Alphabet Q1 2018 Earnings [pdf]
abc.xyz
abc.xyz
Numbers:
- Alphabet 1Q EPS $13.33, Est. $9.300
- free cash flow for the first quarter of $4.34 billion.
- 1Q Google Other Rev. $4.35B
- 1Q Rev. Ex-TAC $24.9B, Est. $24.3B
- Capital expense for Google more than triples: up from $2.4 billion to $7.7 billion year-on-year. That probably reflects spending on hardware, including the Nest division.
- Porat says that CapEx was "almost completely split" between paying for machines ("compute capacity") and paying for real estate.
- Without Nest, the "Other Bets" operating loss narrowed to $571 million from $703 million a year earlier.
- The company has discussed making annual stock grants to executives and other employees in the first quarter, and it's not clear yet how much that dragged down Alphabet's operating profit.
Ads
- 1Q Paid Clicks +55%
- Our first new glimpse at Google's network business: impressions on Networks sites stayed flat for the quarter, but the cost-per-impression went up 18 percent. Translation: Google is getting steady growth out of its display business.
Misc:
- added nearly 5,000 employees in the quarter, to 85,050 as of March 31. That works out to more than 50 new hires a day in a 90-day quarter.
- Porat also says the company has been working on the GDPR compliance for 18 months. "We've changed our policy as needed. We are also providing users with strong user controls and privacy settings and privacy check ups," she told Bloomberg Television.
- Porat says Waymo has achieved 5 million miles of driving on city streets.
Part of that also comes from Google buying up $1 billion of north Sunnyvale properties over the past year [0]. They bought roughly 50 properties. The article [0] has a nice map that shows since July 2017 Google has bought up roughly half of the Sunnyvale Moffet Park area.
I am mildly surprised how little coverage Google's buying spree has received.
[0] https://www.mercurynews.com/2017/12/22/google-expansion-ques...
Is that and the other Porat comments from the earnings call? The PDF doesn't seem to mention that.
Curious what makes that possible. I thought that most monitizable queries already had 100% of the above the fold content as ads.
At some point, Google is no longer a search engine, but rather, a targeted ad engine with some organic search if you bother to click to page 2.
Starting to feel like the old yellow pages in it's waning days.
Edit: Honestly curious. How do you keep outpacing general internet growth when you've already over optimized click growth. It's an honest question, not snark. I'm curious where the magic lies. I'm honestly surprised there's still magic after a couple of decades of squeeze. There's only so much blood in the turnip. Downvotes don't bother me, if there is some explanation. I'm here to learn.
1. Last year I saw ads for cat food even though I don't have a cat and Google has access to my photo stream.
2. I searched for information on the new Pixel 2 phone, but Google continued to show me ads for it after I had bought it and was using it at the time.
3. I saw an ad for Android Pay, so I tried to sign up. But then Google told me my bank doesn't support Android pay. Fair enough, but why do they continue to advertise Android Pay to me?
4. On Apple's website I configured a new MacBook Pro and placed it in my shopping cart, but then had second thoughts and I didn't actually buy it for 6 months. In that time I didn't see a single Google ad for a MacBook Pro.
On top of that, I don't think Google has actually optimised ad impressions. When I read a Forbes article I see ads like, "You won't believe what these celebrities look like now". When I read The Economist I see ads for milk processing plant equipment. With all the personal information Google has about me, why aren't these publications using AdSense?
$2.4 billion of that $7.7b is from their Chelsea Market purchase.
On an annualized basis, they are doing ~$120B.
They have ~85k employees.
That means they are generating ~1.5M Revenue Per Employee.
That's crazy
Definetely needs to be weighted.
An example, Murphy Oil Corporation has 1,294 employees...
Also another interesting trend is how many healthcare companies are in that list.
