Over the weekend, the Wall Street Journal released a new detailed report regarding Google. They make the claim that Google is losing its ad market share, its dominance in advertising. Google is on the decline and from competitors like TikTok and AI startups. Now, I've gone ahead and read through this report. I have a few opinions on it as a Google shareholder. I don't think this tells the full story. And furthermore, this is the type of thing that I've been
talking about for over a year. So we're going to be looking at this new report from the Wall Street Journal. We'll be going through some other graphics, and I'll give you a little bit of a detail to get further understanding and what's really going on with Google. Now, of course, we have some other news to get to. Amazon is down around 3% today after a Wells Fargo analyst
downgraded the stock. We're going to listen to the video clip of the analyst explaining his reason for the downgrade, and that way we can both look at it together and see how ridiculous his reason for this downgrade really is. We have news that Apple's likely moving away from their yearly release cycle. That's right. With the iPhones and how similar they are every year, you may assume the Apple's going to be moving to a release cycle that's every two years. I'll be explaining why that's
not the case. In fact, Apple is likely going to be releasing products more frequently than every year, so I'll be talking about that as well. And then there's a trend going on right now that needs to be addressed where a lot of wealthy people like Jamie Dimon, Jeff Bezos, Warren Buffett have been a net seller of stocks. They're dumping stocks. They're building up a lot of cash. Is this a warning sign for
investors? Should we be concerned when people like Warren Buffett, Jeff Bezos, Jamie Dimon and many other wealthy people are loading up on cash? So we have a lot of news to get to. Let's go ahead and jump in. Just a shout out before we jump in. Qualtrim is under free trial. If you haven't already tried it. If you join a new account today, you'll have the rest of October to try out this software. The way it works is super simple.
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haven't already. Now, of course, I want to start off with the headline news here. We've had a story come across that the Wall Street Journal detailed out where they're now saying that Google is losing its grip on the search market, on the ad market. Now, I think it's important to highlight that even as a shareholder of Google, I do not approach this from the perspective of needing to defend Google. I'm not a Google apologist. I'm not someone that needs to own the stock.
In fact, I welcome valid bear cases and arguments and where people bring new information to light telling me that I should be concerned about one of my companies. If I believe the claim, if I think that there's some reality to the claim, I may sell out of Google and replace it for a company that has a brighter future. So I'm not looking at this from the perspective of just needing to defend Google. I just want to mention that before jumping in now, they start off with a big claim.
Google's grip on the nearly 300 billion search advertising business is loosening. For years, the tech giant has seemed invincible in this corner of the ad market, which is the foundation of its business. Now rival are beginning to eat into its lead, and new offerings, fueled by the rise of artificial intelligence and social video, threatened to reshape the landscape. So we have the introduction there. Google's grip on the ad market, and the search market in particular, is loosening.
The tech giant seemed invincible in the past, and now they're just losing it. They're losing control of the territory that they once had and then they go into the specific arguments of the competitors taking their market share and first of all we have TikTok. The wildly popular short form video platform has recently started allowing brands to target ads based on users search quarries, a direct challenge to
Google score business. Next we have perplexity an AI search startup backed by Jeff Bezos plans to introduce ads later this month under its AI generated answers. Until now, it's made revenue mostly from the $20.00 a month subscription offering that grants access to more powerful AI technology. So they outlined 2 competitors, TikTok and Perplexity, both stealing market share from Google. But they don't stop there.
The next one is Amazon. The new initiatives add to the pressure on Google from the rise of Amazon.com, which has taken a chunk of search ad spending. Many consumers begin their product searches on the e-commerce platform. Google share of the US search ad market is expected to drop below 50% next year for the first time in over a decade, according to research firm E Marketer. And that's the punchline right there. Google's market share supposed to drop below 50% of ad search revenue.
And we even have a visual hair showing the decline of Google overtime. Since 2018, Google has held roughly 60% market share of the US search advertising revenue market, and now it's going down to 48%. Meanwhile, at the same time, you can see Amazon's rising. Amazon is expected to go above 25%, closer and closer to 30%, while Google is expected to go below 50%. They note that Amazon is expected to have 22% of the market this year with 17% growth compared to Google's 50% share
with 7.6% growth. So Amazon is growing its ad revenue around 2 1/2 times as fast as Google.
