This is Bloomberg Business Week with Carol Messer and Tim Stenebek on Bloomberg Radio.
We got some interesting reports and we're all continuing to pour over the releases and the results. But let's get to it. And first we're going to start with a parent of Google. We're talking about Alphabet and we're seeing that stuck up about three point eight percent. Here in the after hours. Mandeep Sing is with us. He's Bloomberg Intelligence senior tech industry analyst. He too is pouring over
the results. He's here in our Bloomberg Interactive Broker studio. Mandy, thank you, thank you, thank you for being here, which i'ms out here.
Well, So clearly the search results actually outperformed, and that is why you see the margin beat. They actually did quite well on the margins side of their core business, right ore business core search. It beat by almost a billion dollars. So it was, you know, given the macro environment, probably the best print that we have seen, you know, from Alphabet in terms of digital ad spending holding up
and no impact whatsoever from chat GPT. Look, everyone talked about, you know, how chatchpt would hurt search volumes none, So what did I.
Tell you then about because we're like insanely all obsessed with it.
It is, and look, it could be a longer term threat because we've seen, you know, being downloads go up. But in terms of the advertiser allocation of their ad spend, it's still going towards Google Search because that's the highest ROI in terms of advertiser spend, and they're not changing that anytime soon.
What not when it comes to the cloud.
Yes, so that number was light and I think it was mostly in line. And what it shows is, you know, something that we have heard from other cloud providers that it spending is slowing down. Everyone is trying to optimize their cloud spend. So that number was roughly in line. But look, all of the Alphabet's profits come from their search. If they beat on search, they always beat in terms of their operating income, which is what we see in
this print. So in the Alphabet's case, sixty percent of their search revenue makes up all their free cash flow and operating profit.
So that's what we care about it. Yeah, I'm seeing from a competing news service that they're saying the cloud business turns. Google's cloud business turns profitable for the first time on record.
Is that the case? Yeah, so like every care every quarter it was losing about five hundred million. This quarter they broke even, and it's like it's a roughly break even slight profits, but essentially it's not losing any money going forward.
Yes, So then when it comes to the cloud, like you were talking about before, it doesn't really give us a purview then to say company is like Amazon, which obviously has AWS since it's just such a smaller component compared to search.
I mean, it's still a thirty billion dollar run rate. And as I said, Alphabet used to be entirely searched company. Now it's sixty percent of their revenue. Cloud is about, you know, fifteen percent. YouTube is another big contributor to the overall as we've seen that diversity, top line diversification for Alphabet, but none of the other segments generate any profits. Is still search driven when it comes to the operating profit side.
Yeah, with poor at right, the CFO is saying, starting the conversation with our revenue reflects resilience in search and momentum in cloud. We are focused on growth innovation, especially in our advancement on AI. What else they're cutting you know, recording charges related to office space reductions, taking actions to optimize their global office space. We've seen this from a lot of tech players, right cutting their costs, reducing their space they don't need it.
Yes, and Alphabet announced the six percent layoff, so that in our view would equate to about you know, five billion off cost cuts this year on an analyzed basis. Probably next year it's going to be seven billion. And look,
I think these companies have the levers. What Meta has showed us they've cut about twenty five percent of their workforce, so clearly you will see this being a repeated story that you know they're focused on optimizing cost I don't think they're hiring anytime soon, so that will be a lever in terms of boosting profits for the foreseeable future.
Our ed Ludlow apparently on the phone with Alphabet CFO report, reiterating that the company remains committed to long term growth, with particular emphasis on AI and how it can boost the search business, so kind of playing it all.
And they gave us deep Mind disclosures, so that is the first time they've told us how much money they're losing on deep Mind, which is north of billion dollars. But that's their investments into competing with the open chat GPT.
Last question, you were sitting down with the CEO of Alphabet, what would you ask him?
I would ask him about the long term impact of chat GPT on the overall gross margin profile of the search business, because that's the cash cow. If search gets expensive to run, that will hurt Google's profit.