AmerisourceBergen is a drug distributor / wholesaler, so they have huge revenues bc they sell expensive drugs, but they don't capture much of that (their net income is negative)
Express scripts is a PBM and highly profitable. I don't really know what PBMs do at a useful level of detail, but their profitability has been a subject of debate as pharma companies blame them for high prices. They basically aggregate demand for drugs and negotiate prices on behalf of payers, and make money on their ability to do so
Gilead had one of the best selling drugs of all time, that did $5B in revenue in the first quarter of launch, and $20B+ in the first year I think. Since then rev has declined but still massive
The insurance companies get lots of rev from premiums but margins are low
Biogen and celgene also have one or two drugs that do $5-10B / year
Should note that drugs only account for 10% of health spend. The biggest driver of healthcare costs -- hospital care (30%) and physician services (20%) don't show up in this chart bc they are fragmented industries and also human-capital intensive
Were you in a class with Professor Long at Tulane? He has a great, great slide illustrating these and many other facts about the US healthcare economy over the last century.
Alphabet's growth rate is actually accelerating.
And they're not acquiring this growth, they're generating it organically.
Truly astounding.
It sounds really interesting and might benefit others as well.
(disclaimer: I work at Google, although I read the book before I joined. I remember initially thinking the book was just corporate PR, but later I had the opportunity to see firsthand how accurate it was)
[1] https://smile.amazon.com/Work-Rules-Insights-Inside-Transfor...
Many other companies that have more customers than Alphabet manage to have support staff. While I doubt Alphabet cares, I won't use one of their paid services until I can get support.
My guess is that this 85k is just FTE
Also, the "cost per employee" can look artificially higher because they contract out so many of the support positions they do have. I think "employees" mostly constitute management, marketing, and engineers?
Usually, when a business is as lucrative as google's, competition arrives. But it seems like tech doesn't work that way.
For example, if a chicken restaurant is making $1.5 million in revenue per employee, then you'd see tons of chicken restaurants pop up to compete. Even the employees, seeing such extraordinary revenue, would quit and open up shop. But for a variety of reasons, tech doesn't seem to work that way.
Is it lack of capital? Lack of opportunities? Lack of tech-oriented people? Lack of entrepreneurs?
> That's crazy
It's ridiculous. It's amazing how profitable large tech companies are. What's even more puzzling is why there aren't more googles/facebooks/etc, especially in other countries like france, germany, britain, etc.
I have admired the stability and the maturity of their technology platform since my AWS days.
On the downside, effective tax rate is down to 11%. That's concerning because the EU is very unhappy about the whole "double Irish with a Dutch sandwich."
That's not the only thing, but it's a big part of it.
Revenue is up 26% year-over-year. Operating income is up 6.6% year-over-year.
The stock is up ~25% over the last 12 months, by the way.
Absolutely obscene. Literally their entire Net Income increase from $5.4b to $9.4b is due to a tax cut from 20%. We will be paying for this Republican tax policy for the rest of our lives.
If you think lobbyist-driven tax policy in America is ONLY done by Republicans, you should probably expand your reading beyond CNN / WashPo. You're right that the federal government that creates the tax policy is for sale, but it's not just the Republicans.
I needed the tax cut. If you don’t, you don’t have to keep it. I am a better steward of my money than the government, especially when it comes to saving and investing for my family’s future.
Really, ok what have you done with your money? How many buses do you run? How many schools, roads, armies?
It's not as if there is an objectively correct amount of taxation, the matter is up for debate. To the founders of the country, for example, the federal tax rate in the US as it is today would constitute an obscene violation of their expectations.
Unless you're taxing them federally for provisions outlined in the constitution, I'm inclined to disagree that they wouldn't have a problem with it.
I certainly didn't need a tax cut. You say you needed a cut, so maybe you did and maybe we should cut your taxes, leave mine alone, and tax raise taxes on people making a lot more.
https://www.wsj.com/articles/top-20-of-americans-will-pay-87...
You can say what you want, but this is a republican tax bill no matter who it benefits. It was supposed to benefit the rich, and thats what it does (I'm sure if it was possible to isolate by party they would have done so). It won't discriminate in who it hurts in the long run either (the middle class and the poor, like usual). The wealthy are going to take 90% of whatever economic gains result, they won't end up in schools or in communities, again like usual. Unemployment is already low and cant go much lower without even more illegal immigrants and wages will probably continue on their current trajectory and we'll be arguing for the next decade about who is to blame. My guess is some hidden variable will be scapegoated to explain why it didn't work.
