Bloomberg Audio Studios, podcasts, radio news.
Now, well one of those days where you know, a whole third of the market cap of the S and P five hundred reports second quarter Google Cloud revenue coming above estimates ten point three five billion dollars, meeting estimates of ten point h nine billion. Second quarter revenue excluding the traffic acquisition costs coming in above estimates at seventy one point three billion versus estimates of seventy point seven
billion dollars. So in some second quarter revenue excluding TAC meeting estimates.
Yeah, so we're and we did see write some pressure on shares of Alphabet here in the aftermarket. So let's get to it with our team in the house is Bloomberg Intelligence Senior Tech Industry Alice man Deep Singh along with Bloomberg News Earnings reporter Red Brown, both in our Bloomberg Interactive Broker studio. All right, Man Deep, walk us through it the surprises, the strength, the weakness, or anything that raises questions for you.
I think search once again performed very well. It was better than census, and with Alphabet, whenever search beats consensus, you know the operating margin beat will come. And that was the same here. The only number that disappointed was a YouTube ass revenue that.
Sing and I watched a lot of YouTube I don't know what, because you could pay to get rid of the ass. Yeah, we watched.
So up until last quarter they made it up through better YouTube subscription sales. Now that doesn't seem to be the case because the YouTube subscription number is reported alongside the app store revenue, so it's hard to unpack whether that was the weak part or the app store revenue was the weak link. But clearly YouTube was a disappointing segment and the results.
Investors don't seem that disappointed. I mean, shares of Google right now, they're bouncing between red and grain, but I mean we're talking small moves, and look these are after a lot more. It was down a lot more. Yeah, and this is before the call and deep. But is this like a kind of Hohume earnings report?
I think, Look, when I look at search growing mid teens, that just tells me, you know, a company with two hundred billion dollars run rate in search business ninety percent market share still manages to grow downble did it?
So it's it's experimental. AI is working, It's working.
And it's maintaining market share despite competition from chat rept, being, you name it. Everyone keeps talking about.
How they just said Bing, is there really competition from being.
Well, Bing has integrated chat cipt now, So that was what Satynadella was most excited about.
I am curious about the lack of ads that I see when I look for when I do a Google search and I see the experimental AI result, it doesn't seem like they're making money for me.
Yeah, but if you go back in time, Google only monetized seventy like seventy percent of their queries are now monetized, only thirty percent hour monetized, and that too. It's a very keyword driven business, so you know, people bid up for keywords. That's what drives the ad pricing. And in this case, you know, unlike social media that can increase ad loads, Google is not increasing ad loads. It's still key or driven and they're able to maintain that share.
You know, despite chat GPET coming in and for certain queries, I'm sure people are going more to chat ChiPT then coming to traditional search. But I mean, I think Google has a competing offering with Gemini Advance and that will be a subscription revenues stream down the line. So in short, they've been able to maintain their market share despite all the threat, and I think that's good news.
For stock is down about one percent here in the aftermarket, but it's been bouncing around. Stocks up about thirty percent year to day forward pe of twenty four. Alphabet is game more than sixteen percent since it's blowout first quarter report and red brand. I want to bring you into it watching it as well, you know, join the conversation here with Mandeep. I mean, I'm wondering too if this is a quarter that you know safely easily lives up to expectations.
I think man deeperly hit on the Obviously, the two biggest things that jumped off the page to me as well, which was search and YouTube coming in a little softer. But the other thing that's really jumping out to me is actually quebecs. If we think about, you know, how are they competing with these other companies on gen ai. That's where we'll see that investment. And from what I can see CAPEX coming thirteen billion, that's I think the
biggest ever for Alphabet. I think that kind of really speaks to where they are headed and kind of another doubling down on this commitment and it seems to be paying off. So between the search business continuing to grow despite its size. Yeah, so definitely interesting there.
And I just wanted to since he brought up Capex. You know, Capex is directly related to their cloud revenue. So the fact that cloud sales grew twenty nine percent, that Capex is paying off and.
You know money well spent basically.
