00:00:02 · Carol Massar, S1, S2, S3
[00:00:02] S0: Bloomberg Audio Studios. [00:00:04] S1: Podcasts. Radio. News. [00:00:09] S0: This is a breaking news update from Bloomberg. [00:00:12] S2: Instant reaction and analysis from our 3,000 journalists and analysts around the world. [00:00:19] S3: I'm going to go to Alphabet. Third quarter, Google search and other revenue. That is coming in a little light. [00:00:24] S2: $ 63. 35 billion. [00:00:25] S0: The street estimate was $ 64. 85 billion. Google services revenue. That came in light. [00:00:27] S2: $ 96. [00:00:27] S0: 3 versus $ 98. 4, the estimate on the street. Third quarter cap. [00:00:38] S3: X, $ 51. [00:00:39] S0: 36 billion. That's below the street estimate. [00:00:43] S1: Of $ 55. 78 billion. I'm taking a look at Google shares. Yeah, they are falling in the aftermarket. So we are actually seeing some disappointment in terms of some of the numbers. Third quarter revenue, XTAC. [00:00:55] S3: An important number here, $ 111. 21 billion. Slightly light. The street looking for $ 111. 29 billion. Third quarter Google Cloud revenue. That came in better, slightly. $ 30. 71 billion versus an. [00:01:08] S0: Estimate of $ 29. 1 billion. Here's a number. [00:01:11] S3: Gemini app has reached 1 billion users. [00:01:15] S2: Yeah. Also, did you see the tokens number here? [00:01:18] S0: What's the token?
00:01:18 · Carol Massar, S2, S3
[00:01:18] S0: What's the token? [00:01:18] S2: This is pretty wild. Alphabet is now talking about processing about 32 billion tokens per minute. That's the model APIs, Alphabet says. Alphabet also surpassing 150 million YouTube music and premium subs. And, Carol, that now turning into a redhead. Gemini app has reached 1 billion users. Third quarter cloud revenue coming in just above estimates. [00:01:39] S3: At $ 30. [00:01:39] S0: 71 billion. [00:01:41] S3: Investors definitely not impressed. Our Ed Ludlow, host of Bloomberg Tech on Bloomberg TV, is with us. I know, Ed, you've been listening. We're watching, continuing to see pressure on Alphabet. [00:01:52] S2: Julia Love and Dave Alba with a write-through from the Bloomberg News team. Writing that the quarterly sales and profit for the company fell short of expectations, a sign that the company is failing to generate enough return to justify its massive investments in AI. Your quick take on the top-line miss and the bottom-line miss. Was the top-line miss an indication to you that search is being cannibalized a little bit by these LLMs finally? [00:02:19] S3: Yeah.
00:02:19 · S3, Ed Ludlow, S1, Carol Massar, S2
[00:02:19] S3: Yeah. [00:02:21] S4: Yeah, I mean, the data doesn't answer your question. So like Google search is really mixed. Overall search revenue missed by about $ 1. 5 billion, which is a significant miss, right, in this environment against Wall Street consensus, but informed by what they were talking about last quarter. But, you know, Google says very explicitly that AI is driving growth in search queries, right? So the use, like people going to search, is getting a benefit from AI. But in terms of revenue, like the monetizable amount, you know, it's not in line with expectations. It's growing 12%. You know, it's hard. I don't know the answer. [00:03:04] S1: Sorry. [00:03:06] S0: So where's the disconnect? [00:03:08] S2: But, Ed, this is, I mean, this is the golden goose. This is what Larry and Sergey invented, you know, decades ago. A better way to give us information... and then sell it next to companies that want to reach you. And I would argue that out of Silicon Valley, the only company that's perhaps done a better job doing that is Mark Zuckerberg's company. But for search, Alphabet owns it. This is their business. And the concern a year ago or 18 months ago was that the LLMs would eat into that. And we got over the last few quarters an indication that that wasn't happening. Everyone was like, oh, don't freak out. We're going to be fine. does it seem like it's going to be fine? Because if people are still getting the answer they want, but Alphabet's not monetizing it the way that they're used to, then that could be an issue.
