About Google

Google is an American multinational technology company. Its focus is on search engine technology, online advertising, cloud computing, computer software, quantum computing, e-commerce, artificial intelligence, and consumer electronics. Because of its market dominance, data collection, and technological advantages in the area of artificial intelligence, Google has been referred to as “the most powerful company in the world” and one of the world’s most valuable brands. Google’s parent company Alphabet is considered one of the Big Five American information technology companies, alongside Amazon, Apple, Meta, and Microsoft.

Google was founded on September 4, 1998, by Larry Page and Sergey Brin while they were at Stanford University in California. They both own about 14% of its publicly listed shares and control 56% of the stockholder voting power through super-voting stock. The company sold its shares via an initial public offering (IPO) in 2004.

Google became part of Alphabet in restructuring in 2015. As Alphabet’s largest subsidiary, Google is a holding company for Alphabet’s Internet properties and interests.

Sundar Pichai was appointed as CEO of Google on October 24, 2015. He took the place of Larry Page, who became the CEO of Alphabet. In 2019, Sundar also became the CEO of Alphabet.

Since 2019 the company has rapidly grown. It offers a number of products and services beyond Google Search. Many of these hold dominant market positions. These products include email (Gmail), navigation (Waze & Maps), cloud computing (Cloud), web browsing (Chrome), video sharing (YouTube), productivity (Workspace), operating systems (Android), cloud storage (Drive), language translation (Translate), photo storage (Photos), video calling (Meet), music streaming (YouTube Music), video on demand (YouTube TV), artificial intelligence (Google Assistant), and many more.

Google earnings miss estimates

Weak third-quarter results of big tech stocks Microsoft and Google parent Alphabet has worried US markets, after weakness in crucial business lines that investors hoped would be resilient to an economic slowdown. Alphabet closed down 9.1%, while Microsoft finished 7.7% lower. Both stocks suffered their worst one-day declines since the beginning of the coronavirus pandemic in March 2020.

The earnings news ended an increase in growth during the coronavirus pandemic and put an end to hopes that they would withstand the inflation and weakening growth that are hitting the broader economy.

Analysts had forecast Google earnings of $1.26 per share on revenue of $71 billion. Net income growth and gross profit growth were more robust the previous year, with earnings of $1.40 per share on revenue of $65.1 billion.

Cowen analyst John Blackledge said in a report:

“Google reported an across-the-board miss on Q3 advertising as search, YouTube, and the ad network were all softer than expected, partially offset by a top-line beat at cloud.”

He added: “Management cited tough (year-over-year) comparisons, a pull-back by some advertisers and worse FX (currency exchange rates).”

Google stock has retreated 36% in 2022.

Google stock: YouTube revenue falls

Google Search revenue increased 4.2% to $39.5bn. It missed forecasts for 8% growth. On the other hand, YouTube advertising revenue fell 2% to $7.1billion compared to analysts’ expectations for an increase of 4.4%. YouTube ad revenue fell amid increased competition from TikTok. Google stock analysts had estimated YouTube ad revenue of $7.5 billion, up 3.5%.

It was the first drop for YouTube ad sales since the company started reporting its performance separately in 2020.

Alphabet’s CEO Sundar Pinchai said it was “a difficult time in the advertising market.” Despite Google’s earnings report, it is surprising to see YouTube’s growth decline, which affects Google’s outlook. Chief financial officer Ruth Porat said the slowdown was due to the company “surpassing a very strong third quarter” in 2021 as it benefited from a shift to online advertising during the coronavirus pandemic. However, she said that in some areas there has been a “drop in ad spending”.

In the meantime, overall Google advertising revenue rose 2.5% to $54.48 billion, missing estimates of $56.58 billion. Cloud-computing revenue increased

37% to $6.87 billion, edging by estimates of $6.7 billion.

Alphabet rebought $15.39 billion of its own stock, about the same as in the June 2022 quarter.

Google may make short-term cuts to reduce costs, including hiring freezes and potential job cuts.   Google had 186,779 employees as of Sept. 30, up 24% from a year earlier. These cuts should have an immediate positive effect on Google’s stock price in the following weeks. The previous month, Pichai said that he plans to make the company 20% more efficient.

Alphabet’s capital expenditures increased 7% in Q3 to $7.3 billion.

“It’s surprising to us that Google continued to hire and invest aggressively throughout Q3, knowing that macro trends were deteriorating,” Evercore ISI analyst Mark Mahaney said in a report.

Google is well-positioned to continue benefiting from AI

Google has the exclusive advantage of getting the benefits from AI investments from the search business and then applying the learnings to the YouTube ad business has a huge audience and had 7.6% of overall US TV time in August and nearly 22% of streaming time. YouTube uses machine learning to optimise how many times a viewer sees an ad from a specific company.

Google Cloud still remains the fastest-growing part of Google

Google Cloud remains the fastest-growing part of the business and has increased its revenue by a rapid 38% year-over-year to $6.9 billion.

Google has made their AI research, AI models and ML tool kits available to cloud customers as enterprise-grade products and solutions.

Machine learning is a key part of Google’s translation efforts and they are now up to 135 languages.

Every part of the tech industry faces pressures

Tech sector strategist Ted Morton at Baird said almost every part of the tech industry faced a difficult combination of pressures including a stronger dollar, falling consumer demand, weakness in Europe and Asia, rising interest rates and geopolitical tensions including US restrictions on the Chinese semiconductor industry.

DISCLAIMER: This information is not considered investment advice or an investment recommendation but a marketing communication. IronFX is not responsible for any data or information provided by third parties referenced or hyperlinked, in this communication.

