Hacker News Reader

Comment by alberth | Hacker News Reader

My initial takeaways:

- Alphabet is experience massive decline in revenue growth. (Only 6% YoY growth vs 41% YoY growth in 2021)

- Internal costs are sharply increasing (Only a 25% Operating Margin vs 32% last year). A 7-point swing is massive. To put this into perspective, outside of tech, most companies only have ~10-point Operating Margin. So this swing of 7 points in margin, for most companies, could be the difference between being profitable vs not.

- Even though they are generating more total revenue than last year (same quarter) - they are considerable less profitable overall ($14B this year in Net Income vs $19B last year same quarter). This is related to the previous bullet.

Alphabets stock is -6% in after hour trading.

View on HN

This points to what an anomaly 2021 was.

Alphabet was seeing around 15% YoY revenue growth prior to 2021. Then 2021 hit and the growth rate jumped to 41%. Now with the 6% YoY growth this year, it's evening out to ~22% annualized growth over the last 2 years.

What we can’t point to yet is what comes next? Continued growth or are we nearing a peak? Hopefully cloud can turn on profit mode soon

If I'm reading the financials correctly, ads constitute just shy of $54b in earnings while Cloud just $6b.

As long as consumers are buying stuff, companies will advertise to them. As long as Google has a captive audience and they can continue to mint keywords for advertisers to bid against, I think this flywheel continues.

And yet their search product results are declining rapidly in terms of quality. So much so that people in HN report having to write "reddit" at the end of their queries to get reasonably interesting results.

Sure HN notices this first, but for sure the "regular people" are not far behind.

Still, there are no good alternatives -- yet. You can bet if Google is the new Altavista, then the new Google is just over the Horizon waiting to steal their ad revenue...

The declining quality we notice is likely because Google is getting better at serving everyone else. It's only going to get worse for handling off-mainstream queries, and it won't matter for most people who aren't looking for an obscure forum post from 1997.

It was peak of VC-bubble or whatever we are going to call it, and now we are going to probably see similar period as post dotcom bubble.

It was also peak COVID, so anything involving spending money online had a field day.

2020-21 were just weird as hell and no one should be making long term decisions based on these glitches in our timeline.

Further:

- headcount from 150k to 186.5k (!)

- EMEA + APAC largely driving slowdown in growth as both regions were -2%, USA + Americas are still at +12%

Feel like this might be a pattern this quarter - declining margins + growth as companies over-extended themselves last year not foreseeing just how bad things are outside of the USA + Americas

they keep iterating that foreign exchange is a big part of the non-US decline, but I fail to find how much in the PDF

“Our third quarter revenues were $69.1 billion, up 6% versus last year or up 11% on a constant currency basis.”

Constant currency means excluding impacts of FX.

11% growth (constant currency) vs 41% growth last year is still has huge slowdown in growth.

Stupid high dxy makes international markets tighten the purse strings. Whowouldathunkit.

revenue outside USA will be taking a hit due to current forex trends

I think it's dofficult to compare 22 to 21 and 21 to 20 given COVID.

True, but earnings are earnings. And a substantial drop in organic earnings is nothing to ignore.

Disclaimer: Googler here but opinions are my own.

I think what happened was a the perfect storm: remote working made people be more at home and so more time spent online. Additionally, stimulus checks were juicy targets for advertisers that tried to sell people stuff to spend time.

Now, we are having inflation due to all those stimulus checks that forced central banks to hike interest rates. Moreover, energy prices and supply chains disruptions exacerbated the situation by driving more inflation and the cost of doing business. Advertisers understandably prefer spending less money.

Under these circumstances such a drop in unsurprising IMHO. Similar to the drop in Q1/Q2 2020.

EDIT: I wrongly used stimulus checks as an umbrella term. I really meant all the actions that pumped a lot of money into the economies.

Friendly advice: As a current googler, you should refrain from posts like this, even with the “opinions are my own” disclaimer. You have access to internal info that shapes your opinion, etc. Even an innocent post such as this is potentially a breach of your employment contract.

