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Alphabet's earnings miss profit estimates as spending grows

193 points by daegloe 9y ago

JonRB 9y ago
The article and the title don't seem to match. This title is misleading.
- nostromo 9y ago
  "Alphabet cracks $100B in annual revenue as advertising soars" was the original article title. As the earnings release progressed, Reuters decided to change the title to, "Alphabet's earnings miss Wall St. estimates as spending grows"
  - IMTDb 9y ago
    Always fun to see how two correct interpretations of the exact same number can be seen as correct vs misleading depending on the tone of the writer.
    - jdkuepper 9y ago
      Or the market's reaction following the announcement. I would imagine that they have to have two draft titles ready for every piece written about earnings announcements.
      - jnordwick 9y ago
        Not far off. On big announcements for economic releases and earnings reports there are multiple pieces written and when the reporter gets the numbers (sometimes under embargo) they choose the piece, fill in the blanks, make some finishing touches, and send it out. The market reactions however are driven by automated systems that get machine digestible metrics and reactions are programmed in ahead of time. The market literally adjusts at the speed of light.
    - theDoug 9y ago
      Absolutely. Also continually interesting to me to see response, given Google gives no guidance, compared to other companies that provide guidance and then 'miss' resulting estimates. (Disclosure: I work at Google)
      - jnordwick 9y ago
        What do you mean? Google might not give guidance but they still certainly miss street consensus.
  - spacehome 9y ago
    As Alphabet doesn't give earnings guidance, it should read "Wall St. estimates miss Alphabet's earnings as spending grows".
- sctb 9y ago
  We've updated the title from “Alphabet cracks $100B in annual revenue as advertising soars”. Quite the turnaround!
gxs 9y ago
Makes Apple's recent $88B quarter seem gargantuan. Apple's quarterly profit is nearly half of Google's quarterly revenue. These companies have a very similar valuation. Is the proper way to interpret this that investors are a lot more optimistic about Google's future vs Apple's?
- deleted 9y ago
  [deleted]
- deleted 9y ago
  [deleted]
- JTon 9y ago
  > Is the proper way to interpret this that investors are a lot more optimistic about Google's future vs Apple's? I've read institutional investors don't see Apple having sufficiently diversified revenue streams to warrant a higher P/E. Something around 60% of their revenues come from iPhone alone.
  - rising-sky 9y ago
    And Google's revenue diversification?
    - jpatokal 9y ago
      From the friendly article: Non-advertising revenue from Google combined with revenue from Verily and the other Alphabet companies was $15.5 billion in 2017, accounting for about 14 percent of total revenue, compared to $10.9 billion, or 12 percent, in 2016. Not much in total percent terms because of how huge the ads business is, but if you look at it on its own, that's up 50% and $5 billion YoY.
      - rising-sky 9y ago
        Deducing solely from your comment then, Google and other Alphabet companies advertising revenue was 86%? That's seems a lot less diversified than Apple's 60% from iPhones...
jxub 9y ago
Interesting mention about appointing John Hennesy the chairman of the company.
djsumdog 9y ago
Are we in an advertising bubble? I mean it's difficult to quantify advertising. Most retailers can't depend on just click through rates. If you see a ad for Vans, you might not purchase it online, but like traditional ads, it could make you think about it when you're near a shoe store. And most normal (non tech/IT people) don't run ad blockers. But at some point there's got to be a low of diminishing return. People are earning less, and in some ways buying more to distract themselves .. yet like any industry, you simply cannot have infinite growth. What exactly will an advertising bubble bust look like? Or would we not see it directly, as it would be more of an effect of fewer goods being sold due to something else that kills jobs and stifles wages? How will a dot com break in the 2010s/20s be different from the one in 2001?
- Bucephalus355 9y ago
  I literally just came to this thread wondering if this revenue number was related to the stock market bubble in general, especially since Facebook’s stock does not seem to be impacted...at all...by the recent negative press / shifting focus of the company. I also want to add that the huge focus on marketing and advertising in general really comes from a shift in the business that occurred in the 1970’s at the major business schools. At the time, there was a feeling that the US was overproducing products that weren’t needed, and the only solution was to more innovatively inform customers of what they needed, since cutting back on production would hurt the job market. One thing this led to was very specific marketing segmentation, among others. For instance, all older Americans used to be classified as 65+ in most marketing programs, maybe with race and gender added on as well. Obviously that was a very general category that now has been split into dozens of subcategories. Anyway it seems like their plan wound up working out to well with the numbers we’re seeing out of Google and FB...
