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Google Cloud Driving Alphabet Earnings, Analyst Kessler Says

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Bloomberg Oct 30 09:22 · 5785 Views

Alphabet said revenue, excluding partner payouts, increased to $74.6 billion, surpassing the $72.9 billion analysts predicted on average, according to data compiled by Bloomberg.

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Transcript

  • 00:00 Aaron, what numbers jumped out at UI?
  • 00:02 Is it what Caroline Hyde was telling us about, which is the CapEx spending for the quarter seen topping
  • 00:08 $12 billion of and actually reported at 13 billion?
  • 00:12 Yeah, I would say CapEx is relatively in line with our expectation.
  • 00:15 It's been fairly flat for most of 24.
  • 00:18 We'll see what
  • 00:19 the commentary is on the call in terms of 2025 CapEx, but I think that's a big question that'll
  • 00:25 a lot of investors will focus on that for not just for the hyperscalers, but also for the semiconductor companies.
  • 00:29 Obviously,
  • 00:30 I think the big number that stood out to me was a 35% cloud growth.
  • 00:33 We're looking for about 29% growth, similar to last quarter.
  • 00:37 So that was very strong in terms of the cloud growth.
  • 00:39 We'll
  • 00:40 look to the call to see what they say in terms of the drivers for that strong growth, whether that was AI on the cloud side,
  • 00:46 that'll be a big focus.
  • 00:47 Obviously, Google's lagged
  • 00:49 AWS and Azure on the cloud side, so that'll be a big focus.
  • 00:53 And then they had good strength on both
  • 00:54 YouTube as well as core search growth.
  • 00:57 I was both slightly above our expectation.
  • 01:00 So continue momentum there and we'll look to see
  • 01:02 on the call as well in terms of momentum in terms of AI with Gemini etcetera.
  • 01:06 I am curious on the YouTube front really on the ad front writ large, the numbers slightly above St.
  • 01:11 estimates here, how much growth
  • 01:13 is left in that.
  • 01:14 I saw they were touting in the release the idea that they've reached
  • 01:17 50 billion
  • 01:18 in AD sales on that platform at least on a four month, a four quarter, excuse me, basis.
  • 01:23 Yeah.
  • 01:23 So we're going to look for the growth rates there.
  • 01:25 Just on the ad side alone that grew about 12%.
  • 01:28 We think that growth is higher if you include the subscriptions,
  • 01:31 but we would still look for kind of double digit growth on the YouTube side, probably a little bit above that if you include subscriptions as well.
  • 01:37 So we think it can probably grow mid teens including subscriptions, but not a number they disclose very often.
  • 01:43 What are you thinking in terms of
  • 01:45 margins?
  • 01:46 Is there going to be margin degradation?
  • 01:48 We were talking earlier with Mandeep Sink of Bloomberg and he was saying that that's going to be the biggest concern here that even as
  • 01:55 Alphabet is able to continue to
  • 01:58 grow its revenues, the margin is going to be at question.
  • 02:02 Yeah.
  • 02:02 We think it's a question especially on the cloud side for a lot of the hyperscalers in terms of the CapEx spend that is going to obviously hit the depreciation line
  • 02:09 increasingly throughout the next several quarters here.
  • 02:11 So not just for Google, but we think that'll be a a concern maybe why we do see a little bit of a pause in some of the CapEx spending
  • 02:18 towards the end of 25 and going into 26 as
  • 02:21 the hyperscalers wait to see more revenue adoption
  • 02:24 on some of these AI initiatives.
  • 02:26 So
  • 02:27 when we talk about the spend on the AI initiatives, you're comfortable right now with the CapEx spend and I mean comfortable kind of overlaid with the idea of when we actually see returns, a return on that investment,
  • 02:38 correct.
  • 02:38 So even if you don't see all the AI revenues come in, let's say in 2025, I think a lot of the hyper scale is just that we'll be able to use that capacity, whether it's 20/25/26
  • 02:48 at some point, we do expect to slow down that CapEx fund, but they fully expect to be able to use a lot of this CapEx over the next couple years.
  • 02:55 Aaron, what do you want to hear from the company that they probably won't address, but if if they, you know, even get close to it, what would you want to know about?
  • 03:04 Yeah, I mean, definitely on the antitrust side.
  • 03:05 I think that's been the biggest overhang on the shares over the last few months here.
  • 03:10 We do think probably an investor's view that the ad tech assets are most at risk
  • 03:15 without potentially having to get spun out
  • 03:17 with in our view, there's less risk in terms of a core breakup of Google.
  • 03:22 We don't think anything's been really said today on the call around that
  • 03:25 and we don't think anything's going to be decided over the next couple years
  • 03:29 as well.
  • 03:30 And that'll be in the appeals process for a while.
  • 03:32 And then on the other hand, I would say AI is going to be another big topic just in terms of traction, both on the enterprise side, whether that was a driver of cloud growth,
  • 03:40 as well as the consumer side, whether Gemini consumers are starting to use Gemini more for everyday searches.