|Shares Out. (in M):||698||P/E||17.5||15|
|Market Cap (in $M):||535,000||P/FCF||17.5||15|
|Net Debt (in $M):||-85,000||EBIT||38,600||44,400|
The risk-reward of owning Alphabet is better today than a year ago. The stock is up 50% since then and earnings are up 40%, so the valuation hasn’t changed substantially. I think the upside over the next two years is greater, and the downside lower than I thought it was a year ago. Many things have changed for the better. First, new management has shown greater expense and capital discipline. Incremental EBIT margins have averaged 47% over the last four quarters. Year-to-date capex is down 9% even while revenue has grown 20% (an acceleration from 2015). $10 billion of stock repurchases have been authorized, whereas no buybacks had been authorized prior to October 2015. Day to day execution has improved, Sundar is well liked internally, and he has freed the founders to focus on long term strategy and innovation. Second, disclosure has improved around Other Bets losses, a nagging source of uncertainty prior to 2016. Third, new revelations about the size and growth rate of Google Cloud Platform (GCP) have caused me to meaningfully reassess the potential value of GCP. Fourth, I’m encouraged by the Pixel effort to produce an integrated Android phone. I didn’t previously model any direct handset revenues, but Pixel appears to compare well with iPhone even on the first attempt, and is inarguably better in important ways. Like cloud computing, the handset market is vast and valuable and can be a meaningful portion of Alphabet’s enterprise value in the near future. The value of and moats around Search increase daily, and Alphabet has at least three very large and high probability projects which can generate meaningful enterprise value in the future.
Q3 and the near term
What was universally believed about Q3, including by me, is that Search revenue would slow due to the lapping of the addition of a third mobile ad on highly commercial mobile searches. This was partially true as the third mobile ad compare was probably a 200-300 bps headwind. However, global Search growth probably accelerated by 100 bps versus Q2’s growth rate. Offsetting the difficult compare in the US was the addition of a fourth paid ad on highly commercial mobile searches (1.5% tailwind), and ads in Maps (1-2% tailwind). Prior to six months ago, Maps was virtually un-monetized, despite being one of the most valuable properties on the Internet. I’m optimistic about future Maps revenues, but I can’t comfortably quantify the potential and so haven’t modeled it. Also offsetting the US Search slowdown was a 600 bps acceleration in Rest of World constant currency growth, and a 600 bps acceleration in Other revenue due to GCP and G Suite.
I’m optimistic about the near future. My advertiser contacts expect Q4 Search growth similar to Q3 and YouTube growth is likely to accelerate in Q4. Further, two new initiatives will gain traction as the next year unfolds. First is Maps ads, which is straight-forward. Second is Expanded Text Ads (ETAs). I think the market has grossly under-appreciated the significance of ETAs, and this is confirmed by discussions with advertisers. ETAs were released from beta in late July and began gradually rolling out in Q3. ETAs had a negligible effect in Q3. ETAs will become mandatory post-January 31st. ETAs have expanded the number of characters available in a text ad. Below is an example of the old text ad format on the left, on the right is an ETA.
The mechanical effect of an ETA is to take real estate from organic search results for highly commercial searches, making it more convenient to click a text ad rather than scrolling through to organic results. The subtler effect is that it makes text ads more informative and gives advertisers more freedom to write attractive copy, which is particularly useful for mobile users who want to conserve data usage.
The confusion which has caused the market’s misperception is that early results of ETAs showed no measurable difference in click-through rates between ETAs and standard ads, even for sophisticated agencies. I believe this is because ETAs require a greater effort at copy writing. After allowing a few months for optimization, dozens of contacts have measured CTR increases of up to 400%. It’s hard to pinpoint a median, but it’s clear to me that the direction is up. I’m waiting enthusiastically to see what kind of fireworks show ETAs will put on over the next few quarters as advertisers master the new format, possibly only a roman candle, but I’m confident it won’t be nothing.
Another stocking stuffer waiting in Q4 is the launch of Pixel. Indications are that about 3 million Pixels will be sold in Q4 at an ASP of about $700, meaning about $2 billion of handset revenue will be recognized in Q4 where no handset revenue existed in Q3. The unknown is margins. It’s believed that component margins are similar to iPhone, but it’s unknown how much Apple’s efficiencies are worth to gross margin. And initially sales and marketing support will probably consume all the gross margin.