[0] https://www.nytimes.com/interactive/2017/12/19/us/politics/t... [1] https://www.nytimes.com/interactive/2017/12/19/us/politics/t...
It actually does seem to do that fairly effectively from my understanding, by restricting the deductions those in high tax states (ie Democrat) can claim.
I should have said it disproportionately benefits the rich and in the long run I think it probably does only benefit the rich because the middle class and the poor will be hurt by the cuts necessary to pay for the thing and the resulting deficits.
Here are examples of the "liberal media" saying its disproportionate, not that it only benefits the rich. I hate to break it to you, but most of the "liberal media" is pretty nuanced, it may not say what you want but you don't see nearly as much "always/never" as you would expect.
[1] https://www.npr.org/2017/11/14/562884070/charts-heres-how-go...
[2] https://www.pbs.org/newshour/politics/how-the-senate-tax-bil...
The question is, in the long run, does that couple grand benefit us more than it costs us in terms of long term deficits, reductions in government services, etc?
The "hell yeah I'll take more money anyday!" mentality is what they depend on to sell the bill and it works.
[0] https://www.npr.org/2017/11/14/562884070/charts-heres-how-go...
Hyperbole. Revenue is up $6.4B YoY from $24.75B to $31.1B.
If we don’t want to be getting more in debt we should raise taxes on middle class people to the level of say Germany. In a state like California, our taxes on rich people and corporations are already about as high as in Germany, its our taxes on people making sub-200k that really dramatically lower. That’s where most of the income is—in the 50-99% range.
It is truly astounding how few people realize this...
"The U.S. spends more public money on healthcare per capita than Canada, Sweden, Denmark, Germany, Switzerland, France, Japan, Australia, New Zealand, and the United Kingdom. In fact, each year the U.S. government spends $4,197 per person, while the OECD median spend is $3,677."
http://www.businessinsider.com/us-spends-more-public-money-o...
My point is that the bellyaching in America is targeted at the wrong thing. It's not about how much taxes rich people or corporations pay. That's not why Germany has free education and we don't. It's that a household making $100k pays 20% taxes here and 40% in Germany. That's the major difference between the countries.
Or... cut spending.
- Lock spending growth for ten years at a maximum 1% per year, no matter what.
- Cut $250 billion off the military. Make the human force smaller. Trim or end various very expensive, unnecessary weapons systems. Close & consolidate a lot of bases. Aim for ~2.3% of GDP for military spending.
- Reverse the recent personal tax cuts. Raise income taxes on the top 1/3, staggered toward the top 10%. Try to get $150-$200 billion here.
- Bring Social Security costs down by $50b. Add some means testing for people that really don't need it.
- Squeeze costs out of healthcare by using Medicare/Medicaid/CHIP/VA as a club, across the board targeting of all costs in the industry. The US Government spends over $1 trillion on healthcare, find at least $100b in savings.
- Go to work on the national debt by gently abusing the position the dollar has as the global reserve currency. Have the Fed start a ten year QE program buying $500b per year back in debt and retiring it.
- Federal legalization of marijuana (another tax point for states, perhaps reducing some federal revenue dependency that could be redirected back to the federal budget); it'd also reduce the vast, expensive government prison, policing & enforcement costs. We're heading this direction now, let's just move faster.
- Meaningfully increase gasoline taxes, eg $0.20 per gallon, to fund & offset infrastructure costs. Also consider a new infrastructure tax on expensive consumer vehicles, meant to amplify the contribution by higher income persons to the infrastructure funding increase (since the gas tax hits the bottom 2/3 far harder).
That combination would produce a budget surplus within maybe five years. The surplus after a decade of spending growth locked at 1%, would be immense. We'd be down to $12 trillion in public debt within a decade, with a $26-$28 trillion economy, making the public debt easily managed. The Fed's QE debt retirement could end there. And all it would take is ten years of shared, modest pain and discipline.
Modest for who?
Social Security: There are an absolutely insane number of people who didn't plan for self-sufficient retirement because they planned on social security checks. They shouldn't need it, but they do. Those people are a far larger problem and constitute the bulk of avoidable liability. The problem with SS is people who need it but shouldn't have, not the people who actually don't need it.