- zitterbewegung 9y ago
  Yes, we are in an AdTech bubble where companies attempt to say that their advertisements are more targeted and actually reach people when they aren't. Facebook has had a bunch of issues where their metrics either are inaccurate or don't make sense. Google has cornered advertisment on what people intend to search but probably can't grow much bigger unless they go beyond the United States (the problem is that they are probably already saturated in the top 20 economies). This leaves Video advertisement and that is either getting increasingly harder to monetize or you have to make your own content which basically means you become Netflix, Amazon, Crunchyroll or Youtube (which Google already has). Not to mention the amount of clickfraud that is already happening. So what will happen when this ends is that we will see a bunch of AI promises that can't be fulfilled not occur and a drop in AI investment. Also, any small startup in AdTech will either rise to the occasion or die trying.
staunch 9y ago
Google and Facebook are propping open the internet advertising door, against the forces of technological progress. Google only controls Chrome so that they can ensure it never incorporates real ad-blocking. Google controls Firefox by bribing Mozilla with a tiny slice of its advertising winnings. Facebook plays second-fiddle, but has its own influence as the second largest ad network. Larry Page and Mark Zuckerberg are smart and must realize what they're doing is wrong. They must simply not know how to replace their advertising revenue with something legitimate and future proof. In both cases they're (arguably) one-hit wonders. Google is still Google Search and Facebook's social network is still just a social network. You can buy Oculus or clone iOS but if your only plan is to stick ads on everything, you're not making any real progress. They both have a single-point-of-failure in their businesses. I predict this single point is going to fail catastrophically in the surprisingly-near future.
- guyzero 9y ago
  Advertising as a business is nearly 200 years old. Seems pretty future-proof.
  - staunch 9y ago
    1. Internet advertising is 20 years old, which is the business model that is at risk. 2. It doesn't make sense to suggest that the future will be like the past, particularly in the modern world of rapidly accelerating technological progress.
    - Retra 9y ago
      Why would internet advertising be at risk? Are people going to stop looking at media over the internet?
    - hndamien 9y ago
      I personally think Facebook would do well as a crypto bank on an open protocol, rather than their own coin.
  - bduerst 9y ago
Feniks 9y ago
A 100 billion dollar industry that I have almost no exposure to thanks to an unpaid developer. Thanks Gorhill and all the list maintainers out there you're my only hope!
ggm 9y ago
If you told me that ad spend has become a complex diritive, and has no neccessarily strong linkage to outcomes for the supposed entity 'inside' the ad, I wouldn't entirely disagree. I am sure for some businesses, the ad spend and placement against search has strong immediate benefit. I am less sure that a lot of ads have anything like that role. I am completely unconvinced that 'targetted' advertising against keyword or context has any merit whatsoever. My baseline reasoning for this is that very few ads in food magazines make me go out and spend money on a new stove or coffee maker. At best, they get brand recognition and positioning but thats a weak linkage: they would have got that from placement in a magazine aimed at BMW and Merc owners. No: targetted advertising is stalking and is creepy. I think its a CFD. Weak linkage to real world events, brokered, and sold forward in a spot and futures market.
- bufferoverflow 9y ago
  It's relatively easy to debunk/prove your point about targeting. Test both on the website you control. At the very least you can geolocate the visitor and present an ad in the most appropriate language about a product in their local store. I'm pretty sure targeting would win by a wide margin. Google ad guys are the best in business, and you're basically implying they are in a weird targeting cargo cult.
  - ggm 9y ago
