiercely neck and neck) results to show that the discussion on this topic is over and I vehemently disagree. If you see it as my rejecting people's will, so be it. Nothing: not will of the majority, not rule of law, nothing is absolute. Everything is up for negotiation.

A new election wouldn't help, the opposition are in a terrible state right now, the same party would in all likely-hood be re-elected.

But Brexit was never a party standpoint. Tory MPs could be elected on a promise to stop Brexit.

I think I'd rather see another referendum once the cost of leaving becomes apparent.

Yes, but the real costs are only clear after the negotiations, and at that point I don't think the EU will allow a way back (with the risk of doing the whole thing again a few years later).

As it was said internally: "we are hiring '1 Facebook' every year."

I'd be very alarmed. How is the retention?

SUN was like that too, they averaged one campus per month in hires.

Would love to see a desktop vs mobile break down. Its phenomenal that most of their paid clicks are on their site which mean higher margins.

The first link after a search is often a text ad disguised as link for the exact same link just below. Sometimes, I purposefully click on the non-ad link... I call it "living dangerously!"

I never click on a link that is preceeded by a green 'ad' box, unless I am hunting for a deal on the site i specified in the search box. Like,"99c GoDaddy domains promotion".

So you never click on an ad, unless you are shopping. Cool.

Ad is a vast term. You are generalizing. Remember, a friend of mine posting a link to their product or blog is an ad.

Do they have details about Google Fiber?

Their CFO said that "Other Bets" generated revenue of $197 million, primarily from Nest, Fiber. Not much mention of cloud except that it grew with "Other Revenue".

But was Fiber profitable? What were the expenses? I.e. why would they suddenly "pause" it now?

They did not break it out. Speculation: They paused it because they are going down the intersection.com route instead using the Link brand (LinkNYC and LinkUK) - much eaiser way to bypass regulators but still get access to the built world.

Someone asked about it in the earnings call if you're curious [1]. I think it's been widely speculated about before but it seems like they're exploring new technologies (e.g. Wireless) that are more cost-effective [2].

[1] https://abc.xyz/investor/

[2] https://www.technologyreview.com/s/602730/google-is-cutting-...

> I think it's been widely speculated about before but it seems like they're exploring new technologies (e.g. Wireless) that are more cost-effective

And also way lower quality and limited potential in comparison with fiber. I'm basically wondering is it simply usual move for more profits, or fiber itself isn't profitable?

I think it has more to do with the road blocks being put in place by current isp's. Fighting and working around those increase fiber installation costs and makes it harder for them to be profitable. They still will probably expand google fiber to places that already have community fiber installations.

The previous CFO said at some point that Fiber had good margins, but that probably referred to mature markets like Kansas City, where most of the neighborhoods had been wired and bureaucracy was minimal.

Any reasons why they don't go in the details of the quarterly financials for Nest+Fiber ?

I'm sure they would be asked why they continue Nest/Fiber if the losses were detailed.

Isn't Nest part of Google and not "Other Bets"? I recall the Nest engineers being assigned to the new Google hardware division headed by Rick Osterloh.

Nest is a separate Bet.

Not a big fan of Class C the stock buyback. As a holder of Class A and Class C shares (from the earlier split), I thought I should sell Class C, that has no votes and buy Class A which get to vote. Mostly out of laziness, I didn't switch up to Class A, but if I can't vote with my Class A shares to buy back only Class A and not Class C, then I don't know which I would buy now. Seems like a backdoor transfer to Google employees who get Class C shares, but I knew what I was getting into with Larry and Sergey controlling the company with their B shares.

Out of curiosity, why do you care if you can vote with your shares on a company this size? Unobtainium shares(class B) already control 64% of the votes, so the odds of your vote mattering is essentially 0.

Side note: did anyone else notice how choosing "Alphabet" as the name of this entity, while apparently neutral and universal, is actually quite heavily loaded? Who in the world is not using "alphabet", i.e. an alphabetic language? China. So this "Alphabet" name just excludes a quater of humanity. Is it by purpose?

Our alphabet is made up of the letters A-Z. If we then take the letters 'L', 'I', 'Z', 'A', 'R', 'D' we can compose the word 'lizard'.

Lizard people confirmed.

No, they claim they chose it because it was an ALPHA, BET:

https://abc.xyz/

> We also like that it means alpha‑bet (Alpha is investment return above benchmark), which we strive for!

Plenty of people who use abugidas use Alphabet products too. But rest assured that people who use computers in China use pinyin input, and that is alphabetic.

Yes but no. Almost all writing systems are alphabetic, but the Chinese characters. It makes them very special and different. And China has its culture rooted in its characters. So using "alphabet" as the name of an entity with an universal reach just means the guys behind either do it by purpose or have a 25% sized blind spot.

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