Interestingly enough, it looks like everything except cloud grew at a rate less than inflation.
Ad revenue is falling. What implications does this have for internet companies reliant on the assumption advertising revenue will be going up forever?
Who has that assumption? At some point ads just reach steady state as a percentage of an economic sector, and therefore their growth simply mirrors GDP growth. Yes it will grow forever as the economy grows forever, but no faster.
I don't think anybody thinks advertising is going to eat the whole economy, so I don't think there are any implications in that not happening.
Economic growth might not stop in next 10 or 100 years, but natural limits exist and eventually growth will stop.
You can get 5% GDP growth without any actual growth by just devaluing dollars by 5% more than you measure inflation.
Theoretically, there's nothing stopping people from paying more money for monkey JPEGs indefinitely.
Physically, there's limits to how efficient things can get.
To the contrary, if you figure out a way to manufacture the same widget X but using 25% less energy, that's economic growth.
Long-term economic growth is primarily a phenomenon of increasing human efficiency which is enabled mainly via improved education which leads to ongoing technological progress.
Sure we need energy to heat our homes and grow our food and power our transportation and build our phones and so forth, but those needs are not growing exponentially whatsoever. Homes in the developed world, for example, are becoming more energy efficient rather than less.
The market is reacting to Cloud turning a profit for the first time, and faster than expected.
Youtube was a large contributor to growth in 2021-2022, and that engine appears to have slowed. (Not just the "Youtube ads" line that is separated out.)
Most likely the market is reacting to these results not being any worse. Cloud gains were already priced into the stock, in my opinion.
So:
- ad revenue is down (that's 80-90% of all of their revenue)
- all their expenses are way up (cost of revenue 1B up, R&D expenses 2.3 B up, sales and marketing costs ~0.7 B up)
- "other bets" losses increased are 400 million higher YoY
- unallocated corporate losses are 3B higher YoY
But google cloud (which includes both GCP and Google Workspace) is 191 million in profit. Must be nice, I guess.
That would make Cloud by itself one of the 50 biggest companies in the world in terms of profits...
Companies are valued at profits for 10+ years. So Cloud continuing its promising growth trajectory is a very good thing for investors.
Obviously growth rates are unlikely to stay as high as they are for 5+ years - but the outlook for Cloud & Google - is still very promising.
If. Would. etc.
It could also not grow, and slip back to losing billions.
> Companies are valued at profits for 10+ years.
Wat?
It's been growing at similar rates for 13 years - rate of growth slowly decreasing.
It's way more likely to continue at it's rough trajectory than to have a sudden massive reversal.
But, sure, anything is possible. Google could also get obliterated by an alien civilization. Not gonna bet on that scenario, though.
$2.5 billion of that is charges related to the layoffs.
> - all their expenses are way up (cost of revenue 1B up, R&D expenses 2.3 B up, sales and marketing costs ~0.7 B up)
Likewise half of this (i.e. you're double counting). See the table on page 3.
> - ad revenue is down (that's 80-90% of all of their revenue)
78% is not 80-90%. It's impressive that you managed to quote a ridiculously large range, and still get it wrong, in a discussiong about the earnings report.
The ad revenue from Google properties, not from the display ad network, is up.
I couldn't care less to calculate it this time. It fluctuates around the same number YoY
> The ad revenue from Google properties, not from the display ad network, is up.
And that somehow makes it less of an ad revenue? Or different? Or something?
Uh-huh. It was 77% in Q4, 79% in Q3, 80% in Q2. It has not been 90% for a decade.
> And that somehow makes it less of an ad revenue? Or different? Or something?
So you weren't making any kind of point when saying that ad revenue was down? If that's the case, I'm happy to also pretend that I'm also a member of the non sequitur club.
I don't pay so much attention to investment news, but the last time I heard of huge buybacks was when Intel decided to drastically cut back its research and development. It seemed to not be good for Intel. Or maybe it was good for the ones making those decisions, if they are getting bailed out by billions of government money, I don't know. Maybe I have cause and effect mixed? It could be possible.
Search for "$big_company stock buyback" and you'll find just about any of them there
I mean, that's to be expected. Google did this sweeping cost cutting measure with the layoffs they did, rather than the usual “we don't see a future in this product and we're discontinuing it” that they are more famous for. They didn't even seem to try to target a specific performance bar—I think of this as trying to knock out walls which have lower measures of structural stresses in your house, you don't have the architectural plan so you just sledgehammer some walls that look like they're not holding much up.
The problem with these broad cost cutting measures, “everyone is losing 5%-10% of head count” etc. is that even if you do a really good job targeting, 80% of the people you cut were doing something (just, if you are well-targeted, not enough on average to justify their salary) and 20% of those were in fact “load bearing” in some sense (they actually were doing enough to justify their salary, often “and then some”)... your metric just did not apply very well to them. The rest of the building needs to carry the load that you just shed, average performance takes a staggering hit.
The bet is that the cut costs will save more than the performance drops, although they won't immediately due to expensive severances etc. ... Those numbers were carefully timed to be paid out in Q2 so expect those numbers to be worse and then if Pichai’s bet pays off they'll start recouping it in the second half of 2023, or else he'll feel the same pressures in late 2023 that he felt in late 2022, announce another round of layoffs... Things aren't that bad yet but I worry for my friends at Alphabet.
Who needs messy user tracking when users will voluntarily feed you their deepest secrets? Why fight ad blockers, and waste resources on ad placement research, click-through rate optimization and all that noise, when you can just slip subtle ads into conversations with humans?
Ad revenue isn't going anywhere but up. This is just a minor blip in the grand scheme of things.
In your classic scenario, you navigate the SERP and hit various websites, that's a lot of surface area for ads. In this supposed new situation, you don't browse and scan, you just get the answer. The end. It's a way shorter interaction. I'd imagine you see 1 ad. Instead of dozens now.
Also, if you're never hitting any individual websites anymore, surely they'll become hostile, protect content, put up walls, or push for legislation.
This is not a done deal.
You're thinking of this in the classical ad placement sense. If there's an established sense of trust with an AI, advertising can become much more subtle and even more manipulative than it currently is. Ad campaigns can last years, and span many conversations, where brands can be woven into the subconscious much more deeply than a traditional ad could do.
They could then be surfaced whenever the user is most vulnerable to be swayed into making a purchase.
> In your classic scenario, you navigate the SERP and hit various websites, that's a lot of surface area for ads.
Most of which never get seen or clicked on. It's a lot of wasted real estate. Ad conversion can become much more efficient if the system deeply knows the person they're interacting with.
You can ask the same question about social media or any Big Tech product today. The answer is somewhere between convenience, a better product, and inertia ("everyone else uses it", etc.).
If Google comes up with an AI that integrates with Gmail, Docs, Drive, Search, and all their other products, and leverages the amount of information they already know about you, then they can provide a much better UX than any competitor could.
I don't doubt there will be OSS competitors that don't do any mind manipulation to get users to purchase something, but most users won't use them. Just like we have sane alternatives to all Big Tech products today, and they're mostly only used by a niche group of technical users.
Users will know they're talking to a corporation and feeding it information in the case of LLMs, and they're likely to give it a loss less information voluntarily than tracking was taking (and will continue to take).
LLMs will become an even bigger part of our everyday lives than social media is today. It would be naive to think adtech won't monetize that in the most insidious ways imaginable. Advertising, uh... finds a way.