Given the recent forecasts for an economic downturn and the tech-sector selloff in the marketplace, investors are looking for some insight into how Google and its parent company Alphabet are navigating this challenging environment.
This is an analysis of the question and answer (Q&A) section of their 2022 Q3 earnings conference call. By looking at what questions are asked, and how they are answered, we may glean some insight into future Google earnings.
Question 1
Sundar, first, I think what investors are very curious about is how much this change in terms of aligning investment against your priorities is a reflection of what you expect to happen over the next 6 to 12 months in the broader macro environment versus a longer term perspective of maybe maximizing for productivity and efficiency. Would love to get your philosophy on that.
And then, Philipp, a lot of comments in there about YouTube and the potential for growth going forward. Can you go a little bit deeper on what you’re seeing in terms of both the opportunity set to drive revenue and turn a possible headwind to a tailwind with respect to Shorts and Connected TV over the medium to long term.
Eric Sheridan of Goldman Sachs
Here we see a very positive question from Goldman focusing on long-term management of growth as well as opportunities to turn headwinds into tailwinds.
What I take from this is Goldman is long GOOG/GOOGL and is probing for the positive outlook.
Question 2
Sundar, just to go back to the comment about earlier in the quarter, becoming 20% more efficient. I thought tonight, your comment on investing responsibly over the long term of being responsive to the environment is helpful. If I look at sort of the Excel sheet, I think you’ll have added about 51,000 new people to the company since the start of last year.
Can you give us some examples of internal KPIs or quantifiable analysis you’re running just to ensure you’re generating ROI for investors from all your hiring as you sort of run through these analyses? That’s the first one. Then the second one, Philipp, just on Shorts, are you seeing Shorts lead to incremental time spent from those users, or is it more so you’re seeing the time shift from other forms of YouTube over to Shorts?
Brian Nowak of Morgan Stanley
So here, we have a very intelligent analyst asking to extremely important questions.
The first is about the massive headcount growth over the last year and Brian is essentially saying “hey, can you provide some quantitative data showing that you need to be hiring all these people … that they actually provide a return on investment”.
The second is about YouTube’s focus on “Shorts”, and he’s essentially asking “Hey, are Shorts helping YouTube make money or are they hurting profits by forcing views away from higher-earning videos or causing viewers to watch less overall”. I suspect this question is inspired from Meta’s failure with it’s Instagram “Reels”. Everyone seems to be trying to copy TikTok, but nobody has done it successfully, and instead the copies have the potential to hurt revenue of established successful business models.
Ok, on to management responses (or non-responses, as we’ll see).
Here’s Sundar, completely ignoring Brian’s first question:
Brian, I think — look, I think we gave some — we’ve been clear that we are going to moderate our pace of hiring going into Q4 as well as 2023. I think we are seeing a lot of opportunities across a whole set of areas. And every time, talent is the most precious resource, so we are constantly working to make sure everyone we’ve brought in is working on the most important things as a company and particularly so. And that’s a lot of what sharpening our focus has been about.
We are reviewing projects at all scales pretty granularly to make sure we have the right plans there, and based on that, the right resourcing and making course corrections. And this will be an ongoing thing. It is something we’ll continue doing going into ‘23 as well.
Sundar Pichai of Alphabet
Sundar basically says “we are slowing down hiring, but we pay attention to what we’re doing”. Notice how he provides no metrics or data that Brian requested and ignores the core point of the question. If it was for competitive reasons, he can always say “we don’t give out that data for competitive reasons”, but instead he was just silent. In my opinion, Sundar didn’t want to focus on it for a reason …
Now, Google’s CBO, Philipp Schindler gives a round-about non-answer to the second question on YouTube Shorts and whether or not they help or hurt the business. Spoiler: he frames a negative result in a positive light.
Yes. And to the second part of the question, as we discussed before, we’ve always focused on building a great user and creator experience first, followed by increasing monetization over time. We continued to experience a slight headwind to revenues as Shorts viewership grew as a percentage of total YouTube watch time. And as I alluded to earlier, the initial progress on Shorts monetization has been encouraging. And we’re focused on closing the monetization gap between Shorts and long-form content on YouTube over time. And more specifically, consumers are increasingly consuming short-form video, and we’re seeing this across multiple platforms, including YouTube. And as I said earlier, Shorts are being watched by 1. 5 billion-plus logged-in users every month.
Philipp Schindler of Google
So, while Philipp never directly answers Brian’s question “are Shorts causing an increase in time watched or are they diverting from other videos”, he does give some hints that Shorts are underperforming classical YouTube from a revenue perspective, and they goes on to give some data that may sound positive because it includes large numbers, but it really doesn’t mean much unless you have additional data to interpret the relative value between including a Shorts product and not including a Shorts product. In my opinion, Philipp didn’t answer the question directly for a reason …
Question 3
Next we get a question on Google Cloud from Doug Anmuth of JP Morgan Chase. Ruth Porat, gives a straight answer basically saying Cloud is doing well, they continue to invest significantly, and continue to expect it to grow. See the transcript for the details. In my opinion, straight question and straight answer.
Question 4
Here is an excellent question about TikTok’s impact on Google’s core search business. It is also excellently dodged by Sundar Pichai.
Sundar, one for you and then one for you, Ruth. I’m going to ask you about TikTok but not as it relates to YouTube, more about Search. It looks like younger consumers are spending more time on TikTok searching for product reviews, recommendations, advice. I’m interested in learning if you’ve seen any changes in your search behavior by demographics in Google. And then, do you think search has become more visual, less text-based going forward in order to maintain more relevance for its younger users? So that’s one.
Michael Nathanson of MoffettNathanson
Here Michael is basically saying “Is Google losing search advertising revenue to TikTok? All the young kids are searching TikTok and getting their results in video form, is this having a material impact on Google’s core business?”.
Sundar chooses to dodge the question by giving a vague answer on improving visual search. However, in his answer we can see they are attempting to innovate, which means they see TikTok as a threat to their core business, we just can’t quantify how much of an impact it is having. Here’s his full answer:
Look, I think it’s always important that we try and understand our user segments and their needs so that we can make sure the products are helpful and working for them. And we ourselves conduct thousands of studies a year to understand how user needs are evolving. And as part of it, there are some studies which obviously show people, particularly younger users in certain categories, maybe fashion inspiration as an example, look for more visual ways to engage.
And so, these are all learnings we are constantly taking in and we use it to improve Search. And if you saw Search On, we had many explorations and product directions, which move in that direction. So, I think it’s a healthy way of iterating and innovating to build the best products and services for our users.
Sundar Pichai of Alphabet
We’ll end the analysis there as the rest of the questions are straightforward with straightforward answers from management. I encourage everyone to either listen to the call or read the transcript. Links to both are provided below.
Full Webcast of Alphabet 2023 Q3 Earnings Conference Call
Full Transcript of Alphabet 2023 Q3 Earnings Conference Call
https://seekingalpha.com/article/4549115-alphabet-inc-goog-q3-2022-earnings-call-transcript