Release Date: July 23, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Alphabet Inc (GOOG, Financial) reported strong revenue growth, with consolidated revenues of $84.7 billion, up 14% year-over-year.
- Google Cloud achieved significant milestones, crossing $10 billion in quarterly revenues and $1 billion in quarterly operating profit for the first time.
- AI initiatives are driving new growth, with AI infrastructure and generative AI solutions generating billions in revenues and being used by over 2 million developers.
- YouTube remains the number one streaming platform in the US, with views on YouTube Shorts and Connected TVs more than doubling last year.
- Alphabet Inc (GOOG) continues to innovate in AI, with advancements in AI Overviews, visual search via Lens, and the versatile Gemini model family.
Negative Points
- Network advertising revenues declined by 5% year-over-year.
- Operating expenses increased by 5%, primarily due to higher R&D costs.
- The company faces challenges in fully unlocking the potential of AI use cases, particularly in enterprise applications.
- There are concerns about the sustainability of the current operating margins, given the expected increases in depreciation and expenses associated with higher levels of investment in technical infrastructure.
- The decision to not deprecate cookies in Chrome may raise questions about the company's commitment to improving user privacy.
Q & A Highlights
Q: Can you talk about areas where you've seen faster-than-expected traction or testing adoption of some of the AI, generative AI capabilities versus slower-than-expected traction and testing from a Google perspective?
A: Sundar Pichai, CEO: On the consumer side, we've seen positive traction with AI Overviews in Search, enhancing user experience. On the enterprise side, while there are promising use cases in areas like coding and customer service, there's still work to be done to fully unlock these opportunities.
Q: Are there any more tangible examples of areas you can talk to us about where you still see further ways to drive more efficiency across the company?
A: Ruth Porat, CFO: We continue to focus on product and process prioritization, organizational efficiency, and technical infrastructure improvements. Recent examples include combining the devices and services product area with platforms and ecosystems to enhance product execution and efficiency.
Q: Can you help us understand where you are in rolling out AI Overviews and any more color around click-through rates and monetization levels relative to traditional searches?
A: Sundar Pichai, CEO: AI Overviews have been rolled out in the US and will expand to more countries. We are focused on quality and expanding use cases. Philipp Schindler, CBO: Ads appearing above or below AI Overviews are helpful, and we will soon start testing search and shopping ads within AI Overviews in the US.
Q: Can you talk a bit about what we should expect in terms of new experience in Chrome and why the company makes a decision not to go down the path on deprecating cookies?
A: Sundar Pichai, CEO: We are committed to improving privacy in Chrome. Given the feedback from stakeholders, we believe user choice is the best path forward. We will continue investing in privacy-enhancing technologies.
Q: How are you seeing AI actually get adopted, implemented, and what it potentially could mean for the strategic positioning of the Cloud business?
A: Sundar Pichai, CEO: AI is driving significant traction in Cloud, with over 2 million developers using our AI tools. We are seeing early use cases in areas like customer service and coding, and we believe AI will be a major driver of growth for Cloud.
Q: How are you using AI internally to help cut costs? Are you seeing better efficiencies with your engineers?
A: Sundar Pichai, CEO: We are using AI tools internally to enhance productivity, particularly in coding. While it's still early stages, we are seeing promising results that will translate into better models and products.
Q: Would you characterize the cloud acceleration as new AI demand helping drive that year-to-date, or is it more of a rebound in general compute and other demand?
A: Ruth Porat, CFO: The growth in Cloud is driven by both AI-related solutions and general compute demand. We are particularly encouraged by the adoption of our generative AI solutions among our top customers.
Q: When do you think we'll start talking about direct response being a much bigger contributor to YouTube's growth versus brand?
A: Philipp Schindler, CBO: Direct response is already benefiting from AI-powered campaigns and tools. We are optimistic about its growth potential, especially with new launches in YouTube shopping and other direct response initiatives.
Q: How are you thinking about the return on invested capital with this AI CapEx cycle?
A: Sundar Pichai, CEO: Investing aggressively in AI infrastructure is crucial for us. The risk of under-investing is greater than over-investing. We focus on optimizing hardware, software, and model deployment to ensure efficient use of capital.
Q: Do you think the AI industry is close to or far away from hitting some kind of wall on foundation model improvement in AI training based on lack of availability of new data to train on?
A: Sundar Pichai, CEO: While scaling models is challenging, there are still many optimizations and use cases to explore. We are focused on translating AI capabilities into real-world applications, which will drive continued progress.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