Google Cloud Platform
What everyone knows for certain about public cloud computing is that AWS will be the winner. But this is inexorably wrong. Google should be the natural winner. Google handles 30% of all Internet traffic; they build servers that perform ahead of Moore’s Law; they’re the largest owner of fiber globally; they have the lowest cost data centers; they created the leading container engine (by a factor of five versus the #2); their security is superior to AWS; they have the industry standard speech recognition, image recognition and machine learning APIs. GCP recently applied Deep Mind to lower their electricity costs by hundreds of millions of dollars a year. GCP is 30-60% cheaper than AWS, with lower latency. Where GCP falls behind AWS today is in the software stack, which admittedly is a very large part of the value. But cloud software is Google’s business, they’ve written two billion lines of code, in contrast to Facebook’s 60 million and Windows’ 40 million.
I was wrong to think that GCP is immaterial today and has merely option value. The reason I was wrong is because I observed, like everyone, that AWS is ubiquitous. But GCP’s customers are users with violent storage and computing needs, like Airbus, auto OEMs, Spotify, Snapchat, Evernote.
In a little-noted Google Horizon presentation on September 29th (link below), GCP SVP Diane Greene revealed the year-over-year revenue growth rates of GCP: storage 10x, compute 4x, containers 25x (and as an aside, G Suite 3x). Whatever lead AWS has, GCP is bearing down in warp drive.
Growth % of Revenue Growth Contribution
Storage 900% 30% 270%
Compute 300% 65% 195%
Containers 2400% 5% 120%
Maybe no one watched this presentation, or the market didn’t process the gravity of the numbers, or no one cares. If GCP revenue was $500 million in 2015 (sell side analysts estimate more), it’s perhaps at a $3.5 billion run-rate, versus AWS’ $11 billion. If GCP is worth 10x revenue, it has a value of maybe $35 billion today, growing at 500%. Today no value is ascribed to GCP because it’s unprofitable. Even if GCP grows by 200% over the next year, that adds $70 billion of enterprise value to Alphabet in 2017. In a few years, this won’t be your father’s Google.
These analysts think AWS accounts for 40-50% of Amazon’s enterprise value (16-20x TTM revenue, with revenue growing a passable 60%. I report, you decide.
Alphabet trades for 15x my estimate of 2017 core free cash flow, net of cash. Today Search accounts for about 100% of earnings, and I expect Search to grow at 15%/year for the next few years.
2016E Core EBIT $33.6 billion
Tax @ 20% 6.7
Net Income 26.9
Diluted Shares .698
2019 Core EPS $58.60 @ 15% CAGR
Core EV/Shr. $1,172
2019 Cash/Shr. $267
Core Equity Value/Shr $1,439
On top of that, I estimate the value of the high-growth, loss-making businesses in 2019:
Revenue Multiple EV
YouTube $23 billion 5x $115 billion
GCP $20 billion 10x $200 billion
Hardware $22 billion 1.5x $33 billion
Total $65 billion $350 billion
Diluted Shares .698
So the stock price could more than double in three years, to over $1,900/share, if the non-core businesses are valued fairly. If Alphabet repurchases stock aggressively, then the stock price could triple. But that's just like, my opinion, man.
|Subject||EU Comparison Shopping Case|
|Entry||11/02/2016 05:00 PM|
Thanks for the writeup. What's your view on the various EU regulatory challenges currently underway? In particular, I was curious what your thoughts were on the EU Comparison Shopping Case. I'm not steeped in this, so correct me if I'm wrong, but it seems like they are scrutinizing GOOG's Product Listed Ads, which seem to be a key growth driver for the forseeable future. The fear would be that they force GOOG to change their behavior and then extend their regulatory reach over to other verticals, like mapping and travel. In addition to the financial impact, the valuation multiple may suffer as investors worry which other regions (the US?) would follow Europe's ruling. I'd love to get your thoughts on this. Thanks.
|Subject||Re: Loss-making businesses|
|Entry||11/02/2016 05:21 PM|
No, not adding back YouTube or GCP losses. I'm using the disclosed core EBIT, which includes those losses.
