GOOGL Q1 2024 Earnings Review

$GOOGL Q1'24 Results:

Financial Results:

↗️$80,539M rev (15.4% YoY, +13.5% LQ) beat est by 2.5%

↗️Operating Margin (31.6%, +6.7%pp YoY)

↘️FCF Margin (20.9%, -3.8%pp YoY)

↗️Net Margin (29.4%, +7.8%pp YoY)

↗️EPS $1.89 beat est by 25.2%

Segment Revenue

➡️Google Services $70,398M rev (+13.6% YoY, 39.6% Op Margin)🟡

➡️Google advertising $61,659M rev (+13.0% YoY)🟡

➡️Google Search & other $46,156M rev (+14.4% YoY)🟡

↗️YouTube ads $8,090M rev (+20.9% YoY)🟢

↘️Google Network $7,413M rev (-1.1% YoY)🟡

↗️Google Cloud $9,574M rev (+28.4% YoY, 9.4% Op Margin)🟢

↗️Other Bets $495M rev (+71.9% YoY, -206.1% Op Margin)

Operating expenses

↘️S&M/Revenue 8.0% (8.9% LQ)

↗️R&D/Revenue 14.8% (14.0% LQ)

↘️G&A/Revenue 3.8% (6.0% LQ)

Headcount

↘️180,895 Total Headcount (-5% YoY, -160700.0% added)

Dilution

↘️SBC/rev 7%, 0.0%pp QoQ

↗️Basic shares down -2.9% YoY, +0.3%pp QoQ🟢

↗️Diluted shares down -2.3% YoY, +0.4%pp QoQ🟢

Key points from Alphabet’s First Quarter 2024 Earnings Call:

Strong Performance:

Alphabet reported consolidated revenues of $80.5 billion, up 15% year-over-year. Operating income was notably higher, and the company has introduced a quarterly dividend and a new $70 billion share repurchase authorization.

Alphabet reported a strong quarter with notable contributions from Search, YouTube, and Cloud. Sundar Pichai highlighted the rapid growth in these areas, stating that combined annual run rate of YouTube and Cloud is expected to exceed $100 billion by the end of 2024.

Generative AI:

Google is deeply integrating generative AI into its search and advertising platforms. Innovations such as Gemini 1.5 Pro offer enhanced performance, supporting long-context understanding and multimodal capabilities.

AI technologies are being used to improve ad targeting, creation, and optimization, enhancing the overall effectiveness of Google's advertising solutions.

AI and Infrastructure Investments:

Infrastructure Leadership: Continued investment in AI and technical infrastructure, including data centers and custom TPUs, to support the growth in cloud services and AI innovations.

Advances in AI model efficiency and hardware performance, significantly reducing costs and improving service delivery.

Search Innovations:

The introduction of AI into Search (with features like AI overviews and Circle to Search) is enhancing user experience by enabling more complex queries and improving information accessibility. This has led to increased user satisfaction and search usage.

YouTube:

Monetization Improvements: YouTube ads revenue grew, driven by enhancements in both direct response and brand advertising. The integration of new ad formats and AI tools is improving ROI for advertisers.

Strong growth in content creation and viewership, particularly in Shorts, with ongoing monetization efforts showing positive returns.

Google Cloud:

Significant growth in Google Cloud, driven by AI capabilities and an industry-leading infrastructure, including the latest in GPU and TPU technology.

High engagement from enterprise customers, with a focus on AI-driven innovations and efficiency improvements.

Cost Management and Efficiency:

The company is focused on durably re-engineering its cost base, managing headcount growth, and improving efficiency across operations. This includes streamlining operations using AI and optimizing procurement processes.

Future Outlook and Investments:

Looking ahead, Alphabet expects to continue its aggressive investment, particularly in technical infrastructure, to support further growth in AI and cloud services. The management remains optimistic about the growth prospects across its various segments.

Continued high levels of capital expenditure are planned, primarily driven by investments in AI and technical infrastructure to support future growth needs.

Management comments on the earnings call.

AI and Infrastructure Investments

Sundar Pichai: "We are already seeing developers and enterprise customers enthusiastically embrace Gemini 1.5 and use it for a wide range of things... We have the best infrastructure for the AI era... Our data centers are some of the most high-performing, secure, reliable, and efficient in the world."

Product Innovations and Advertising

Philipp Schindler: "AI innovation across our ads ecosystem is core to every aspect of our product portfolio, from targeting, bidding, creative, measurement, and across campaign types... We're especially excited about the doors Gen AI's opening for creative capabilities, helping deliver on the premise of getting the right ad to the right user in the right moment."

YouTube

Philipp Schindler: "YouTube ads revenues were up 21% year-on-year, driven by growth in both direct response and brand... On average, viewers are watching over 1 billion hours of YouTube content on TVs daily... We are pleased with our Q1 performance across both our ad-supported and subscription offerings."

Google Cloud

Sundar Pichai: "In Cloud, we have announced more than 1,000 new products and features over the past eight months... Our differentiation in Cloud begins with our AI Hypercomputer, which provides efficient and cost-effective infrastructure to train and serve models."

Future Expectations and Customer Focus

Sundar Pichai: "The teams are making rapid progress, developing Gemini and other models... Customers like PayPal and Kakao Brain are choosing our infrastructure... We also remain focused on long-term efforts to durably re-engineer our cost base."