So we have TikTok search, quarry ads, We have a perplexity and we have Amazon, of course, which has that big product search box all eating away at Google. And they go further into how these different companies introducing ads is taking away ad marketing spend from Google. Targeting search budgets is a logical step for TikTok. Up until now, the company has offered brands the option of displaying ads near the search results, but advertisers couldn't target their ads based
on keywords in user search. So previously this was more limited technology and tick tock and they're advancing their advertising features. Advertisers are drawn to Tick Tock because of the platform strong appeal to young adults. The pitch to the advertisers is that search behaviors have evolved, and they added that the platform had global daily search
volume of over 3 billion. So TikTok is correct in saying that the ad market is evolving and that is posing a different challenge to Google. And that overall summarizes the report from the Wall Street Journal that Google is losing its dominance. The ad market is evolving and Google's now in a tense situation between this challenge and of course, their legal challenges with the Department of Justice. But who could have seen this
coming? Who could have really anticipated that the ad market would evolve, that there's more and more ways to search for information, and that Google really doesn't have the same dominance they once had? Well, of course, anyone paying attention, anyone paying attention should have anticipated this, especially if you're a Google shareholder. In fact, this is something that I tweeted about over a year ago. Here's a tweet that's still
live. You can look it up, it's on X or Twitter. September 11, 2023. So this is over a year old. Let's go ahead and zoom in and let me just read this tweet here and see if it shows any resemblance. Google search does not have the market share that every analyst report shows. Those reports compare the search market of Google against competitors like Bing and DuckDuckGo. In reality, search is anywhere you go to type something into a box and get a result. Amazon is a massive search
engine. You type in the products you want and get results with sponsored listings and products to buy. How is this any less of a search than Google? Because it's simply more segmented to shopping. What about Facebook and Instagram? People searching these everyday. They find content, communities and answers. What about Reddit search box to find communities and posts? Netflix search to find TV shows and movies. Tiktok search to find content and creators?
Google search? Dominance is always nearly defined because investors like that they can control the huge market share fulfills the mote thesis. Google owns the search market and regulators like that because it paints them as a monopoly so they can attack Google's search business. In reality, if you define search accurately and include all competitors, Google's market share and dominance is to a far lesser extent.
That was a tweet I made a year ago after reading article and article about how dominant Google search was. That it controlled 92% market share, That it controlled the world, That Google faced no competition. But even a year ago, I could identify that that wasn't the case. There's search boxes everywhere. There's advertisements everywhere. Google doesn't own search, and they never have.
So this claim by the Wall Street Journal that Google's losing its grip on search like this is a recent occurrence. Google has never had a full grip on the search market. If you accurately define the search market, Google's never controlled Olive Reddit. They've never controlled Facebook and Instagram. They've never controlled all the different places you can shop like Amazon and eBay.
All these different places outside of Google where you can search in a box and they can display your results alongside an ad have existed for years and years and years. So the Wall Street Journal and investors seemingly today are realizing that something exists and something is the case. That's already been the case for five years. Nothing has changed. There's no big meaningful
changes to the search market. You might say, Joseph, the LLMS, the artificial intelligence searches, those are new, sure, but those are at least a year or two old. Remember, just a year or two ago, Google investors were supposed to be concerned about Bing search? Bing Search and Satya Nadella were making Google dance. Remember that whole fiasco? Bing's new AI powered search by Open AI was supposed to take it to Google. Everybody was downloading it. It had a spike of activity all
across social media. It was talked about on CNBC and Twitter. And what happened since then? What happened to Bing search? What about perplexity? This isn't the first time we've heard about that one. Shouldn't it have already affected Google's business? If we see all these companies like TikTok, Perplexity, Bing, you name it, taking market share from Google, then shouldn't that impact Google's earnings and free cash flow and revenue?