All right, good to know, Thank you, thank you. I know a busy afternoon, and TV wants you, radio wants you, everybody body we always want man deep saying senior tech industry analyst at Bloomberg Intelligence here in studio. Just a reminder that shares of Alphabet continuing to trend hire in the app market, up about three point seven percent. Do you want to mention Chapot layout first quarter EPs adjusted EPs ten dollars fifty cents a share versus an estimate
of eight dollars ninety two, So big out performance. First quarter com sales up ten point nine percent the estimate was eight and a half percent. And I'm looking at first quote a revenue of two point four billion versus an estimate of two point thirty four operating margin for the first quarter fifteen and a half percent versus an estimate of fourteen percent. So a quick check on what that stock is doing in the after market. This company has shown some resiliency in being able to raise prices
with higher costs. It is up three point two percent in the after market.
And continue to see that with the consumer type oriented companies. Carrol. Then I have to point out what's happening with pack Wes. Its first quarter adjusted EPs did beat estimates, and its total deposits for the first quarter we're around twenty eight billion dollars. The estimates were about for twenty eight point five billion dollars. You're looking at that stock and that sticker. Simple pacw up about eighteen percent after hours.
Carrol, down about though a lot this year. Yes, all right, so let's get to it now. Let's get to Microsoft, because it's up four point seven percent in the aftermarket. I feel like if investors wanted to gift, they got it from Microsoft and Google today. Mandy and not Mandy, forgive me go to another member of our Bloomberg Intelligence team. There's a lot going on on a rag rana of course, Bloomberg Intelligence senior analysts for us. No wrong person, My god, honorag How can I not get it right?
There's too many people.
Sorry, sorry sorry, so many earnings come in, come in on rag Rana is here? Microsoft?
What do we need to know?
I mean, thanks, It's far better than what I had expected going in. They beat the you know, revenue numbers by a big amount. They actually expanded margins than what everybody was expecting. So all in all, a broadba you know, broad based beat across all lines. You know, cloud came in exactly what they had guided to. Now the big question is what kind of guidance do they give going into the next quarter.
Why don't they give guidance?
That is the history of the company. They've always been doing it that way. It's not unusual, so it's just normal practice. They don't change things just because it's a different quarter. So that really where we'll see how the things trend. The stock's doing well and I think that you know, it boats well for the other tech stocks tomorrow.
Well, you mentioned the cloud, another concern that has gone on as PC sales, Right, what are we seeing on that front?
They were still better than what they were expecting. Even they said that, I mean even those were better. That is not one I would say area that things didn't come out better than what you know, the people will they guided before and they beat their own guidance.
I mean this is real top line growth.
Yeah, ten percent, I mean constant currency.
Are you surprised by the strength?
Very surprised? That's not I mean that's that's that's an understatement. Actually, because the constant currency growth was supposed to be around six percent. It came at at ten in this current environment. I mean, that's pretty impressive.
What does it tell you?
It tells me that.
It is it a Microsoft story or is it something more broader?
They know it has to be broader. Microsoft is one third of the software market. So it shows to me that TEX spending is slightly more resilient than what we had thought a few days ago.
How much does AI really for its earnings yet?
None at this point or very little at this point, and you know that's not going to be another two years or so where we start to see some you know, significant addition to that and even cost sight. I mean, margins were almost two hundred basis points better than what people were expecting. I mean, this is a this is a fairly good quarter.
I asked this to man deep about Google or Alphabet. What would be the question you would want to ask the Microsoft CEO on their call, what's the most important thing at this But seeing what they did this quarter.
Just three months ago you came and said you're growing at six percent. You beat it by you know, a massive margin. What happened during the quarter. I mean that's one and second, you know, are they seeing a stabilization in customers spending or do they think do they expect things to go bad because of all the banking issues that's happening.
That's interesting, right, like to see what kind of impact. Thank you, love you, thank you so much. Anna Agrana, Senior Technology analyst at Bloomberg Intelligence. Here in our interactive broker studio on a day when we are seeing both Microsoft an Alphabet just on a terror shares a Microsoft by the way up four point two percent,