Alphabet:Quarterly Results/2022 Q4

Results[edit | edit source]

Alphabet missed both revenue and EPS estimates. Here are the numbers:

https://abc.xyz/investor/static/pdf/2022Q4_alphabet_earnings_release.pdf?cache=9de1a6b

• Revenue: $76.05 billion vs. $76.53 billion expected

• EPS: $1.05 vs $1.18 per share expected
• YouTube ad revenue: $7.9 billion vs $8.25 billion expected.

• Traffic acquisition costs (TAC): $12.93 vs $13.32 billion expected

• Google Cloud revenue: $7.32 billion vs. $7.43 billion expected

Earnings call notes:

• First focus willebe AI advances. Next updates:

1. Coming weeks and months, they will make language models available, starting with LaMDA.
2. soon, people will be able to interact with their language models as a companion to Search
3. Will Provide new tools and APIs for developers, creators, and partners.

• Second focus will be to invest more responsibly to operate more cost effectively.

• YouTube Shorts, averaging over 50 billion daily views, up from the 30 billion announced on the Q1 2022 call.

• YouTube Music and Premium surpassing 80 million subscribers, including trials.

• There was further pullback in spend by some advertisers in Search in Q4 versus Q3. No guidance whon en it will get better.

• For the full year 2022, CPCs were down 1% versus last year. Clicks were up 10% in 2022, reflecting a number of factors, including increased engagement, primarily on mobile devices and improvements in ad formats.

• Increase in R&D expenses, primarily driven by headcount growth, followed by an increase in G&A expenses. These increases were partially offset by a decline in sales and marketing expenses.

• In Q4, they added 3,455 people. As in prior quarters, the majority of hires were for technical roles. Will slow the pace of hiring from now on.

• Reducing cost: First using AI and automation to improve productivity across Alphabet for operational tasks, as well as the efficiency of our technical infrastructure; second, managing spend with suppliers and vendors more effectively; and third, optimizing how and where to work.
• For 2023, total CapEx to be generally in line with 2022, with an increase in technical infrastructure versus a decline in office facilities
• Beginning Q1, DeepMind financials will be reported within our corporate cost segment.

Expectations[edit | edit source]

Management Guidance

- In the fourth quarter, the very strong revenue performance last year will continue to create tough comps

- Ongoing headwind from the slowdown in buyer spend on Google Play due to a number of factors, including lower levels of user engagement in gaming

- In terms of profitability, an effort underway to ensure to redeploy investments against most compelling opportunities.

- Expect headcount additions will slow to less than half the number added in Q3. They will continue hiring for critical roles, particularly focused on top engineering and technical talent.

- Capex, it continues to make significant investments in Technical Infrastructure, with servers as the largest component.

Analysts Expectations

	Low	Mid	High	Growth Q/Q	Growth Y/Y
Yahoo Revenue	72.29	76.60	78.88	10.87%	1.70%
Yahoo EPS	0.95	1.18	1.34	11.32%	-22.88%
Seeking Alpha Revenue	73.36	76.63	80.52	10.91%	1.73%
Seeking EPS	0.99	1.21	1.4	14.15%	-20.92%

Developments during Quarter

Continue cost cutting measures

This is hinting a potential additional pressure on to margins in the future, Pichai words "If you don’t act clearly and decisively and early, we can compound the problem and make it much worse, these are decisions I needed to make.”

• Google to Cut 12,000 Jobs in 6% Reduction of Global Workforce.
• Alphabet unit Verily to lay off 15% of staff.
• Teams that work on its mapping application Waze and other navigation software such as Google Maps would combine, as the company looks to become "20% more productive."

Competition

The biggest concern from competition this quarter is coming from ChatGPT launch, especially with Microsoft's investment on the AI. According to a report by The New York Times, Google's management has issued a "code red" following the launch of ChatGPT. For now we believe the threat level is contained. Since then they have been some developments:

• Microsoft and OpenAI extend partnership, focused on enhanced Azure cloud functionalities.
• Microsoft is reportedly building a version of Bing that uses the tech behind ChatGPT, Microsoft could launch the version of Bing as soon as March.

Tinuiti ads report

• In Q4 2022, average search ad CPC was up just 2% Y/Y. With Google search ad clicks up 8% in Q4, search spending increased 10% Y/Y, down from 15% growth a quarter earlier.
• Spending on Google search text ads was up 9% in Q4 2022, down from 13% growth a quarter earlier
• Spending on Google Shopping ads, including listings from Performance Max campaigns, was up 12% YY in Q4 2022, down from 19% a quarter earlier

Youtube developments

• YouTube is slated to bring shopping features to its YouTube Shorts video service as the video-sharing site looks for new revenues amid a slowdown in ad revenue.
• YouTube is reportedly working on a centralized place for free, ad-supported streaming channels as it looks to build up video offerings. Could launch the feature as soon as this year, and it could take a portion of ad revenue from the hub receiving 45% and letting the programmers keep 55%.
• YouTube winning the rights to the NFL Sunday Ticket subscription could help "accelerate" subscriber growth for YouTube TV, YouTube TV has roughly 5M subscribers - including trial users - but adding the NFL package could boost that figure.
• Google is gearing up to equip YouTube with a search engine capability, Google is testing the new feature in the Unites States and India.

Lawsuits

• The Justice Dept. and a group of eight states has sued Google , accusing the search giant of antitrust violations in its advertising technology business. The plaintiffs are citing violations of the Sherman Act and calling for a breakup of the ad-tech business. Its the second lawsuit from the DOJ, and its not expected to have any resolution in years. The first lawsuit from 2020 is still only headed to trial.
• Alphabet Inc.’s unit Google is required to pay $391.5 million as part of a settlement with attorney generals of 40 states, who accused the tech giant of invading the privacy of its users through improper location tracking practices. This fine will have very limited impact in Alphabet results.

Other developments

• Morgan Stanley says Google still the first place consumer are starting product searches. More Americans visit Google (including YouTube) first when researching products online than Amazon (AMZN) and Walmart (WMT) combined (58% vs. 27%). And Some 35% of Americans visit Google first when they are trying to compare prices for already researched products.
• Google has introduced a Blockchain Node Engine ("BNE") based on Google Cloud for ethereum projects, in a move that boosts the tech giant's activity in the web3 space.
• Google has acquired AI avatar startup Alter for about $100M.