Well, we can take a look at the actual fundamentals here to see the big negative way that's impacted Google's business. If we look at Qualtrm and we go to the KPIs, which are key performance indicators of the company, we can look at Google's revenue by segment. Again, this is breaking down in specific the search business of Google over the past 3 1/2 years. We look at the search business of Google by crossing out all the other lines of business. This is just the search business.
Look at the devastation all these competitors have done to Google, the utter devastation to this company. The revenue in Q2 of 2021 was $35.85 billion. The revenue in Q2 of 2024 was $48.5 billion, a growth rate of around 10% year over year for the past three years. I will say Google is a company that as long as I followed it, there's always some boogeyman for this stock.
I don't know what it is about Google, but there's just always something causing investors to be concerned about this company.
It really never ends. I've never owned a stock that has such good fundamentals, where the numbers go up and to the right on such a consistent basis, where it has so many secular trends of growth, where every line of segment is growing, where they have this incredible business called this Google Cloud business that never gets a lot of mention, but it's growing 28% per year while growing it's margins. They're doing this while also growing their biggest core
business, which is search. And even Despite that, the company really can't catch a break. It trades at a multiple that's lower than the S&P 500, a 19 Ford PE ratio. Plus they have $100 billion in cash. The free cash will yield a nice 3%. They're getting their stock based comp under control, they're third place in cloud, and they own YouTube, which most people consider to be a de facto monopoly on user generated content.
But despite all that, we're still told to be worried about Google. We should always, always be worried about Google and the so-called competitors, even if it doesn't show up in any of the numbers over years of time. So you can decide whether or not you want to be worried about Google. As of right now, I'm not too
concerned. Now moving on, we get to news that Amazon is being hit Today. If you looked at the stock price, it's down nearly 3%, which is quite a bit even for Amazon. It's more volatile company but dropping 2.7% is quite a drop. Qualtrum here notes that Amazon shares are trading lower after Wells Fargo downgraded the stock from Overweight to Equal weight and cut its price target from 2:25 to 183. Now, anytime a stock of mine gets downgraded, I like to figure out the reason why.
What is this Wells Fargo analyst know that I don't know? What has he figured out about Amazon that I don't know? Because I still believe Amazon's worth around 220. He's saying no longer is it worth 220, it's now worth 180. So what happened? What did he figure out? Let's go ahead and take a listen. This is the Wells Fargo analyst explaining his downgrade.
So I think there's a couple elements here. 1, is there, there are some new investments they're making in this Project Kiper, which is a satellite in an Internet service. And there's some near term costs, There's some pretty heavy upfront costs that will pressure margins. So the first thing that he mentions is a reason to downgrade the stock and say it's worth 180 instead of 220 is Project Kiper. This is the Amazon Starlink competitor where they launch off the satellites and they give you
a satellite Internet access. Amazon is a lot later to the game then then a Starlink, but they're going down the same route. And we've seen that this business model is proven by Starlink. Starlink is doing incredible. Amazon's basically just copying what they're doing. But he's he's saying the reason that Amazon is worth less today is because they're making investments into Project Hyper, which is going to push margins
down. Beyond that, I think to what we're seeing is the cost of doing business for merchants has risen relatively significantly over the last several years. And we think that the that both in terms of advertising and fees paid by merchants, we'll see a slowing of that trend over the next several years. And can you talk about the degree to which either Walmart or even other rivals is playing a role in that dynamic? Sure, absolutely.
And I think this, this gets to the point of there haven't been no scaled competitors in, in in North America market, the marketplace business in the fulfillment and logistics side of the of the business. Walmart is that scaled competitor and just recently launched a service allowing sellers and merchants on Amazon to be shipped via via Walmart. So it is absolutely a key part of this.