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Google: Sky is the limit if privacy protection fears are overcome

Alphabet Inc. is the mother company of Google (#GOOG) and the firm’s Google segment is divided into Google Services and Google Cloud. According to the most recent Alphabet first quarter 2021 results, revenues saw an increase of 34% on a yearly basis. The increase in revenue is more than double compared to the increase observed in the previous year’s same quarter. Alphabet’s profits seemingly increased as the pandemic kept people at home, watching YouTube videos and clicking on web advertisements served up by the company. Another fact that is usually considered a positive sign for a company’s economic health was the announcement of a $50bn share buyback program. Upon announcement the news pushed shares higher in after-hours trading. Some analysts suggest Alphabet’s cloud business as well as Waymo LLC, the firm’s subsidiary related to autonomous driving technology development could be the strongest segments of its overall business and could even support long-term growth for Google. One of the major concerns over Alphabet’s activities and specifically Google’s search engine is privacy and safety of users which spills in many other directions including third-party data collection. In the past days, CNBC announced the US Department of Justice is beginning to prepare an antitrust investigation against the company. Despite the company being constantly bombarded with negative headlines over the pre mentioned matter, on a Year to date basis the company’s shares are up +36.57%.

Facebook: Still growing despite adversity

Facebook (#FB) is a social media giant that currently runs platforms with over 2.3 billion daily users. Facebook also owns other social media platforms like Instagram and communication apps like WhatsApp. According to its financial results for the quarter ended March 31, 2021 the company saw a drastic boost of total revenues of 48% compared to the same quarter last year. Furthermore its net income figure was up by 94% on a yearly basis once again displaying impressive results and confirming the company is in a good shape financially. Facebook very similar to Google benefited greatly from advertising during the pandemic which according to its earnings results, added 46% on a yearly basis. From a more critical perspective the company has also crossed swords with many governments that have challenged the social media firm’s practices on various fronts. Most recently the Financial Times said the UK and EU formally announced competition investigations into Facebook’s dating and classifieds businesses. In the past Facebook had also clashed with the Australian government which passed a law aimed at forcing Google and Facebook to pay taxes for news content on their platforms. The situation turned into a disaster with Facebook blocking all news content to Australians, forcing the government to come back and renegotiate the laws yet leaving a resentment on both sides over the issue. Despite the fact that Facebook has come under immense pressure from authorities in the past years, the company displays constant growth in terms of valuation, stock price and users proving it is rightly among the most influential and powerful companies of the world.

Amazon: results from expanding on different fronts remain to be seen

Amazon (#AMZN) the biggest online retailer worldwide has websites dedicated to different parts of the world supporting many businesses on the resale front. According to its financial results for its first quarter ended March 31, 2021, net sales increased 44% in the first quarter, compared to the first quarter 2020. Despite online selling Amazon’s business like cloud computing and advertising inspire confidence and have driven results accordingly. The company has shown its ability to allocate resources on various unrelated fronts and be very competitive doing it at the same time. For example Amazon’s Prime video streaming operates within a very competitive industry in which abundant consumer choice exists and companies face high production costs and the need to be competitive on subscriptions. Amazon is competing with Netflix (#NFLX) and Disney (#DIS) for a share of the market but has not been able to head the list so far. Thus we could say Amazon’s action to increase its chances announcing it bought film studio MGM in the past weeks was rightfully chosen. The move however needs to be justified in terms of users so it remains to be seen whether it will support Amazon Prime. Amazon also purchased supermarket chain Whole Foods stepping into unknown territory, thus possibly upsetting big competitors like Walmart (#WMT). In the near past, Jeff Bezos the company’s founder and CEO announced he will formally step down as Amazon CEO on July 5. He’s successor will be Andy Jassy, Amazon’s cloud-computing boss.

Apple – Can competition keep up?

Apple (#AAPL) is the oldest company among the big four group but this only indicates it managed to remain relevant,to the trends and preferences of theirs users especially in the past 20 years. Based on its most recent earnings report for the period ending March 27 2021, Apple posted a quarterly record revenue increase of 54 percent year over year. The success that Apple has managed to obtain through its iPhone is remarkable and also the fact that it managed to pass the quality to most of its other products is a sort of revolution. Apple has a great market of followers all over the world with international sales contributing for 67 percent of the quarter’s revenue but most importantly in China. China is not only a large customer market for Apple but also currently the biggest supplier than any other country, taking full advantage of the Mainland. Its dependence on China is a sort of concern for the US government which is trying to reduce exposure to the Mainland. In the past weeks, Apple has been in the media’s eye once again as Epic Games the maker of Fortnite, commenced its case against Apple, accusing the big tech company of operating an illegal monopoly. This is not the first time Apple has come against such accusation and in our opinion it may continue to face such adversities as long as it continues to create quality products.

General Comment

As a closure and perhaps speaking on behalf of all of the pre mentioned companies, we could say that they have expanded and reached a level of almost impossible influence which could have also turned them against each other. These companies are not only competing with their industry which is currently ever growing but most importantly they are fighting to keep and increase their market share on as many fronts as possible turning on each other. This could add more drama to the big tech sector. Also as governments, market participants and competition regulators are viewing the dominance of these companies, they have shown signs of frustration and agony over the growing power that they currently preserve. Some argue that attempts to break down the big tech sector into more controllable pieces is inevitable. In our humble opinion these companies have rightfully gained the number one spot in growth and sales in the past decades as they have evidently worked towards improving their products and offering the world with cutting edge technology. The same goes for Microsoft (#MSFT) which is also among the best and could be given a future look into as it deserves a similar analysis.

US Big Tech share price performance in the past 6 months (Daily chart)

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Disclaimer:

This information is not considered as investment advice or an investment recommendation, but instead a marketing communication. IronFX is not responsible for any data or information provided by third parties referenced, or hyperlinked, in this communication.

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