Alphabet earnings call: The AI promise at Google, and improving YouTube
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Alphabet stock (NASDAQ:GOOG) (NASDAQ:GOOGL) was still up about 4% in postmarket trading heading into a conference call about its first-quarter earnings, where it surprised expectations by eking out better revenue gains than expected and topping profitability forecasts. But CEO Sundar Pichai launched the call by mainly looking forward to two themes: artificial intelligence and the company's sharpened investment focus.
When it comes to AI, in the company's earnings call last quarter, "I outlined three areas of opportunity: continuing to develop state-of-the-art large language models; make significant improvements across our products to be more helpful to our users; empowering developers, creators and partners with our tools and enabling organizations of all sizes to utilize and benefit from our AI advances," Pichai said. "We made good progress across all three areas."
That included the public introduction of its chatbot Bard, a rival to the heavily publicized launch of Microsoft-backed (MSFT) OpenAI's ChatGPT, and Pichai says it's now more powerful with the addition of help on programming and software development tasks.
Developers now also have a simple way to access Google's large language models through a new application programming interface. And more organizations are using Google's LLMs across Google Cloud Platform, Google Workspace and the company's cybersecurity offerings, he said.
He also touted AI's less-visible influence, on the company's ads business: "Products like Performance Max use the full power of Google's AI to help advertisers find untapped and incremental conversion opportunities."
Google Cloud has been reliably growing about 30% year-over-year, and Pichai added some color there as well: "Over the last four years, the number of Google Cloud partner certified practitioners around the world has increased more than 15 times; the largest global system integrators have built 13 dedicated practices with Google Cloud compared to zero when we started; and today, more than 100,000 companies are part of our Google Cloud Partner Advantage Program."
And on the thornier subject of YouTube (where ad revenues fell by 2.6% from the prior year), Pichai focused on uptake with creators. For YouTube Shorts -- the company's short-video rival to TikTok (BDNCE) -- "Last year the number of channels that uploaded to Shorts daily grew over 80%. Those posting weekly on Shorts saw the majority of new channel subscribers coming from their Shorts posts."
The living room is still the fastest-growing screen in terms of watch time, he said, and the subscription program has seen several new updates for YouTube Premium.
Seeking Alpha analyst and Investing Groups leader Jonathan Weber noted from the earnings that margins are still compressing (operating margin fell to 25% from 30%), but should be improving from here: "Recent actions by the company and its management suggest that Alphabet knows that it can't be happy with its margin development, thus things could improve in the future."
Similarly, Seeking Alpha analyst and Investing Groups leader Livy Investment Research said the print helped underscore momentum from recent ramp-up of AI efforts as well as the cost reductions. Continued progress in a "march to profitability" for Google Cloud should "bolster the segment's case toward breakeven within the foreseeable future, while the ensuing cost reductions stemming from recent job cuts will contribute to better profitability across the overall business through the latter half of the year."
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