Thanks!

"Potentially" is doing a lot of work there. If the lawyers get involved, marcyb5st is going to have to explain themselves and their comment, but their lawyer is going to ask about what material information is in the comment. The social media policy requires the disclaimer, btw.

Current Googler, opinions are my own.

At Apple, you could get shown the door if a cranky VP catches you opining on why revenue is down.

All I’m saying is: best to avoid any post that is related to company internals in any way. The “New York Times” rule and all that.

It's probably slightly less risk, yes. But Google has a specific policy about this and they are following it to the letter. This is pretty low-risk as far as things go.

Apple has very, very different policies on this than Google. Google is getting more conservative, but it's still a long way from Apple.

Apple is also very famously way out on their own with these kind of policies. That’s not real life.

> You have access to internal info that shapes your opinion, etc. Even an innocent post such as this is potentially a breach of your employment contract.

As a Googler also, I question is this really true? The only thing I can think that you are referring to (internal info of something I'm not directly working on) is...memegen. Anything secret I'm exposed to is much more technical than business directions. When we are talking about the general economy, we really are just talking about the general economy.

It is. You also tend to tarnish your company's brand with the ad-hoc remarks. Let your Marketing, PR, and CFO handle the comms on this.

> Let your Marketing, PR, and CFO handle the comms on this.

Yes, Google doesn’t expect or allow SWEs to handle comms on anything. But we are also allowed to express are opinions on anything unrelated to our work. I can imagine that you work or live in a much more strict/stifling environment?

Don’t let your corporation muzzle you out of fear, especially one like Google which 1) has a specific policy about this and 2) is big enough that no post on HN is going to move the needle.

Disclaimer: I don’t work at Google and my pseudonymous internet opinions are all definitely correct.

Ah of course, the stimulus check story. Indeed, 1200$ one-off checks caused this recession. /s

It was like $5T in total stimulus.

You're correct! I used stimulus checks as an umbrella term, but it's not correct. But I meant all the measures that pumped a lot of money into the economy. Here in Italy loans were frozen for 2 years which equals to a much bigger injection.

1200$ x 320 million americans = 1 trillion dollars [1]. Meanwhile less work has been produced.

[1] It’s the official number, not a mistake or a ballpark. https://www.gao.gov/products/gao-22-106044

Where did the other $616 billion dollars go?

That’s the problem with the governments.

No but $500k PPP loans all over the place probably did affect the economy.

Didn’t those mostly just mean that people kept getting their same salaries?

When supply remains the same or declines at the same time demand goes through the roof through a combination of lockdowns and helicopter money (as the other commenter points out, government sources show nearly $1T in direct payments), big time inflation happens.

Said inflation is most likely the biggest culprit behind this (or upcoming, depending on how you define it) recession. Disposable income is evaporating and people are adjusting their purchasing behaviors. After all, who wants to buy anything they don't have to, when they feel that everything is so much more expensive than it should be?

> Now, we are having inflation due to all those stimulus checks that forced central banks to hike interest rates.

Stimulus checks are not causing inflation. Corporations raising prices to increase profits are causing inflation.

inflation is a giant beast with multiple causes, one of which is definitely stimulus. There are others too, including the cause you listed. Most things have multiple causes

Corporations raising prices that people are more willing to pay because they have more available spending money because of all of those stimulus checks...

What changed? Corporations who raise prices to increase profits isn’t exactly a revolutionary never before seen business strategy.

> Corporations raising prices to increase profits

Well, not Alphabet.

Stimulus checks did not cause high inflation. It's a relatively small factor. The major impact was supply chain issues, changes in how people chose to spend their money, and two major impacts to oil (people suddenly commuting much less and then starting to again, and Russia).

Interesting. I didn’t know this was settled. Have a good reference on the relative attributions? Mostly curious about methodology for doing so.

All of that money is long spent. FRED has data on it. Inflation continues unbaked.