And what we see here is that not that Walmart is going to take significant share of either merchants or consumer dollars away from Amazon, but it's going to limit Amazon's ability to raise fees to those merchants. And and then that's how we, that's what we we bake into our numbers going forward. So those are the two big reasons that he's down grading the stock Project Kiper and Walmart as a competitor to Amazon
specifically for the sellers. When I look at analyst downgrades and upgrades like this, it just leaves me with the impression that they must just get bored. They must be at their job and get they get bored. They have to feel like they, they feel like they have to change something around once in a while. Maybe they haven't given an upgrade or downgrade in a while. They're looking at a company thinking how can I change around
this one? Because I can't find any other reason, a reason to go from 2:20 down to 180 because of Project Kuiper, something that Amazon has been visibly working on with great transparency for a long period of time. Nothing about this is new. They didn't do any new developments with Project Hyper. This has always existed. It's been baked into the stock price for a long period of time. So a sudden out of left field downgrade because of that
doesn't make sense. And then in terms of Walmart proving to be competitive to Amazon, like Walmart also came out of left field, They're doing something new. They're now a scaled competitor. Walmart has been competing fiercely with Amazon for years. Even online, even with sellers. You can ask any seller on Amazon.
They've all tried Walmart. They're trying to sell on Walmart. Walmart doesn't have enough traffic to replace Amazon. Amazon's shopping place, their website is so valuable because of the amount of loyal customers willing to spend money. They have more loyal customers signed up browsing the website. They drive the traffic, they drive the demand. That's the reason it's so valuable. It's not because of the seller
tools that helps out sellers. I I think it's a nice quality of life thing for the sellers, but if Walmart built all the best seller tools in the world, if Walmart charged no fees to sell on their platform, sellers would still sell on Amazon. The same reason that sellers sell on the Apple App Store, even though it charges a lot of money. They do so because that's where the people are, that's where the traffic is. So this is another case of an analyst giving a downgrade for a stock.
It just strikes me as they don't know what to do. They're looking at different upgrades and downgrades to make both. The reasons behind this one I don't find compelling at all. In terms of my outlook on Amazon, my thoughts on the company, this doesn't change it at all. I still believe strongly today that Amazon is worth around 220. Now we move on to this rumored news. This is from Bloomberg that Apple is slowly moving away from its annual product release
strategy. Now if you're like me, you read this headline and you got tricked by it. Most people are being tricked by this headline because if you read the news that Apple is moving away from its annual product release strategy, you probably believe they're they're moving to a more gradual release strategy, one that's less frequent. One like NVIDIA where they release the GPU every two years, instead of like Apple where they
release the iPhone every year. Because after all, the iPhone is becoming less distinct every single year. We've all seen the photos of it. It looks virtually the same. They like rearrange some of the camera lenses. They might add a like button, but overall, the iPhone is the iPhone. It's looking the same every single year. So you read this and you think, oh, Apple's learning. They're adapting.
Instead of releasing an iPhone every year, they're going to do so every two years or every three years. And that's where you're wrong. That's where everyone is getting the story wrong. Apple is inching away from its annual product upgrade cycle, a move that could lead to more frequent releases and fewer jarring delays.
If that didn't catch you off guard, then I don't know what will, because when I read this I was a bit shocked the Apple would remove their annual to go to a more frequent release schedule. And of course my follow up question is how frequent do we need Apple products? What are they going to do? A release of an iPhone every six months? Obviously that can't be the
case. There's not enough different in the iPhone every year to release on a more frequent basis, so this has to be revolving other products or different parts of Apple. For years, Apple has updated its biggest products on an annual basis. We all know the drill. The company gives a preview of its new software in June and then rolls out the company the accompanying devices, iPhones, iPads and Macs during September and October. That has been the tradition of
Apple for a long period of time. They say that there's benefits to this approach. It helps motivate employees toward a unified goal. Analyst and investors know what to expect and Apple has an easier time planning its marketing and public relations of its big bonanza. So it's more of a big unified event. It feels like Apples month in September. A lot of focus on the company and a lot of companies have tried to mimic this same thing with the annual product
releases. They say despite all of those advantages, they're beginning to be cracks in the strategy. For one, Apple has a wider range of products these days, including several iPhones, iPads, Macs, and Airpods. Updating all of those things on a yearly cadence isn't practical. Moreover, there are some products, such as the Apple Watch Ultra and iPhone SE, that don't need to be updated that often.
