What are some tips on how to read Google's financial reports? Advertising business, cloud, and shareholder returns are the key points!

According to the moomoo app, this year is the second consecutive quarter,Both sales and EPSIt exceeded analysts' expectations, and stock price movements after the financial results were announced were good.

According to Moomoo's financial calendar, GoogleAfter the US market on October 24(Early morning of the 25th Japan time)The financial results are scheduled to be announced in

Will the results exceed expectations this time around?

Now, I will explain the points to decipher financial results.

When analyzing a company's financial results, it is necessary to focus on the business that generates the highest percentage of revenue。

In the case of Google, ad revenue accounts for approximately 80% of the company's total revenue. In other words, the advertising business is Google's core business. When it comes to Google's advertising business, it's a good idea to focus on two points.

There is a certain periodicity in the advertising business.When the world's economic outlook is poor, companies generally need to reduce operating costs and conduct business efficiently.At that time, advertising costs may be reduced and reviewed first, which will put pressure on the growth of the advertising industry as a whole.

Looking back, Google's ad revenue growth rate peaked in 2021 Q2 and then declined.In particular, after the second quarter of 2022, when the Fed entered an interest rate hike cycle and the economic outlook deteriorated, Google's ad growth rate plummeted,We have been in negative growth for the second consecutive quarter since 2022 Q4.

However, Google's ad revenue showed a more than expected rebound in 2023 Q2, and recorded a growth rate of approximately 3.3% compared to the same period last year. According to the financial results for the upcoming 2023 Q3,Whether the growth rate of advertising revenue can maintain a rebound trendWe must continue to pay attention to it. If the growth rate accelerates, there is a possibility that there will be a positive impact on stock prices.

Google's advertising business derives the majority of sales from Google search ads. It goes without saying that Google Search ad revenue is at the center of the company's development.

Let's take a look at Statcounter statistics from January to September 2023. Microsoft's Bing, where expectations for generative AI were growing, has yet to expand its market share to the extent initially anticipated.Google's market share has consistently remained above 90%Even if you maintain a dominant position and consider the impact of ChatGPT on Google search, you can see that its superiority and competitiveness have hardly been affected.

Advertising is Google's core business, and the cloud is Google's main growth driver.As of 2023 Q2, Google Cloud is only a small percentage of total revenueLess than 10% (9.29%)It only accounts forIt is one of the company's main growth engines. Let's also focus on two points regarding Google's cloud business.

Currently, Google Cloud is ranked 3rd in the cloud computing services industry. The market size is much smaller compared to Amazon, which is at the top, and Microsoft, which is in second place,The growth rate is the fastest among the three companies.While the overall growth of the cloud service market has slowed,Google Cloud spans 2 quartersabout 30%Maintain a high growth rateI'm doing it. The next financial results also need to focus on whether Google Cloud can continue its high growth rate.

This mainly refers to the amount of Google Cloud customer orders that have not yet been executed, and can be thought of as Google Cloud's potential remaining profit (remaining anticipated revenue). By focusing on this leading indicator, it is possible to evaluate Google Cloud's sales growth rate expectations.

Currently, Google Cloud's revenue backlog is around $60.6 billion. The absolute value is still quite large and may underpin growth, but it has been trending slightly downward for the second quarter in a row. If this trend continues, there is a possibility that Google Cloud's growth rate will gradually decline. (*See Google's official financial statements)

The cloud computing industry has a certain amountscale effectThere is. Simply put, the scale effect means there is a possibility that profits will expand when a certain scale is reached. For example, if more customers use products developed with the same R&D investment, profit margins are likely to increase. Google Cloud's sales growth rate far exceeds that of Amazon and Microsoft, but since the revenue scale is the smallest, profit margins are always at the lowest level.

Over a long period of time, Google CloudDeficit stateIt was in, and was lowering the company's overall profitability. However, it is good news that sales scale expansion and cost optimization have paid off, and we finally achieved quarterly profit for the first time in history in Q1 2023. In 2023 Q2, it can be seen that operating margins have further improved and that they have begun to contribute sustainably to the company's positive profits.

In future quarterly financial results, it is necessary to observe whether Google Cloud will maintain rapid growth, scale effects will further expand, and operating profit margins will rise as a resultThat's right.If Google Cloud's profit margins continue to improve, there is a possibility that it will push Google's overall profitability to a higher levelIt's from there.

Big tech such as Google has finished a growth phase of rapid expansion in revenue and profit scale and reigns supreme in its current position. For such companies, it is considered difficult to replicate the miracle of rapid growth in the early days of their founding. As a future outlook, there seems to be a high possibility that growth will be moderate from rapid growth and rapid expansion.

Well, when it comes to stock price trends, as long-term support materials① Performance Growth ② Shareholder Returns (Company Stock Repurchases)There are 2 points that can be mentioned. If business performance does not grow sufficiently, it is also conceivable to make up for it with shareholder returns. Shareholder returns are specifically share buybacks and dividend payments, and Google is carrying out large-scale stock buybacks.

Through stock buybacks, it is possible to reduce the number of issued shares, thereby increasing EPS (profit per share). In general, stock buybacks are positive for investors, and it can be interpreted that companies that are active in returning shareholders are also popular with investors, making it easier to buy, and therefore liquidity increases.

Finally, it can also lower a company's net worth and increase return on equity (ROE). All of these aspects have the potential to have a very positive impact on stock prices.

How much was Google's stock buyback amount in the most recent quarter$15 billionIn terms of extent, it is second only to Apple among all big tech companies. Also, in recent years, ROE (return on equity) has remained mainly at a high level of around 20%. Let's continue to focus on the status of Google's share buybacks. If large-scale stock buybacks continue, there is a possibility that market participants will judge this as positive material.

[Summary]

Earnings have returned to growth in the most recent quarter, so pay attention to the sustainability of growth

Whether it is possible to maintain a high level of market share

Top growth rate among big tech companies

Google Cloud's operating profit margin is relatively low, so pay attention to that improvement

Pay attention to large-scale stock buybacks and their sustainability

[Supplement]

Alphabet, which is the parent company of Google, has Class A (ticker: GOOGL) and Class C (ticker: GOOG). What is the differenceThe presence or absence of voting rightsIt is, and Class C does not have voting rights. On the other hand, there is no particular advantage, soAs a general investor, no matter which one you buy, there won't be much of a problem.

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