"supply chain issues" -- I think there was a Dilbert about that. The all-purpose excuse for everything.

"Supply chain issues" don't just happen, like an earthquake. They're caused by government actions.

Supply chain issues like the workforce being sick, factories shutting down due to the pandemic, and a giant ship clogging up the ocean for a while.

Its not about the inflation rate, its whether it's controlled. The fed reacted slower than expected to inflation, and claimed it would be transitory for a long time.

Hiking is meant to take heat out of the economy, doing so while the government was still pouring covid stimulus money into the economy would've been counterproductive.

Covid stimulus went on too long (later stimulus checks, mortgage forbearance, eviction bans), well after people had returned to their lives. And we are only beginning to see just how much of that money had no productive impact on the economy (PPP fraud, theft of unemployment benefits, scams around fake tests and masks).

Billions of dollars have been spent without contributing to GDP, governments need to cut back fiscal policy to control inflation.

https://www.justice.gov/opa/pr/us-attorney-announces-federal...

If it was all supply side we would have seen a accompanying reduction in national income. It’s a combination of both a reduction in aggregate supply and an increase in aggregate demand.

It's fair when profit margin is lower than pre-covid.

I agree, it would be more interesting to see these numbers for the last 4 years.

Comparing today's revenue #s to 2018 - GOOG: 106% - MSFT: 69%

Using last quarter to corresponding 2018 quarter because these haven't released yet. - AMZN: 130% - META: 118% - AAPL: 55.8%

> costs are sharply increasing

Operating costs ballooned $7.9bn, nearly 18%. That's nuts.

What is this attributable to?

Basically the entire business I guess. Cost of revenue, R&D, ales/marketing, and general are all up around 15%.

Those developer salaries have to come from somewhere I assume.

Headcount almost double since the Pandemic.

There it is. This makes sense, I must have missed this. That is bonkers.

So many engineers but still shut down products every few weeks.

EDIT: Still FURIOUS they shut down Stadia. I hate you Google

Many are still furious about Google Reader.

>Still FURIOUS they shut down Stadia

You're the first person I have ever seen with this opinion. I want to know, back when this was released, what made you ignore all the people that said that the product would be a failure and that Google would shut it down quickly? I always saw that as the majority opinion.

I thought that they would be serious about it given how much investment it took to get it off the ground and also how they were actively seeking relationships with indie devs to maintain vast amounts of quality titles.

Obviously I was wrong and have been actively ending my own usage of Google products because I have been burned for the last time.

In what way were you burned with Stadia? I thought they reimbursed folks and you got some entertainment while you subscribed.

Ultimately, they couldn't convince enough people to sign up, but that's a whole different story about product strategy.

I'll never get to finish Cyberpunk lol I'm not playing that again. Sure, the refunds are nice.

I'm pretty sure you can transfer your save game for Cyberpunk off of Stadia to PC or consoles. It's not true of every game, but I think it works for Cyberpunk if you plug it into your search engine of choice.

hangs head in shame I still use Google search :monkey_hiding_eyes_emoji:

regarding stadia, What did you think they would happen? They have a graveyard of great projects that should still be used by millions. The only things I see continuing are android, ads, search, I even feel with the severe losses their cloud unit is seeing even GCP could be shut down. Hell I could even see them abandoning Waymo, I mean this is google after all :)

They're not killing chrome. I doubt they kill their office suite either, it has really good numbers among young people, and microsoft's entire business is built on the back of its enterprise productivity software. It's a trillion dollar market cap business.

The Office suite is used by every Googler every day (and that's every Googler, not just eng). It's what the company runs on.

There's no way in hell it's getting shut down when it's that critical to business operations.

They could shut down the public facing product and make it internal only.

But why would they? The Google Docs suite is a billion+ user product, which is monetized through Google Workspace and Google for Education (with many millions of paid user subscriptions).

This is just not remotely plausible of a shutdown target. It also dates back to 2006. I'm struggling to think of even five Google products I would name as being less likely to be shut down.

