Alphabet Announces Second Quarter 2019 Results [pdf]
abc.xyz
abc.xyz
Net income up >300%.
Most of the revenue and profit from ads.
Stepping back for a minute, political polarization has be increasing for about the length of time that Google has been in business. I'm not claiming Google is the cause, but rather that Google's tenure is a proxy for an acceleration in political polarization. [1]
Polarization enables outrage. Think Antifa vs. Proud Boys. Pelosi vs. Omar. AOC vs. ICE. Outrage reduces the amount of critical thought people put into the information they see and use to draw or reinforce conclusions they have about other groups, in particular, their polar opposites.
Outrage drives clicks, shares, likes and retweets. Clicks, shares, likes and retweets drive views, views drive ads, ads drive revenue.
Now, toss neural nets into the cycle. Neural nets do in fact learn and improve as feedback loops transpire.
Why wouldn't we expect these systems to learn that among other things, information that increases polarization results in the desired goal of increasing revenue, absent of any deliberate intervention by human beings?
[1] https://www.allsides.com/blog/political-polarization-america...
Google rise happened at the same time as digital media - both coinciding with rise of internet.
There was plenty of outrage going around on Fox and Rush Limbaugh talk radio before Google. Remember, Roger Ailes pretty much planned for a lot of this.
I think there's plenty other explanations for the current political climate. It has perhaps moreso to do with how the media was previously controlled by small number of big players versus the many smaller players we have today with more extreme views.
This is all well and good, but revenue is not an input to most machine learning algorithms at Google. First off, there is a pretty serious firewall between search and ads, so any organic results will be completely oblivious to revenue. Search systems literally do not have access to that kind of information. Even within ads, the concept makes sense only if you don't think about it too much. The big money-maker ads are when someone is trying to buy something. Ads around viral content are just not something that people can pay much for, because the margins in the news business are very thin.
Now if you want to make an article that the media has learned that spectacle and outrage drive clicks, I am here for it. (But this has always been true. Yellow journalism was a thing more than a century ago.) And I guess you can make an argument that Google facilitates this by pointing you to the media, and by participating in the feedback loop. But I don't think Google revenue is as causally linked to outrage as you seem to believe. After all, correlation usually doesn't indicate causation.
Neural network is bias because of the data. It's always the data. gfycat has an article about this. They have a huge user base that's into kpop and their training dataset didn't have much Asian people in it so it kept on identifying kpop star as women.
Studies have documented that if you let YouTube auto play for a while, the videos would becomes increasingly more radical.
https://www.google.com/search?q=youtube+recommendations+more...
If the algorithm actually does suggest more and more radical videos I wonder if it's a case of reverse causation - the algorithm suggests a more radical video because it learns what people actually want to do and choose to do, which is watch the most outrageous and/or bloodcurdling video out of the options presented to them?
YouTube recommendations used to go towards more popular, meaning all playtime eventually went to Gangnam Style. So they went the other direction, and gave more view time to radical/fringe YouTubers, which they're getting flak for.
They actually do!
Doesn't help with autoplay, but adblock lists to get rid of recommendations on YouTube: https://youtube.adblockplus.me/
The reason the stock is up so much. They're going to stop blowing money on stuff they aren't good at.
We need to solve this by requiring all repurchases to be with post tax money.
Capital gains are taxed at capital gains rate (almost always lower) and they gain can be offset by losses. This is the main advantage of stock buyback.
Edit: dlp211 points out the income from dividends is (generally) taxed at the same rate as long term capital gains.
The company has $10000 in after-tax profit that it would like to distribute, and you own 1 share. Since the money will be gone, the company will be worth $100,000 - $10,000 = $90,000 after the distribution.
- The company could pay a $100 per share dividend. You would get a $100 dividend but have to pay (say) 15% tax, so you now have $85 cash plus 1/100 of the company ($900), so $985.
- OR the company could buy back 10 shares. Now each share is worth $90,000 / 90 shares, or $1000. You don't pay any tax, your share is worth the same, but now you have 1/90 of the company instead of 1/100, so a greater share of future earnings.
In real life, the value of future earnings dominates the price (well, hope and greed do, but whatevs) rather than the cash-on-hand. The price should immediately go up once the buyback is announced to reflect that existing shareholders will get a bigger piece of the pie. That increase is not taxed until they sell, and the shareholder comes out ahead for the same cash distribution by the company.
