Earnings report sharing/Google's revenue and EPS beat expectations! Stock price down 2%?

$Alphabet(GOOGL.US) announced its Q2 earnings after the market closed on July 25th. The data showed that revenue exceeded expectations, with advertising revenue also surpassing forecasts, yet the stock price dropped! What other data is there? Let's take a look together with Dolphin Research!

Q2,2024

Revenue increased 14% year-over-year to $84.74 billion, up from $80.54 billion last quarter, surpassing market expectations of $84.19 billion;

By segment:

Google advertising revenue rose 11% year-over-year to $58.14 billion, compared to $61.66 billion last quarter;

Advertising revenue can be further divided into three parts:

Google network advertising, down 5% year-over-year to $7.44 billion, compared to $7.41 billion last quarter,

YouTube advertising, up 13% year-over-year to $8.66 billion, compared to $8.09 billion last quarter, but below expectations of $8.93 billion,

Google search advertising, up 14% year-over-year to $48.51 billion, compared to $46.16 billion last quarter, exceeding expectations of $47.71 billion;

Google Cloud revenue increased 29% year-over-year to $10.35 billion, up from $9.57 billion last quarter, surpassing market expectations of $10.2 billion. The segment's operating profit was $1.172 billion, up from $900 million last quarter, with an operating margin of 11.3%, compared to 9.4% last quarter, both significantly higher than the $395 million and 4.9% in the same period last year;

Google's other revenue, including hardware, Google Play, and YouTube's non-advertising revenue, reached $9.31 billion, up from $8.74 billion last quarter, primarily driven by growth in YouTube subscriptions;

Other income, including Waymo's autonomous driving and Verily's life sciences divisions, surged 282%, with a loss of $1.134 billion, compared to a loss of $1.02 billion last quarter, widening nearly 40% year-over-year;

EPS rose 31% year-over-year to $1.89, slightly above market expectations of $1.84;

Operating profit increased 26% year-over-year, with an operating margin of 32%;

Net profit rose 29% year-over-year to $23.62 billion;

Traffic acquisition costs (TAC) increased 7% year-over-year to $13.39 billion, up from $12.95 billion last quarter, but below expectations of $13.54 billion. After deducting TAC from revenue, the figure was $71.36 billion, exceeding expectations of $70.7 billion. Additionally, the proportion of TAC to advertising revenue declined, improving profitability;

Future Outlook

Google did not provide formal guidance this time. Currently, Google will continue to control the pace of expense growth while increasing investments in technical infrastructure to improve profitability. It is expected that the 2024 operating margin will be higher than in 2023;

Capital expenditures in the coming quarters are expected to remain flat or higher than Q1 levels ($12 billion);

Summary

This quarter's revenue exceeded expectations, with double-digit growth across global operations. The U.S. saw the highest growth at 17%, while EMEA and Asia-Pacific grew 12% and 13%, respectively, and other Americas regions grew 16%. The overall advertising market showed signs of recovery. However, YouTube advertising revenue growth slowed this quarter, primarily due to a low base last year, which made the year-over-year comparison appear stronger. Future quarters may face pressure from higher bases;

On the positive side, YouTube Shorts' monetization conversion rate is more than double that of regular in-stream ads, and the quarter saw continued positive developments, particularly in brand advertising revenue. Additionally, YouTube Shopping, though in its early stages, is considered a noteworthy investment direction. Google recently introduced new features to help creators sell products more easily to users;

Regarding AI, Google stated that its AI infrastructure and generative AI solutions for cloud customers have already generated billions in revenue. Most of its top 100 customers across various industries are already using Google's generative AI solutions. Google will continue investing in AI-related businesses, including the sixth-generation TPU, Trillium, expected to launch by year-end, and Nvidia's Blackwell platform, which will be available on Google Cloud early next year. Google believes it can bring AI to everyone, with Gemini positively impacting search. The newly launched AI search feature summarizes search results and lists corresponding product ads, increasing engagement among younger users and providing new support for the advertising business;

Overall, AI monetization, whether for enterprises or consumers, still requires time to develop. The industry is in the early stages of transformation. While AI has shown promise in certain areas, continued effort and development are needed to unlock its full potential across more fields;

Finally, regarding advertising, data shows that major advertising companies delivered strong results (high growth rates) in Q1. However, as the market recovers and bases become higher, advertising growth may slow, though the market is still expected to see double-digit growth this year. Google's search advertising growth remains robust this year, reflecting its competitive advantage. However, as advertisers focus more on retailer searches, Google may increasingly rely on YouTube ads and short videos. If Shorts successfully converts and AI enhances ad effectiveness, Google could accelerate growth further;

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