|Subject||Re: EU Comparison Shopping Case|
|Entry||11/02/2016 07:19 PM|
The shopping case makes no sense to me. They want Google to display competitors' PLAs alongside their own PLAs. What other company is required to do that? Let's make La Croix put a can of Topo Chico in every box because it's anti-competitive to exclude other products. Let's make New York Times publish Washington Post articles on their site. Let's make Trader Joe's sell 365 products. I'm sure it makes sense in the mind of a European functionary, but it's just hard for me to entertain this as a likely outcome.
|Subject||Re: Re: Re: Loss-making businesses|
|Entry||11/02/2016 07:20 PM|
Yes. No. Yes.
|Subject||Re: GCP and Search|
|Entry||11/02/2016 08:03 PM|
a) I just talk to app developers who use cloud services, but they're not magic. My understanding is that Google has always used the same APIs internally and that they were designed to be used by new projects within Google to make it easy to build and scale new applications, but maybe I'm missing what you're laying down. I guess I'm getting confused by the phrase "they designed in APIs from the start".
b) Yes it's not perfect, I would rather Amazon lose market share. But e-commerce ex-Amazon will still grow and is in fact accelerating lately. I track this issue for North America only (table below) but I haven't updated it for Q3 yet. And of course e-commerce globally will grow faster than in North America. And Google can realize some productivity gains.
c) That's one of the early reads that I referenced. He probably had two weeks to play with ETAs before he fired that article off. New s*** has come to light.
|Subject||Re: Re: Re: GCP and Search|
|Entry||11/03/2016 10:16 AM|
$20 billion of GCP revenue in 2019 doesn't imply that GCP overtakes AWS in three years. And it's not all or nothing anyway. But I do think GCP is and will grow faster than AWS forever. Amazon is priced like AWS can't lose, whereas GCP isn't priced. On a five year time scale, are you comfortable betting on Amazon talent over Google's?
|Subject||Re: Re: Re: GCP and Search|
|Entry||11/03/2016 10:46 AM|
Recent interview Charlie Rose did with Jeff Bezos: https://charlierose.com/videos/29412
He discusses AWS and how AWS's large lead was possible because it took the competition 7 years to catch on to the opportunity. I think overtaking AWS would be a big feat, but GCP should still grow significantly even if they are a #2 or #3. There are businesses that compete with Amazon who might prefer to use a cloud partner other than AWS. Although Netflix doesn't seem to mind.
The Amazon NA EGM figures in your table are understated because they only include 3P seller fees and not the full GMV of 3P units. 3P now make up 50% of paid units globally. They don't disclose 3P dollar mix or how that might look in the U.S. or NA, so Amazon's GMV can only be estimated. But it's a lot bigger.
|Subject||Re: GCP vs. AWS|
|Entry||11/03/2016 11:04 AM|
In a hypothetical two-way between AWS and GCP, 65 AWS/35 GCP. IDC about Azure, but they'll be a sprightly #3. This is in revenue, not customers.
|Subject||Re: Re: Re: Re: GCP and Search|
|Entry||11/03/2016 11:18 AM|
It will be a big feat. But I'm guessing the future, not observing the present. AWS' lead is so big and obvious that it generates a visceral reaction when I talk favorably about GCP. And I think the disconnect is that early GCP customers will just be the ones for whom GCP's technical lead and cost lead matters most, which are the really massive ones, and virtually everyone will continue to tell you that they're AWS customers. Beyond technical factors, most developers tell us that they fear AWS lock-in and are frustrated with AWS billing practices and vastly prefer GCP's billing.
|Subject||Re: GCP vs. AWS|
|Entry||11/03/2016 11:23 AM|
MSFT has some formidable advantages in cloud including a huge incumbent base, robust offerings in in the more profitable paas/saas layers where ecosystem/platform dynamics are relevant (and maybe drive iaas adoption?) and also, importantly, a cultural identity tailored towards serving the enterprise.