Now, through the rest of this article, it details out the problems with trying to do this annual upgrade cycle. But if you were to boil it down to one reason. It's because Apple's a very large company with a lot of devices with a lot of OS's to update, and trying to make all of those updates happen in the same time period is just too difficult. It's too big, it's too complex.
They need different iterative time periods for different devices, and they even mentioned that in some cases, good OS updates that are tested and ready to go have been delayed by two or three months because they need to wait for that big upgrade cycle. So even their customers are having to wait for things they shouldn't because of this artificial upgrade cycle every single year. So it makes sense that Apple is moving away from that.
We're going from a different time period, one where just a couple years ago Apple seemed like an iPhone company. They had their one major product that had huge changes every year. And now Apple is a far more complex company. They're a device maker of so many different products, and it's clear they need to keep adapting their business. Now finally, we move on to a trend that's more concerning. This is something that I've noticed for some time now. Warren Buffett has not been
doing a lot of buying. He's been selling companies. He sold off Paramount Global. He sold off a lot of Bank of America and Wells Fargo years ago. He's been selling banks on a net basis for months now. In fact, every month he seems to be selling more and more. He exited out of half of his Apple position. That was a bit of a shock even for Warren Buffett, and he hasn't really bought anything. Have we seen any notable buys from Buffett? We haven't.
In fact, Berkshire Hathaway now has record cash position over 1/4 of a trillion dollars. That's an incredible amount of cash. We also see notable insiders, people like Jamie Dimon, that's over JP Morgan, people like Jeff Bezos doing more and more selling. And this trend of building cash and not buying companies, but rather selling them is not exclusive to the top dogs like Warren Buffett and Jeff Bezos. Corporate insiders are net
sellers, they say. Corporate insiders have been reluctant to snap up shares of their companies. Of all U.S. companies with transactions by an officer or director. In July, only 15.7% reported net buying of the company's shares, according to insidersentiment.com. That was the lowest level in any of the past 10 years. So this is notable. Insiders are selling out of their company on a net basis at
levels that we haven't seen. The figure ticked up to 25.7% in August before falling to 21.9% in September, well below the 10 year average of 26.3%. Now it is important to note that caveat that on average insiders do tend to sell. They're working at companies, they're building wealth and then they sell stock to afford their lifestyle.
So there is on net selling. In fact, if we look at the long term averages, the percentage of insiders that regularly buy a stock their own stock is around 25%. So on average around 75% are selling stocks at any given time. Then there's some time periods where this changes like in 2020, March that spiked up to where most insiders were buying stock. They saw the value in it. But Even so, right now, insiders are selling at unprecedented
levels. They're selling at levels that we haven't seen again in 10 years. So insiders have an extra negative sentiment right now. And based on history, insider trading does have some predictive power. Quote, insider trading is very strong predictor of aggregate future stock returns. The fact that they're below average suggests that the stock returns in the future will be below average as well. Now, of course, there's no guarantees to that statement.
The stock market may race up the end of this year. Even though insiders are selling. And even great investors, ones like Warren Buffett, the best in the world, have been holding a lot of cash for a period of time where the market has raced up. Warren Buffett held a lot of cash during 2020, during 2022. He wasn't doing a lot of buying during those time periods when it was optimal to be buying. So in some cases, you have to look at the situation of these
insiders. Warren Buffett has so much wealth, so much capital that he is extra conservative. And I don't believe investors just starting off their portfolios should mimic Warren Buffett. He is in a completely different situation than the average investor building up their 401K or their taxable account. They're not really relatable. And overall, it is true that many people have been bearish on this market for the past couple of years while it's raised up and up and up.
But Even so, as I look at the market today, I do agree generally with this insider sentiment. Things overall are looking expensive. Most companies are up into that full and even overvalued territory. And the deals, the companies that are at a still are few and far between. So as we continue investing, it's important to maintain a discipline approach and focus on companies that still have reasonable valuations. That's all for this episode. Hope you enjoyed. See you in the next one.