Military: Here's a truth that doesn't win elections: blind patriotism is the only palatable way to sell any absolutely enormous jobs program to the US public. A lot of these folks don't have the education or skills required to operate in a private sector unbuoyed by gov't spending. And to the extent that they do, they'd be entering newly saturated job markets with low barriers to entry.
Gas taxes: Carnage for the lots of folks who can't afford to true cost of driving but already sunk 30+% of their annual gross into a car as a 10+ year investment.
The policies you're suggesting -- at least, most of them -- would leave an enormous amount of human suffering in their wake.
Still justifiable policies / good ideas? Well, that's another discussion. But let's be realistic about the impacts.
Adding a tax to the middle class without a corresponding raise in income will result in economic downturn, especially since we are increasing interest rates on an already debt-burdened middle class.
All 3 nations got together and decided that was the best way to go about it?
That makes sense.
Also the effective corporate tax rate in Sweden is almost double that of the rate Google paid. Claiming that Western European countries pay less in taxes is naive, as their corporations have far fewer loop holes to lower their tax rate.
Maybe if American corporations actually paid the rate they are supposed to we would have a high tax rate, but very few large corporations do.
Google's 11% tax rate probably is the result of loop holes. But most companies don't deal in bits and IP that can be moved around to take advantage of international arbitrage. Walmart pays 29% taxes.
The result is that even accounting for Googles, our effective tax rate is high compared to European countries: https://www.npr.org/2017/08/07/541797699/fact-check-does-the... (see the second chart). 18.6% versus 11.2% for France.
"Republican tax policy" will bring that down somewhat. But corporate income taxes only bring in 9% of revenue. Even if you doubled them they'd be only 18% of revenue. But your effective tax rate would be more than triple that of France.
Thus a corporation domiciled in California is still paying a corp tax rate about as high as any in the world.
Fixing our corrupt system is the real solution.
For example: If US company X makes $100B in foreign income in 2017 and repatriates that income in 2019, they will book 0% tax paid in 2017.
Similarly, if X pays income tax to a foreign government they will receive credits for tax already paid - but due to accounting practices the US government will not count the credits when publishing the effective tax rate of X. That last point isn't germane to this particular article but it is something behind many of the 'Look at the low tax rate of X' articles you will see around.
As a proportion of GDP the US was already lower than average.
https://www.npr.org/2017/08/07/541797699/fact-check-does-the...
I don't know enough to argue for one side or the other, but I think the provided link could be misleading (not necessarily intentionally)
The bulk of OECD have far stronger social indicators and spends. Perhaps a tax cut before achieving higher ranks on key criteria is misplaced.
[1] http://www.sgi-network.org/docs/studies/SGI11_Social_Justice...
In fact, it's so bad that there is a multiyear waitlist to immigrate!
Corporate tax (at least in the US, and I assume in most other places) is calculated on income, i.e. revenue minus expenses. The original commenter was asserting that halving the company's tax rate, and nothing else, was responsible for a doubling of profits. My point was simply that it should be obvious that this is nonsense. Cutting the tax rate can't double the company's profit unless the company was already paying half of its income as tax.
It's irrelevant that expenses are a large fraction of revenue, because expenses are already excluded from taxation.
https://taxfoundation.org/us-has-highest-corporate-income-ta...
and also taxed corporations based on their worldwide income, which led to a number of high profile tax inversions.
This isn't a very helpful comment. The parent presumably doesn't have the information to make a different assumption (or they would have already). Telling them to revisit their assumptions without giving them any additional resources to do so is unhelpful. Besides, the rest of us (me, at least) would like to know your reasons.
Corporations generate activity that taxes support, such as the use of roads. That's really what it comes down to I think.
> or else government would be even more beholden to coporations instead of citizens
This is a real problem...perhaps one of the biggest problems we face, and I really don't have any reasonable ideas on how to fix it.
For roads specifically, if a corporation causes increased usage of roads from say, more employees, the employees already pay for it through their personal income taxes (off of salary). If it's a trucking company, then there are weigh stations that weigh these commercial users and charge them extra for road maintenance.