    No, I think the entire ad economy is a weird targeting cargo cult. I don't think they're any worse than anyone else in the space. Google ads: serving me pictures of the shorts I bought three months ago, on a daily basis. Seriously? You say they're the best in the business, and their business is selling to an advertisor "he bought a pair of cargo shorts three months ago" as a reason to sell me .. cargo shorts.
    - tlack 9y ago
      I'm with you here. I was having an argument with someone about how Amazon has already conquered the target-upsell-intelligence space, and just as he was saying that, I saw numerous ads for something I already bought - same pictures, different sellers. How many of this lens do they think I need? This is a great example of something being an obvious correlation in "computer science land" often doesn't really bump the numbers as it might.
jthegiant 9y ago
Advertising industry insider here: I am seeing a lot of misinformation in this thread. Advertisers have been using (installs / In-app purchasing / shopping cart tracking) to calculate ROAS (ROI) for YEARS. And the modern targeting is actually pretty good in general. Only big brand advertisers (like Clorox/PG/etc) evaluate ad spend on the impression/click level. This is not the norm (unless you want to lose your shirt to bots/fraud). We have made it a long way from the blunt-instrument advertising of past years. Full disclosure: there may indeed be a 'changing-of-the-guard' happening with regard to brand advertisers waking up to the available tech, but that is a different story.. Overall, this is a non-story. Many corporations were slapped with a massive bill after the passage of Trump's tax cuts. Not just Google. So with that liability, of course PROFIT dropped. But the REVENUE is what you want to look at for these 'bubble' discussions (and that is strong), so nothing to see here...
- CamTin 9y ago
  Can you explain why a tax cut would lead to a huge bill?
  - goldenkey 9y ago
    They decided to finally pay their (lower) taxes to move them into U.S banks instead of illegally holding the funds offshore
    - xbmcuser 9y ago
      1. It was not illegal for them to keep the money offshore 2. They had to pay 1 time tax on money held offshore. once it is paid they still don't need to bring it back just it won't cost them anything to bring back.
    - dragonwriter 9y ago
      They were already, largely, in US banks. The offshore status was entirely an accounting status, and there was nothing illegal about it. It was tax avoidance, not evasion.
    - 9y ago
omot 9y ago
I guess they're trying out the Amazon model?
clay_the_ripper 9y ago
There is a lot of anti-ad sentiment here but as someone who runs ads on google and Facebook for clients, I find that google and Facebook have leveled the playing field in some respects for small companies. Now I can definitively show a client that they pay me X dollars per month and my ads for them generated X*5 revenue for them that month. The attribution for these platforms is quite robust, and if you know what you’re doing you can produce positive ROI even on small budgets. Previously when advertising was done on an awareness basis (billboards, newspapers) small advertisers might be shut out of the market because advertising is expensive and they can’t reliably say whether their ads are working. I work mainly in the health/wellness space and I’m able to effectively target people who will be legitimately interested in the services the companies we represent sell. There seems to be this idea that advertising is “shoved down our throats” and while I certainly agree in some cases, people who buy from our clients are buying because the products or services improve their lives in some way and they only buy because they want to. I think that google and Facebook (whatever your feelings on their other practices) do provide an unprecedented avenue for small businesses to find customers efficiently and profitably.
- ianamartin 9y ago
  Yeah, but the thing is that you can't show that. There's no possible way you can show that. Because it isn't true. So whatever you are making up to show that is really just a big lie. And it feeds the anti-ad hatred that also doesn't exist here.
  - Declanomous 9y ago
    I'm confused. Are you saying he can't show that online advertising has leveled the playing field, or that he can't show that conversions attributed to his ads make 5 times the money it costs to employ his services?
  - clay_the_ripper 9y ago
    Do you mean that I can’t show that my ads produce positive return? Or that I can’t show that my clients are able to advertise in a way that wasn’t possibly before? Of course my experience is anecdotal, but I assure you that both of the above are true (for myself and for my clients, and for many others in my business)
aplorbust 9y ago
Earlier HN title: "Alphabet cracks $100B in annual revenue as advertising soars"
known 9y ago
It's alleged that FB/GOOG are manipulating minds