...they killed some productivity apps. Don't say never. Hangouts, dead. Keep App, dead. Enterprise Search, dead. etc

Keep isn't dead. I use it everyday on my personal and business account. I love keep. I will be sad when the inevitably kill it though.

Keep is dead?

Hangouts functionality basically still exists, just under a different name. It's still integrated in Gmail, with the same contact list, and all the previous conversations from Hangouts were still there. It's so similar that I bet many people don't even realize anything changed.

This is unlike, say, Reader, which was canceled with no replacement to this day.

I very much agree with you, and think it will hurt the company in the long term

But to give some credit where it's due: reimbursing all Stadia purchases is a very customer friendly way to shut it down

Gmail probably has legs

>GCP could be shut down

I'm I dumb for assuming that google must use GCP internally? Therefore making it pretty much immune from being shut down. I guess they could go full internal tool with it?

I believe I've read here that it is not pervasively used internally.

I don't think they'll ever shut down GCP. But I could see them discontinuing services within GCP over time.

Google does not use GCP internally. If they did they'd be bragging about it.

It's got some decent usage internally, but it's small potatoes next to Borg.

>Hell I could even see them abandoning Waymo

That seems less improbable than even a lot of other cuts. A science experiment that doesn't have a clear path to an assistive driving revenue opportunity much less something transformational? I'd probably make an argument that they have to keep plugging on GCP but could cut Waymo loose without much collateral damage.

Waymo has taken a fair bit of external funding. Google could in theory cut them loose which would effectively kill them, but I'm not sure they could just shut it down.

makes you wonder, what exactly the headcount is going to. Double the headcount, but sure doesn't feel like double the innovation/product-growth.

It's also wild internally. It feels like headcount is incredibly tight, and even tighter now. Like 20% of my time as a manager is spent being asked to propose large new projects only to be told "nope, no HC for that." But somehow the company is like 4x larger than it as when I joined.

Wow, really? So where is it all going?

I suspect it is a property of subexponential growth. If every team gets new HC then the entire company grows at ridiculous pace. But it does feel disempowering to see the company grow like mad while we are told "not you."

Honestly as an end user, the growth seems to be backwards. Search results are worse than ever, YouTube recommendations are broken, and for the first time in years, Google Maps is showing me weird as hell routes.

People are so quick on HN to say "why does company X need 1000 employees when clearly it could be done with 10?" but I find people tend not the ask the even more obvious question "Why does company X need 100,000 employees when they seemed to be doing just fine with 50,000?"

I do get that there is a lot of extra complexity that goes from a startup solving a hard technical problems to a pre-IPO company that is solving a bunch of business problems as well as technical challenges. Yes companies gain less efficiency per hire as they grow, and many do grow for growth's sake these days, but it does make sense that some companies need a thousand people to do what a startup thinks they can do with 10.

But it certainly doesn't seem like Google is making great use of doubling headcount. On a product by product basis, at least for me, it feels like most Google products are worse than they were pre-pandemic.

If they had shown revenue growth highly correlated with headcount I would see strong evidence that my view is wrong, but the facts don't seem to point that way.

There's diminishing returns as the company grows in headcount.

When you hire large number of engineers, you need to hire engineers to support those engineers. Then you need to hire people to support the engineers that are supporting the engineers and so on...

This is pretty common in most large companies. Remember the mini-msft blog? This doesn't happen as much on product teams but in all the support functions which don't hire world class people like they do on software engg.

Basically as companies revenues grow, every cost center gets to put in a request to grow headcount. If you don't your colleagues will and you'll be looked down upon. then you take on shiny new non-essential projects and find ways to justify it. Launch it get promoted and leave. The next person comes in- decides it is crap- shuts it down and starts their own new project to reinvent the same thing . Org politics.

In a way we are lucky this is true. If there were only economies of scale and no diseconomies we’d end up with only a few dominant conglomerates.

> On a product by product basis, at least for me, it feels like most Google products are worse than they were pre-pandemic.