And yet, with $13bn in cloud arr, they are only projecting $20bn in cloud revenue (which, again, includes high margin/ embedded office 365, and burgeoning dynamics saas) by fy18. profitability comparisons aside, gcp getting to $20bn w/ a 1-1.5yr lag to msft seems like quite a challenge.
this is now the third time i've heard this $20bn by 2019 estimate ($20bn x 10 = $200bn seems to be the algebra that folks - not necessarily you - are using to pitch long goog). is this coming from the company or an industry source? extrapolation? not saying it can't/won't happen or that you're wedded to that number, but i'd have more confidence in the general growth trajectory if there was some deeper dynamic/edge that could be articulated re: gcp.
|Subject||Re: Re: GCP vs. AWS|
|Entry||11/03/2016 11:36 AM|
I mean, are you paying for GCP today? You guys are being awfully nitpicky about something I think you're getting for free. No one thinks GCP can put together a two car parade.
|Subject||Re: Re: Re: GCP vs. AWS|
|Entry||11/03/2016 11:53 AM|
Long Google and many good points.
From my understanding there is a lot of runway for GCP. The business seems very well suited to get all market share carved up by 2/3/4 companies. The important thing is Google is well positioned to be among those and likely will have a cost advantage in many geographies over competitors due to its legacy (bit weird to use the word legacy here) business. The pricing on GCP is very good and very Google like, it will give competitors a lot of problems.
|Subject||Re: Re: Re: GCP vs. AWS|
|Entry||11/03/2016 11:53 AM|
I think you're probably right about that. This is a scale business, but it won't be winner take all. And the TAM is mind-boggling. Even a 20-30% share in 5-10 years would be a very big business.
|Subject||Re: GCP and Search|
|Entry||11/03/2016 12:01 PM|
This brochacho saw a 28% increase in CTR from ETAs across 700 advertisers, 1 billion impressions, also more time to optimize. Bigger sample size than Andy. Also it's important to remember that Andy's heavily skewed toward retail and not representative of all advertisers.
|Subject||Re: Re: Re: GCP vs. AWS|
|Entry||11/03/2016 12:18 PM|
You're right that Google's valuation really doesn't account for any success at GCP. Or Youtube. Or anything else other than core search really.
I agree with you that this is a gigantic TAM market. Table stakes are now too high for anyone other than AWS, Azure, and GCP to even compete. I am not as bullish as you on GCP's ultimate share but believe that even at 10-20% share this will be a big win for GOOGL shares.
|Subject||Re: Re: GCP and Search|
|Entry||11/03/2016 01:12 PM|
For reference, Andy once told me he has 70 clients.
|Entry||11/03/2016 05:37 PM|
Do you think a 20% tax rate is sustainable for the company given the rhetoric out of Europe?
|Subject||YouTube vs The Facebook|
|Entry||11/03/2016 06:20 PM|
We own a little Googlebet. Agree that it seems too cheap on a lot of metrics given the quality and growth runway. One thing that gives us some pause is the future of YouTube as Facebook puts "video first across our apps" (per Zuck). Tube has a huge lead. An irreplaceable library of some very specific content that you can't find anywhere else. But are people going to keep on creating and sharing videos on Tube or will they gradually and increasingly put their content on FB? Is Tube going to be a long term market share donor to FB in terms of video creation, uploads, sharing blah blah. The new live streaming on FB is pretty nuts. Maybe the two properties are differentiated enough and the TAM is large enough that it doesn't matter (This whole conversation could apply to Snapchat I suppose too . . . but that's for the kidos right). The sellside is so bullish on Tube that it makes me nervous they might eventually say Tube is being disintermediated by FB. The social network platform is a better home for content sharing.
Anyone's thoughts on YouTube versus FB video would be much appreciated. Is this even a big deal or a risk others worry about. Thanks
|Subject||Re: YouTube vs The Facebook|
|Entry||11/03/2016 07:35 PM|
Instagram has gone to one minute video posts from 15 seconds. If fb expands this instagram video capability further that bears watching. i for one don't think much of fb video
|Subject||Missing forest for the trees|
|Entry||11/04/2016 03:24 AM|
Thank you miser for the write-up,
insightful comments that I appreciate. I think most of you guys are missing the forest for the trees. Even if GCP does not work out as miser expects the company is cheap. GCP is great optionality from my perspective. We are all guessing the future and we really do not know. I have no idea to be honest.