I assume that if it's expected the company shares will go up in value due to the buyback, then they will have to pay a premium and buy the shares at a price that is close to the post-buyback share value.
So, perhaps at $1010/share.
However, I think there's no premium price equal to the post-buyback share price that they can pay to buy back shares that doesn't result in the company total value increasing as a whole from the buyback. This seems to be a contradiction.
I can only conclude that it isn't known that the buyback will raise share prices, because the loss of capital from the company should balance the increased fraction of future earnings that each share represents.
(edit: rewrote post after working through its logic).
If there weren't a separate capital gains rate, then the only difference would be the tax would be collected when the shares were sold rather than when the dividend was issued.
However, if you had the intention of reinvesting your dividend, then you would buy new stock with post-income-tax dollars, whereas a buyback would increase the value of your stock holdings without using your own post-tax money.
Who is usually getting unqualified dividends? Qualified dividends are taxed as capital gains.
https://www.forbes.com/sites/aalsin/2017/02/28/shareholders-...
Which is why accumulating funds are getting rather popular in Belgium...
Just to make things absolutely clear, I'll even happily make it explicit: I oppose it.
The super wealthy would just end up paying a bit more, but it's likely they'd remain super wealthy.
Also, given the eagerness of investors to gamble on unicorns, it's unclear that there is any shortage of investment money. Occasionally there's talk of a global savings glut.
I don't mean to impugn your political feelings. I consistently vote for people who will raise my taxes, personally. That doesn't mean I'm volunteering to pay more than I'm obligated within a system that doesn't provide the social services my family needs. I just want to point out that almost no one pays more taxes than they are legally obligated to, regardless of their political views. This implies that substantially everyone sees value in optimizing their taxes.
In light of that, surely you can understand why the question you asked does not make much sense? The law is what it is, so of course within the law people will attempt to pay less taxes.
Alphabet will have ad revenue for a long time, yes. But cloud will eventually be more important. So they need to make sure they catch up to MSFT and AMZN eventually. And the moonshots are very important as well. Their very nature is risk. If successful anyone of them could potentially be worth hundreds of billions. Morgan Stanley speculates that Waymo could be worth a quarter of trillion in 10 years. DeepmMind and Google Brain/AI are two of the leading AI entities in the world. Wing could be very important for Google Shopping. And they really need to build out their shopping offerings. And then there are the healthcare/life science efforts. No one even knows what Calico is doing exactly.
What they are missing is basically a space initiative. Yes there is loon and Access but Amazon is already in the process of launching their Starlink-like satellite network. And then there is Bezos's Blue Origin.
My (amateurish) prediction is to be positioned in: AI, biotech/genetic engineering, space industries.
That's great if you're, say, under the age of 50 and plan to hold your stock your entire life until retirement.
But consider a company whose stock price never went up but which had a great 50 year vision. Maybe towards the end of the 50 years it starts going up fast, but by then you already lived a big chunk of your life and passed many moments when you could have used some of the money.
At some point you're going to want ROI. One quarter is short for sure, but 50 years is the opposite extreme. Why wait such a long time for hypothetical ROI that may never come?
For Google specifically their problem is their revenue has way outpaced their ability to come up with new ideas. Since Larry Page stepped into the shadows the ambition and drive are gone. I'm not sure there's any vision, let alone a 50 year vision. The only highlights are their successes with AI, and maybe Waymo, but those are small parts of the overall company. AI mostly seems to be leading to incremental improvements in their existing products.
When you cast your eyes wider you see large amounts of what might uncharitably be described as self-indulgent waste. How many chat services are they up to now? And how many of them had any kind of interesting competitive advantage? How many languages and VMs without any obvious competitive advantage has Google created? How many internal systems do they rewrite without any clear idea of why, other than because someone needs to get promoted?
Dig around and discover just how many projects there are producing uncompetitive 'experimental' pseudo-products nobody has ever heard of and likely nobody ever will e.g.
https://nsynthsuper.withgoogle.com/
https://www.blog.google/outreach-initiatives/google-news-ini...
https://www.blog.google/outreach-initiatives/arts-culture/ex...
https://www.blog.google/products/photos/gallery-go/
Google has so many products they end up reusing their own names! Google Go is one thing, Google Gallery Go is a totally different thing - a mobile photo gallery app specifically for Nigeria, for some reason.
