Alphabet-C Q2 Earnings Report Call: LLM Reconstructs Search, Android 14 to Integrate AI Tools!

Facing the challenge from Microsoft, AI dominator Alphabet-C launched a strong counterattack. In the second quarter, various indicators far exceeded market expectations, with accelerated growth in the search business, a reversal of the decline in advertising over the past six months, and impressive performance in cloud services, which amazed Wall Street.

After the financial report was released, Alphabet-C's parent company, Alphabet-C-C-C, held a conference call to celebrate the strong performance and emphasized the company's top priority in innovation - AI. It announced that the latest operating system, Alphabet 14, will integrate AI tools and stated that the team's focus will be readjusted to advance at full speed in the field of AI.

Alphabet-C-C-C's stock price continued to rise after hours, surging more than 7% at one point. Since the beginning of this year, the company's stock price has skyrocketed by 37%.

LLM Empowers Search Reconstruction, Alphabet 14 to Integrate AI Tools

Sundar Pichai, CEO of Alphabet-C, set the tone for this conference call, with most of his comments focused on AI. Since Microsoft made a big move into the AI field with ChatGPT, this can be said to be the biggest survival challenge that Alphabet-C has faced.

Pichai said:

This is our seventh year as an AI-first company, and we intuitively know how to integrate AI into our products.

He said that large language models (LLMs) like PaLM2 and the upcoming Gemini will help the company reimagine many products, especially Alphabet-C's most important product - search.

Pichai stated that the progress of the new search engine - Search Generation Experience (SGE) - has exceeded expectations, and the product is currently undergoing small-scale testing.

So far, the user feedback has been very positive.

Since its launch in May, we have improved service efficiency and reduced the time required to generate AI snapshots by half. Over time, our response speed will become even faster.

When asked if the new search engine will erode revenue, Pichai stated that Alphabet-C will continue to improve the advertising format in the new search engine, citing their experience in transformation.

Advertising will continue to play an important role in this new search experience, and many of the new queries are essentially commercial.

We have more than 20 years of experience in providing advertising related to user commercial queries, and SGE enhances our ability to do this better.

We are testing and improving (ad) placements and formats, and providing advertisers with tools to leverage generative AI.

He pointed out that Alphabet-C's chatbot Bard is currently being used in most parts of the world and in over 40 of the most widely spoken languages.

Pichai also stated that Alphabet-C has been strengthening its focus on leveraging AI, seeking more economical and efficient areas, including layoffs and realigning team priorities.

Overall, we are actively moving people to higher-priority activities within the company.

Pichai also mentioned that the company's latest operating system, Alphabet 14, will integrate AI tools, and Pixel and Alphabet teams are jointly developing the latest devices. 80% of advertisers use at least one AI-driven search product.

YouTube Shorts monthly users exceed 2 billion

Pichai highlighted Alphabet-C's video platform, YouTube, in his speech.

In the second quarter, YouTube's ad revenue increased by 4.4% YoY, reaching $7.7 billion, marking the first YoY growth since the second quarter of last year. In the 12 months ending in March of this year, YouTube's revenue grew by nearly $40 billion.

Pichai said:

I am very pleased with the way YouTube attracts users and increases engagement.

According to Pichai, YouTube Shorts, their short video product, has monthly users exceeding 2 billion, up from 1.5 billion a year ago.

Alphabet-C's CFO, Ruth Porat, pointed out that the company's other businesses benefited from the strong growth in YouTube subscriptions.

As you may have seen, last week we raised the prices of YouTube Music and Premium, which highlights the value of the product.

Very satisfied with Q2 performance, cost is a priority

Porat stated that the company is very satisfied with its operational performance in the second quarter, and she also addressed previous comments that the company's focus remains on slower expense growth compared to revenue by 2024.

For some time now, we have been saying that our focus is on revenue growth, not expense growth (sales costs plus operating expenses), and we have achieved this goal for the first time in a while.

Furthermore, we remain very focused on sustainably redesigning our cost base... This continues to be a major priority.

Alphabet-C announced its largest-ever layoffs in January of this year, and some investors have pressured Porat to further reduce costs.

It is worth mentioning that as the longest-serving CFO in Alphabet-C's history, Porat is embarking on a new chapter in her work at Alphabet-C. The company announced that Polat will assume the role of President and Chief Investment Officer of Alphabet-C-C-C. She will take office in September and will continue to serve as Chief Financial Officer until her successor is chosen.