193 points by daegloe 9y ago

JonRB 9y ago

The article and the title don't seem to match. This title is misleading.

nostromo 9y ago
"Alphabet cracks $100B in annual revenue as advertising soars" was the original article title. As the earnings release progressed, Reuters decided to change the title to, "Alphabet's earnings miss Wall St. estimates as spending grows"
- IMTDb 9y ago
  Always fun to see how two correct interpretations of the exact same number can be seen as correct vs misleading depending on the tone of the writer.
  - jdkuepper 9y ago
    Or the market's reaction following the announcement. I would imagine that they have to have two draft titles ready for every piece written about earnings announcements.
    - jnordwick 9y ago
      Not far off. On big announcements for economic releases and earnings reports there are multiple pieces written and when the reporter gets the numbers (sometimes under embargo) they choose the piece, fill in the blanks, make some finishing touches, and send it out. The market reactions however are driven by automated systems that get machine digestible metrics and reactions are programmed in ahead of time. The market literally adjusts at the speed of light.
  - theDoug 9y ago
    Absolutely. Also continually interesting to me to see response, given Google gives no guidance, compared to other companies that provide guidance and then 'miss' resulting estimates. (Disclosure: I work at Google)
    - jnordwick 9y ago
      What do you mean? Google might not give guidance but they still certainly miss street consensus.
- spacehome 9y ago
  As Alphabet doesn't give earnings guidance, it should read "Wall St. estimates miss Alphabet's earnings as spending grows".
sctb 9y ago
We've updated the title from “Alphabet cracks $100B in annual revenue as advertising soars”. Quite the turnaround!

gxs 9y ago

Makes Apple's recent $88B quarter seem gargantuan. Apple's quarterly profit is nearly half of Google's quarterly revenue. These companies have a very similar valuation. Is the proper way to interpret this that investors are a lot more optimistic about Google's future vs Apple's?

deleted 9y ago
[deleted]
deleted 9y ago
[deleted]
JTon 9y ago
> Is the proper way to interpret this that investors are a lot more optimistic about Google's future vs Apple's? I've read institutional investors don't see Apple having sufficiently diversified revenue streams to warrant a higher P/E. Something around 60% of their revenues come from iPhone alone.
- rising-sky 9y ago
  And Google's revenue diversification?
  - jpatokal 9y ago
    From the friendly article: Non-advertising revenue from Google combined with revenue from Verily and the other Alphabet companies was $15.5 billion in 2017, accounting for about 14 percent of total revenue, compared to $10.9 billion, or 12 percent, in 2016. Not much in total percent terms because of how huge the ads business is, but if you look at it on its own, that's up 50% and $5 billion YoY.
    - rising-sky 9y ago
      Deducing solely from your comment then, Google and other Alphabet companies advertising revenue was 86%? That's seems a lot less diversified than Apple's 60% from iPhones...

jxub 9y ago

Interesting mention about appointing John Hennesy the chairman of the company.

djsumdog 9y ago

Are we in an advertising bubble? I mean it's difficult to quantify advertising. Most retailers can't depend on just click through rates. If you see a ad for Vans, you might not purchase it online, but like traditional ads, it could make you think about it when you're near a shoe store. And most normal (non tech/IT people) don't run ad blockers. But at some point there's got to be a low of diminishing return. People are earning less, and in some ways buying more to distract themselves .. yet like any industry, you simply cannot have infinite growth. What exactly will an advertising bubble bust look like? Or would we not see it directly, as it would be more of an effect of fewer goods being sold due to something else that kills jobs and stifles wages? How will a dot com break in the 2010s/20s be different from the one in 2001?