00:03:08 · S2, Ed Ludlow, Carol Massar
[00:03:08] S2: But, Ed, this is, I mean, this is the golden goose. This is what Larry and Sergey invented, you know, decades ago. A better way to give us information... and then sell it next to companies that want to reach you. And I would argue that out of Silicon Valley, the only company that's perhaps done a better job doing that is Mark Zuckerberg's company. But for search, Alphabet owns it. This is their business. And the concern a year ago or 18 months ago was that the LLMs would eat into that. And we got over the last few quarters an indication that that wasn't happening. Everyone was like, oh, don't freak out. We're going to be fine. does it seem like it's going to be fine? Because if people are still getting the answer they want, but Alphabet's not monetizing it the way that they're used to, then that could be an issue. [00:03:55] S4: So search is still the golden goose. And from a scale perspective, like in the quarter, it's more than half of revenue. So the AI question matters. is the action that this company's taken, which is putting AI overviews or AI mode in search, they're saying that it is increased use of search. But are they able to increase usage without damaging monetization? We don't have a conclusive answer based on the fact that search revenue is overall missed. But you'd bet, wouldn't you, that the analysts will ask exactly that question on the call. Okay, Google or Alphabet Management searches up But the financials of this are changing. Explain that to us. [00:04:37] S0: Right. And it goes to that bigger question, right?
00:04:37 · Carol Massar, S3, Ed Ludlow, S2
[00:04:37] S0: Right. And it goes to that bigger question, right? [00:04:40] S3: We still think about this company as a search engine company. And how is AI changing it? Is it giving it increased ROI to some extent, right, on its main business? Like whether or not they're seeing the payoff from all this investment. It kind of is as simple as that. [00:04:57] S4: Yeah, I would say, like, you know, search grew 12%. Yeah. But search revenues did not grow 12%. What's up with that? Pretty simple. I would also say, like, there's another part of the business, which is advertising, right? And advertising also missed by, like, well above $ 1. 5 billion as well. So, like, something's going on there in the advertising broadly. [00:05:19] S2: But those two. [00:05:21] S0: Yeah, sorry. [00:05:22] S4: Yeah. [00:05:23] S2: Those two businesses inextricably linked. I mean, I think that the challenge here is like, to me, this seems existential. I mean, where was a business we cover about this a year ago? Julia Love worked on this story, and it was all about how Alphabet was trying to adapt Google and search for the next generation. We spoke to a small business owner last week who has had to completely change her business, and it's getting killed as a result of the changes that Google has made. She's now trying to optimize for the LLMs. Christina Stembel of Farm Girl Flowers. That's right, because there's search queries. Because the search queries are not leading to her business. So I'm just wondering if there's a link there, Carol. [00:06:02] S0: Yeah, I think it's a good question.
00:06:02 · Carol Massar, S3, S2
[00:06:02] S0: Yeah, I think it's a good question. [00:06:05] S3: Investors are certainly weighing in. [00:06:09] S0: We continue to see Alphabet down more than 7.5%. [00:06:12] S3: Just to recap, we're talking with our Ed Ludlow, host of Bloomberg Tech, as he continues to pore over the results. Alphabet, the headline reporting quarterly sales and profit that fell short of expectations. a sign that the company is failing to generate enough return to justify its massive investments in AI. I mean, still a lot. [00:06:33] S0: $ 111. [00:06:33] S3: 2 billion were sales, ex-partner payouts for the three months ending September 30th, but it was still below or just below. [00:06:41] S2: The $ 111. [00:06:41] S0: 3 billion that analysts had projected. It's costing a lot. [00:06:46] S3: Again, the narrative that has changed in the last three years about where's the payoff on all of this. And let's just remind everybody on Microsoft, continue to watch that one as well. It's up about 4.3%. Microsoft reported better than expected cloud revenue, suggesting the company continues to reap the benefits. of its massive investment in AI. [00:07:05] S0: What's the difference? [00:07:06] S3: None of these companies are exactly the same here, Ed. I mean, but we tend to kind of put them all in the same bucket, these hyperscalers, but they all have different core businesses.