I dunno, MSFT products seem to have only gotten worse since 1995 - and their profits are doing just fine.

The quality of a product and its ability to make money seem to almost be inversely proportional.

In Google's case - what matters is - they're doubling headcount (largest expense) and revenue has barely budged.

It'd be nice if the products got better - but all they should really care about is if they're making more money.

Or: what part of this isn't attributable to inflation?

How much do DEI initiatives, directly related staff (Director of 'Belonging' etc), and non-meritocratic hiring practices impact profitability?

What about the alienation of staff and users considered part of 'legacy' demographics?

https://about.google/belonging/

Hiring 55,000 new employees in the last year is a big part of it.

I always put this into perspective. Google hires about 2 Uber sized companies in employees every year.

R&D costs: went from 7,694,000,000 to 10,273,000,000 quarterly 2021 to 2022.

whereas revenue went 65,118,000,000 to 69,092,000,000. Somewhat less of an increase.

You'd assume R&D is mostly fully loaded costs of engineers, but I suppose someone who really knows the financials could tell us for sure.

Google is getting deeper into silicon, both datacenter and device. That R&D has substantial capital costs which I think are still included in R&D top line.

I guess we could both read the part of the report where they explain it :)

If it's capitalized, then it's not R&D, which is all expensed.

The silicon would be to save money compared to general purpose compute. The savings should overcome any fixed cost. Doubt it's having that great an impact to R&D cost growth.

that was one of the reasons for TPUs- they are far cheaper (TCO) than large numbers of GPUs if you're doing massive amounts of training.

Sundar took the easy way of trying to force revenue growth at all costs and achieved it in 2021, but the tactics are not long term sustainable and have slowed growth and profitability. Even more concerning is Sundar has no product vision. He focuses on technological capabilities and not value to people.

That is pretty general, but more important seems untrue. All I ever heard Sundar say both internally and externally was about making Google “more helpful”. He said it so much and it was such a boring and bland statement that it really frustrated and nearly angered me. So yes, he lacks vision and specific product strategy here, but I think he is trying (badly) to move the narrative away from technology towards people

Your statement isn’t entirely incompatible with the one your’re replying to.

Sundar may think that “more productive” is a technology statement, which would reflect a serious lack of product vision.

He may even think he’s focusing on people despite having exec planning sessions all framed as “technology that lets people do ______”.

The only thing I am refuting is his focus on technology. By beating the constant drum of “be helpful in peoples live” he is making the help explicit but the technology is implied. My point is he doesn’t _focus_ on technology. He is trying to get the company to focus on people

Advertising margins are very high and cloud margins are very low, so the expectation that their cloud platform will grow and the expectation of high margins are sort of in tension.

Isn't AWS's margin something like 35%?

Search advertising margins are more like 80%.

it's interesting to me that anyone would try to consider absolute results over the last few years.

I feel like there should be some kind of consumer behavior/overall market beta factor that normalizes results with respect to the extraordinary conditions that have played out over the past few years.

comparing year vs. year over the last few years seems to make no sense to me.

It means pip is coming big for Googlers

I don’t understand the second point. That’s still 2.5x most companies. That sounds great.

The trend is concerning, and this is graded on a curve. If you want to exceptional valuations you need exceptional numbers (or exceptional sentiment).

Most companies also trade at a much lower P/E to reflect their lower margins.

One subtle deception in such reports is that dollar v22 is 30% smaller than dollar v21, so $14B x USDv22 is way worse than $19B x USDv21, about 2x worse I'd say.

> dollar v22 is 30% smaller

They seem to be using the same font size for both years.

Or by smaller, do you mean that there was a 30% inflation from 2021 to 2022?

A USD is a USD, how did you arrive that I can only purchase 70% as much of something in 2022 compared to 2021?

Most dollars printed eventually find their way back to the fed through taxation.

Financials are often reported in "constant dollars" and inflated dollars so you can see the impact of both.

Reply on news.ycombinator.com