Bucephalus355 9y ago
I literally just came to this thread wondering if this revenue number was related to the stock market bubble in general, especially since Facebook’s stock does not seem to be impacted...at all...by the recent negative press / shifting focus of the company. I also want to add that the huge focus on marketing and advertising in general really comes from a shift in the business that occurred in the 1970’s at the major business schools. At the time, there was a feeling that the US was overproducing products that weren’t needed, and the only solution was to more innovatively inform customers of what they needed, since cutting back on production would hurt the job market. One thing this led to was very specific marketing segmentation, among others. For instance, all older Americans used to be classified as 65+ in most marketing programs, maybe with race and gender added on as well. Obviously that was a very general category that now has been split into dozens of subcategories. Anyway it seems like their plan wound up working out to well with the numbers we’re seeing out of Google and FB...
zitterbewegung 9y ago
Yes, we are in an AdTech bubble where companies attempt to say that their advertisements are more targeted and actually reach people when they aren't. Facebook has had a bunch of issues where their metrics either are inaccurate or don't make sense. Google has cornered advertisment on what people intend to search but probably can't grow much bigger unless they go beyond the United States (the problem is that they are probably already saturated in the top 20 economies). This leaves Video advertisement and that is either getting increasingly harder to monetize or you have to make your own content which basically means you become Netflix, Amazon, Crunchyroll or Youtube (which Google already has). Not to mention the amount of clickfraud that is already happening. So what will happen when this ends is that we will see a bunch of AI promises that can't be fulfilled not occur and a drop in AI investment. Also, any small startup in AdTech will either rise to the occasion or die trying.

staunch 9y ago

Google and Facebook are propping open the internet advertising door, against the forces of technological progress. Google only controls Chrome so that they can ensure it never incorporates real ad-blocking. Google controls Firefox by bribing Mozilla with a tiny slice of its advertising winnings. Facebook plays second-fiddle, but has its own influence as the second largest ad network. Larry Page and Mark Zuckerberg are smart and must realize what they're doing is wrong. They must simply not know how to replace their advertising revenue with something legitimate and future proof. In both cases they're (arguably) one-hit wonders. Google is still Google Search and Facebook's social network is still just a social network. You can buy Oculus or clone iOS but if your only plan is to stick ads on everything, you're not making any real progress. They both have a single-point-of-failure in their businesses. I predict this single point is going to fail catastrophically in the surprisingly-near future.

guyzero 9y ago
Advertising as a business is nearly 200 years old. Seems pretty future-proof.
- staunch 9y ago
  1. Internet advertising is 20 years old, which is the business model that is at risk. 2. It doesn't make sense to suggest that the future will be like the past, particularly in the modern world of rapidly accelerating technological progress.
  - Retra 9y ago
    Why would internet advertising be at risk? Are people going to stop looking at media over the internet?
  - hndamien 9y ago
    I personally think Facebook would do well as a crypto bank on an open protocol, rather than their own coin.
- bduerst 9y ago

Feniks 9y ago

A 100 billion dollar industry that I have almost no exposure to thanks to an unpaid developer. Thanks Gorhill and all the list maintainers out there you're my only hope!

ggm 9y ago

If you told me that ad spend has become a complex diritive, and has no neccessarily strong linkage to outcomes for the supposed entity 'inside' the ad, I wouldn't entirely disagree. I am sure for some businesses, the ad spend and placement against search has strong immediate benefit. I am less sure that a lot of ads have anything like that role. I am completely unconvinced that 'targetted' advertising against keyword or context has any merit whatsoever. My baseline reasoning for this is that very few ads in food magazines make me go out and spend money on a new stove or coffee maker. At best, they get brand recognition and positioning but thats a weak linkage: they would have got that from placement in a magazine aimed at BMW and Merc owners. No: targetted advertising is stalking and is creepy. I think its a CFD. Weak linkage to real world events, brokered, and sold forward in a spot and futures market.