When you look at the firm closely you see a firehose of projects with zero business case and often near-zero impact. Why does Google think these things are better ways to invest the money than what other companies are doing?
Silicon Valley often sees "a firehose of startups with zero business case and often near-zero impact." And yet, it is considered a key driver of the economic growth / innovation / good jobs and places all over the world want to replicate its success. Maybe, Google just wants to have an in-house Silicon Valley?
At least, that's why I've been holding my shares. I was thinking of dumping them for better performing tech stocks, given the malaise I see there, but if they're finally starting to admit they may have run out of ideas and start returning money for reallocation elsewhere in the economy, then ... well ... maybe I'll hold a little longer.
For the past 6 or 7 years people have been predicting that Google's growth would soon slow because:
(a) The number of ads on a search result page had reached saturation point
(b) The percentage of people using the internet in rich countries had reached saturation point
Although real, these effects have proved to be outweighed by other, less limited factors of growth; in particular Google's ability improve the quality of match between advertiser and user. Even now I think there is significant room for Google to improve this matching - eg. when I put an iPad Pro in my online shopping basket at apple.com but don't buy it, why don't I then see iPad ads on YouTube? When I give Tesla $1,000 to reserve but not buy a Model 3, why don't I then see Model 3 ads reading The New York Times? Apple and Tesla are leaving money on the table, and when they wake up Google will make even more money.
In fact, Tesla can use your email address on a negative audience list when advertising on display networks that hit publishers like NYT. I wouldn't be surprised if Tesla was doing this to optimize their ad spend.
For purchases where you are retargeted, that's because when you buy something, you're a magnitude more likely to purchase it again (i.e. as a gift, have a backup/travel one, etc.). Goods like automobiles are an exception here, unless you're in the business of buying multiple cars in the same month.
I don’t think it would work but there is some appeal to it.
Who thinks "I made $61 after tax profit on the last $100 of profits but I will only make $59 profit on the next $100 so I'm gonna chooAe to not make that $59 after tax money.
This is a genuine question. Is there any research or evidence that shows that increasing taxes on profits (which is what corporate taxes are) reduces pre tax profits in the US (I'm restricting to the US because it's possible other places have had more ridiculous njmbwrs, even leading to greater than 100% taxes). This isn't a rhetorical question.
The same applies to progressive income tax, but I know someone who actually did choose to forego additional income but it waS someone who didn't understand progressive taxes and thought the headline figure apuwd to their entire income instead of the marginal income.
I'm assuming reasonably sized companies aren't that stupid.
To play devil's advocate, assume you are Google or Apple. You have (quite literally) 100 Billion dollars in cash equivalent securities sitting around. You could do what amazon does and reinvest those into the business, but there is risk, and decreasing returns on that. Alternatively, you could just invest that money (in which case its not profit, so taxed differently, I believe), or you could pay your employees more.
Those second two are, in the long run, potentially worse for investors. Is that good or bad? Unclear. Is that even how the calculus works? Unclear. Is this line of reasoning obviously wrong? No.
Their 2018 income tax rate was 11% for the year. $4.1b in income taxes and $34.9b in pre-tax income.
In 2016 it was 19%. In 2015 it was 16.8%. In 2014 it was 21%.
Many companies will attempt to follow the rules, even if they think that the probability of getting fined is low.
Note that the 2 main arguments and counter arguments: it helps protect people's information vs it increases the barrier of entry are NOT exclusive. Both can be valid at the same time and I believe that in many regulations they are both valid. That's how life works, a chain of compromises.
So yes, taking on new and unknown (to the creator) legal liability from some regulation is a great reason to shut down a side project.
If you have time/money or plan to make money, GDPR compliance isn't terribly difficult. But free/cash-strapped service providers would probably think twice before becoming compliant (which is why a lot of local US news websites just don't allow European visitors -- compliance is somewhat expensive, and local news in the US isn't doing too great right now).
[1] https://developers.trello.com/docs/personal-data-storage
But regardless, the overhead-inducing parts of GDPR really kick in when a company grows past certain size (250 employees), at which point it should be perfectly capable of handling them. But more importantly, upstarts aren't some protected class. Just because an upstart can't compete against the incumbent without resorting to abuse of personal data, doesn't mean abuse of personal data should be allowed. GDPR protects regular citizens from collateral damage to their privacy caused by market competition. If incumbents can do a better job not abusing the data, maybe they should get the benefits.