Money we'll spend. And actually cloud margins grew six hundred and fifty basis points. So for the longest time, Alphabet was criticized because cloud wasn't making money, it was a dragon profit. Well guess what in just the past two three quarters they have shown over five hundred basis point of margin expansion in the business. And that seems to be the trend I think based on the guide they're saying this will continue.
Well, this is what we always talk about, right because they behind what Microsoft and Amazon right have lagged in terms of the cloud. This shows what that they're making progress.
Well, they had a slower start, so they were always the third player, the distant third player. But look at the cloud revenue run right now, forty billion dollars. Compare that to Microsoft Azure seventy six billion and Amazon Aws one hundred billion. But at least they are growing thirty percent. So we'll find out whether Microsoft Azure is also growing thirty percent. But we know Amazon AWS is growing seventeen percent, so clearly their faster growth will help them narrow that gap.
And deep speaking of Aws and Microsoft, what do these results tell you about what we should expect for those companies when they report later this quarter.
I think for Microsoft as again, it's going to be a very strong quarter. You will see more than thirty percent growth. And Microsoft actually quantifies the contribution from generative AI workloads. Last quarter it was seven percentage points. I'm expecting it will be slightly highed this quarter, but clearly that's where I spend is going is in, you know,
the generative AI workloads. And I think Microsoft will do better than Ada BLUs because Adawlus has been coming from behind when it comes to generative AI.
I just want to mention Amazon. I'm just looking the aftermarket, very little movement, maybe up about one third of one percent, and I just want to look at Microsoft thir it's down about two tents so I don't know that they weren't necessari seeing any kind of significant reaction.
Okay, it's not just Alphabet, but one company that is seeing a more significant reaction after hours right now is Tesla, down four point six percent as we speak. Second quarter adjusted earnings per share missed estimates EPs. Excuse me, adjusted earnings per share for the second quarter miss the average
channel this the estimate. They're also getting quite a bit of information on the in from the long presentation about how many cars they plan to deliver, fewer than the one point eight million cars they delivered in twenty twenty three. I know you guys are here to talk about Alphabet, but we can't let you leave without talking a little bit about what we saw with Tesla, Mandy, what sticks out to you.
I mean, look with Tesla, the fact that they shifted out the robotaxi event. That's where all the excitement was, and you know right now, I mean, they don't have a near term catalyst. Everyone is excited about AI. That is where they could have shown their AI. I mean, I know, humanoid robots are also a big deal, but they gave a date and then they backed off. So to me, you know, that's that was never a good sign going into the print. What about for you?
Read well, I think it's interesting that the thing to get excited about is kind of this pie and the sky idea of a robotaxi that no one has really been able to successfully monetize yet. I think that kind of speaks to where the company is at, maybe get in a little bit away from its true mission, which has always been selling evs. You know. But I think there are some positives to take away from the support
they did. They did actually beat gross margin expectations. I think that's going to be really important for investors going forward, is how can this company continue to trim expenses if they aren't going to be seeing really aggressive top line growth as they were in the past. So good to see them focusing there on improving the efficiency a little bit.
All right, So just to wrap up top question for Tesla that you would make on the call real quickly.
I mean, it's got to be the roadmap to continuing Where does robotaxi? When, where is the robotaxi, when is it coming? And again where the is there anywhere we can continue trim costs?
Read?
Just show me the robotax that elon that I want to.
Know about the mass market car that's going to like sell tons.
Of the Model three.
Yeah, I guess I don't know. Go ahead.
Investors care about FSD software attach rate. That's where the margins.
Attach rate real quick.
So attach rate is anyv Tesla AV owner that buys the software so you know attaches. If I end up buying twelve thousand dollars off FSD software for autonomous driving, that's like ninety percent plus gross margin. That's what investors get excited about Tesla because they think that gramp will continue to grow, the attachment will continue.
The software company, not a car.
Come ten seconds. Top question for Alphabet on the call.
Alphabet, it's really about cloud growth. I mean, how fast can it grow and how long the durability of that cloud growth. The thirty percent cloud growth unbelievable.
Man deep saying of Bloomberg Intelligence and Bloomberg News earnings report of Red Brown guys, thank you so much, so appreciate it. This is Bloomberg BusinessWeek