For someone like Apple or Google, they have made it very clear their policy is to hoard as much money as possible (and as much of it offshore as possible too). This is a main reason why a corporation SHOULD be taxed, you only get taxed on PROFIT as a corporation. If a company was truly increasing their "productivity" and "output" they would have much less profit quarter over quarter.
As far as the government being owned by corporations, that already happens because we allow them to directly fund politicians. With or without taxes.
I'm not quite as cynical when it comes to bureaucrats (military contractors aside), because as we can see in some of the recent teachers strikes, it makes sense to tax oil/gas corporations who are making full use of states infrastructure to for the benefit of themselves (and workers etc). The tax rate is not really affecting how much they invest. [1]
I'm with you on corporate influence though. However, I think the answer there is to limit corporate influence of elections, say by disallowing funding of candidate specific ads and limiting the $ they can put towards issue lobbying.
[1]https://qz.com/1243098/oklahoma-teachers-strike-how-income-t...
Aren't stock dividends taxed when it hits the individual?
I can understand profit taxing to incentivize spending.
For another, reinvesting into the business lowers your tax burden.
Famously, companies with thin profit margins from constant reinvestment become less resilient to economic downturns and shifting industry trends, like defunct retailers like Circuit City. Having no saved up capital means companies like that are completely unable to properly reinvent themselves if market shifts happen relatively fast and they have no reserve capital.
Even if Google paid 0%, they are a massive net economic gain for the country.
Remember, corporations don’t pay taxes, people do. If Google paid more, prices for their services would rise and that would then increase customer acquisition costs for businesses which would result in lower profits for the businesses which means they hire fewer people and thus lower wages and higher unemployment which results in even fewer taxes collected and then, before long, you have the economy of France. Google would then lose business and contract in size and then they would pay even less in taxes.
The Laffer Curve is a real thing.
The balance sheets of most of these companies were at record levels before the tax cuts, and most of the tax benefits will go into share buy backs, which will not do that much to stimulate the weakest parts of this economy.
This is ignoring the issue, even when accepting the Laffer curve as true, that the revenue maximising rate would surely be well above what would be morally acceptable to enforce (~75%)
Parody account?
[0] https://www.npr.org/sections/money/2012/07/18/156928675/epis...
I don't understand how the "tax cuts grow reinvestment" argument sways people. Investments into the business are deductible as expenses, meaning doing the exact opposite of a tax cut will actually drive reinvestment far more effectively. Cutting taxes allows for stakeholders to withdraw profits with much less of an incentive to reinvest.
Want to drive up the velocity of capital? Cut personal taxes especially on lower bands since people in these bands are more likely to spend that money on essentials and personal luxuries to make life better. Increased spending -- be it at the corporate level on growth, hiring, and research, or at the personal level on necessities and occasional luxuries -- keeps the economic engine going.
[0] http://www.taxpolicycenter.org/publications/capital-income-t...
The myth that lowering taxes on corporations results in economic growth needs to die.
https://www.nytimes.com/2008/06/24/business/worldbusiness/24...
"A 2007 academic study by Roy Clemons, then a graduate student at Texas A&M University, that was based on earlier data, found that the tax break did not stimulate investment in the United States economy and that repatriated money was often used for disallowed purposes, like stock repurchases."
https://fas.org/sgp/crs/misc/R40178.pdf
"While empirical evidence is clear that this provision resulted in a significant increase in repatriated earnings, empirical evidence is unable to show a corresponding increase in domestic investment or employment"
Also capital gains tax is unfair to lower income individuals. We can invest money and afford to wait a year to see gains (and the obscenely cheap 15% tax rate). Most individuals cannot even invest, yet alone let their money sit for a year.
The US corporate tax rate had grown until 2017 to be much higher than it is in Western European countries (and remains relatively high). If you, like many anti-Republicans, think that Sweden is an interesting model -- please note that Swedish corporate taxes are much lower than in the US. [1]
As for the notion that profits, or their increase, are "obscene" -- this is the essence of the anti-capitalist mentality.
[1] https://taxfoundation.org/how-scandinavian-countries-pay-the...