(Also, it's adtech we're talking about. Personally I want neither the upstarts nor the incumbents to exist, and I couldn't care less who GDPR privileges here.)
Adtech powers the internet and lets 99% of the content exist. Let's avoid the endless conversations over it. If you want every company to be treated the same, then every industry should be too.
RE adtech, I don't think we can avoid this conversation as long as all the problems this industry is causing persist. And I don't want to have every industry treated the same. In my books, adtech is right there with selling hard drugs on street corners, and factories polluting rivers; I'm fine with getting rid of all of them. I do not want that industry to grow. As for the "99% of the content", I'd honest to god happily see it disappear. It's mostly garbage that wastes people time; in particular, mass-produced content marketing tends to have negative information value, making people wronger than they were before reading it.
> "adtech is right there with selling hard drugs on street corners, and factories polluting rivers"
Those aren't industries and the trillion-dollar market caps of advertising companies speak to commercial value. The world is more than just you, so you don't speak for everyone and your singular interests do not matter at all in this discussion and you use an adblocker or stay off the internet if you want.
I always take the time to have in-depth conversations about adtech here but you haven't said anything other than state an emotional position about what you want the world to be like. That leaves nothing to discuss.
We won't really know until they get taken to court over it.
As the spending power of the average Internet user decreases, then CPC/CPM naturally falls with it.
It's why Facebook's $5bn FTC fine is laughable too. You need to fine them an amount relative to their market capitalization to really make 'em feel it, probably around 10%. I'd go as far to say, one would need fine them in the $50-$100bn range to really stop them from doing something (same for any of the $500bn+ companies).
If it's profitable to be shitheads, they're are going to account for it, and be shitheads.
A fine of 10% of market cap is close to the company's gross revenue. This is equivalent to a government owning the company. This "smells" like communism mentality.
What you're saying is that fines large enough to actually affect the company, to make their shareholders realize a loss of (monetary) value as a result of bad management, is communism?
That to me is simply insane, and I'd highly encourage you to go take some upper division economics courses before rattling off what is and isn't communism.
The idea that it won’t have any effect on Facebook’s behavior in the future is laughable.
He loves money just as much as everyone else.
1. FB's market cap is $573bn. 10% is $57.3bn. 2019 Q2 profits were $1.6bn.
2. By your standards, it is perfectly fine for a government [entity] to tell a private company: "If you don't do exactly as I ask, I will get all your profits for roughly the next decade." That, according to you, would be teaching FB "good behavior." To quote you, it will "really make 'em feel it".
3. Communism is a system of government in which the state plans and controls the economy and a single -- often authoritarian -- party holds power.
Maybe you should rethink your views.
If we want these sorts of businesses/behaviors to stop cropping up, we need to make societal harm a huge risk factor for investors.
Of course it is perfectly fine and within your rights to believe and say that the world would be better off without FB (and Google no less!) but you must understand by now that your opinion is that of a tiny minority.
To answer in good faith however: I do agree with the spirit of what you are saying. Companies should be held accountable and fines are probably a good tool to achieve that.
2. If you're only looking at profits, then you're missing the entire point of running a business like Facebook, because that's not the point. The point is to increase shareholder value whether that's actual profit, or an increasing stock value. To only look at their profit, which can be easily manipulated with GAAP accounting, is pretty much negligence. Look at Amazon choosing to run in the red for decades...
3. Communism isn't a system of government. It's an economic system, that is to say a system for managing resources.
QED
P.S. One last thing, you work at Google, of course you're going to be against these fines or proposing them.
The amount of fines are balanced to ensure:
- minimal legal pushback from FB side
- quick pay.
- make sure it's repeatable process (i.e. FB do what they want to generate revenues. FTC succeeds in fining FB with accompanying political wins, bonuses and promotions that somes with it)
Rinse and repeat.
The line where the EU fine is marked is in the table of revenue vs. costs & expenses as part of an accounting formula: "Revenue - Costs = Income from operations". Even if you were planning to stop paying it in 2020, where else would you list the fine?
Almost a Billion dollars per quarter!? Put them out of shareholders' misery, already!