bufferoverflow 9y ago
It's relatively easy to debunk/prove your point about targeting. Test both on the website you control. At the very least you can geolocate the visitor and present an ad in the most appropriate language about a product in their local store. I'm pretty sure targeting would win by a wide margin. Google ad guys are the best in business, and you're basically implying they are in a weird targeting cargo cult.
- ggm 9y ago
  No, I think the entire ad economy is a weird targeting cargo cult. I don't think they're any worse than anyone else in the space. Google ads: serving me pictures of the shorts I bought three months ago, on a daily basis. Seriously? You say they're the best in the business, and their business is selling to an advertisor "he bought a pair of cargo shorts three months ago" as a reason to sell me .. cargo shorts.
  - tlack 9y ago
    I'm with you here. I was having an argument with someone about how Amazon has already conquered the target-upsell-intelligence space, and just as he was saying that, I saw numerous ads for something I already bought - same pictures, different sellers. How many of this lens do they think I need? This is a great example of something being an obvious correlation in "computer science land" often doesn't really bump the numbers as it might.

jthegiant 9y ago

Advertising industry insider here: I am seeing a lot of misinformation in this thread. Advertisers have been using (installs / In-app purchasing / shopping cart tracking) to calculate ROAS (ROI) for YEARS. And the modern targeting is actually pretty good in general. Only big brand advertisers (like Clorox/PG/etc) evaluate ad spend on the impression/click level. This is not the norm (unless you want to lose your shirt to bots/fraud). We have made it a long way from the blunt-instrument advertising of past years. Full disclosure: there may indeed be a 'changing-of-the-guard' happening with regard to brand advertisers waking up to the available tech, but that is a different story.. Overall, this is a non-story. Many corporations were slapped with a massive bill after the passage of Trump's tax cuts. Not just Google. So with that liability, of course PROFIT dropped. But the REVENUE is what you want to look at for these 'bubble' discussions (and that is strong), so nothing to see here...

CamTin 9y ago
Can you explain why a tax cut would lead to a huge bill?
- goldenkey 9y ago
  They decided to finally pay their (lower) taxes to move them into U.S banks instead of illegally holding the funds offshore
  - xbmcuser 9y ago
    1. It was not illegal for them to keep the money offshore 2. They had to pay 1 time tax on money held offshore. once it is paid they still don't need to bring it back just it won't cost them anything to bring back.
  - dragonwriter 9y ago
    They were already, largely, in US banks. The offshore status was entirely an accounting status, and there was nothing illegal about it. It was tax avoidance, not evasion.
  - 9y ago

omot 9y ago

I guess they're trying out the Amazon model?

clay_the_ripper 9y ago

There is a lot of anti-ad sentiment here but as someone who runs ads on google and Facebook for clients, I find that google and Facebook have leveled the playing field in some respects for small companies. Now I can definitively show a client that they pay me X dollars per month and my ads for them generated X*5 revenue for them that month. The attribution for these platforms is quite robust, and if you know what you’re doing you can produce positive ROI even on small budgets. Previously when advertising was done on an awareness basis (billboards, newspapers) small advertisers might be shut out of the market because advertising is expensive and they can’t reliably say whether their ads are working. I work mainly in the health/wellness space and I’m able to effectively target people who will be legitimately interested in the services the companies we represent sell. There seems to be this idea that advertising is “shoved down our throats” and while I certainly agree in some cases, people who buy from our clients are buying because the products or services improve their lives in some way and they only buy because they want to. I think that google and Facebook (whatever your feelings on their other practices) do provide an unprecedented avenue for small businesses to find customers efficiently and profitably.

ianamartin 9y ago
Yeah, but the thing is that you can't show that. There's no possible way you can show that. Because it isn't true. So whatever you are making up to show that is really just a big lie. And it feeds the anti-ad hatred that also doesn't exist here.
- Declanomous 9y ago
  I'm confused. Are you saying he can't show that online advertising has leveled the playing field, or that he can't show that conversions attributed to his ads make 5 times the money it costs to employ his services?
- clay_the_ripper 9y ago
  Do you mean that I can’t show that my ads produce positive return? Or that I can’t show that my clients are able to advertise in a way that wasn’t possibly before? Of course my experience is anecdotal, but I assure you that both of the above are true (for myself and for my clients, and for many others in my business)

aplorbust 9y ago

Earlier HN title: "Alphabet cracks $100B in annual revenue as advertising soars"

known 9y ago

It's alleged that FB/GOOG are manipulating minds