Regarding GCP, here is the thing. AWS gets most revenues from IaaS (80-90%) leaving the remaining to PaaS and with virtually no presence in SaaS. Microsoft gets 10% of revenues or so from IaaS and 1/4th or so from Paas. Azure = IaaS + PaaS but not Saas. Higher margin SaaS (which includes Cloud Office) accounts for almost 2/3rds of total MSFT's cloud revenues. In the industry, IaaS presents switching costs yet it is the most commoditized of the three areas, with rates plummeting for the last few years. Paas and especially Saas are higher margin. My point is that quite a few people wrongly compare AWS with Azure, and wrongly conclude that one is profitable and the other just breaks even or even it is not. Then they make wrong conclusions about scalability and profitability. But MSFT's SaaS numbers do not show up in Azure, and that is key as SaaS is tha main contributor to the company's cloud in revenues, profits and margins. Do you have miser any idea of GCP sales distribution on IaaS, PaaS and SaaS? If you could give some light that would be great.
Two additional inquiries, sorry for being demanding miser but that is the way we the spanish guys are in Madrid. i) Recommendations for places to visit in Texas and ii) Reccomendations of blogs and books on the internet, cloud and tech world more broadly for newcomers on technology like me, who have little clue. This searchengineworld blog looks good by the way.
|Subject||Re: Tax rate|
|Entry||11/04/2016 09:47 AM|
20% is the full rate they owe as things stand today. They actually pay ~10% in most years on a cash basis. I think if they lost all their Dutch Sandwiches and Bermuda Burritos, the rate would go to 26% today, but declining over time as ROW takes share from US.
|Subject||Re: Re: YouTube vs The Facebook|
|Entry||11/04/2016 09:58 AM|
FB video is total garbage. My co-worker watched a cockfight in Mexico on FB Live yesterday, in low resolution. I think video may actually be more winner-take-all than search. YouTube not only generates more views, it reaches them at higher CPMs. And I've heard content creators say this, that if they post their videos on FB it costs them money because the views are being monetized at lower CPMs. With search you don't have the same dynamic, advertisers are mostly agnostic to Google or Bing, and there are no content creators. But on top of that you have the same reflexive ad network dynamics as search. Plus, FB is just playing very dishonestly - counting views at three seconds, auto-rolling, pirating, etc. Advertisers consider FB video a landfill for unused video dollars.
|Subject||Re: Missing forest for the trees|
|Entry||11/04/2016 10:59 AM|
It's a good point about cloud revenue mix. I think AWS and Azure provide a pricing umbrella for GCP, so what's unprofitable for some may be profitable for GCP.
Search Engine Land does really great coverage of search, especially for free content. I don't have any other consistently great sources, but there's plenty of great one-offs on any topic in a lot of places. Some of these other guys probably read way more technology stuff than me. I'm no expert by anyone's standards.
Texas, I would avoid Dallas and Houston unless you like chain steakhouses. Austin's alright if you like the smell of body odor and are attracted to women with armpit and leg hair. And the surrounding areas - Johnson City, Fredericksburg, Wimberley. If you want to shoot at things, South Texas is good for that. If you want to get shot at, Laredo's great. If you want to get outside and eat peyote, the Big Bend area is cool - Terlingua, Marfa, Balmorhea, etc.
|Subject||Re: Re: Re: YouTube vs The Facebook|
|Entry||11/04/2016 02:11 PM|
I enjoyed reading your write-up, but I thought your commentary that "FB video is total garbage" was very unfair and quite biased. If FB video is considered a landfill, I'm pretty bullish on pollution.
To be clear, FB video and YouTube are two completely different strategies for advertisers. Some advertisers want social, in which case FB video is part and parcel. However, if they want to run traditional pre-roll for their owned & operated brands, then their syndication networks (of which YouTube is often a huge element) is where they go. FB video and YouTube are not directly comparable because the choice between the two depends entirely on each individual advertiser's KPIs and overall strategy, not to mention the differences in technology (ex: FB's "interactive elements" (e.g. Likes, Shares) are simpler, easier to understand and take up more screen real estate than YouTube ads). The choice between FB video and YouTube also depends on how important targeting is, because FB video makes it incredibly easy to do demographic targeting, but certain video syndication networks (many of which include YouTube) do not do demo targeting.
Also, if marketers want higher engagement, FB wins out, often with ~2x the engagement rate per impression compared to YouTube. The fact of the matter is that native FB videos get more reach than any other type of post. Just look at advertisers' & agencies' spending plans for the next year: more advertisers plan to run video ads on FB than on any other network. Why are they choosing FB for video advertising? First of all, the superior aforementioned demo targeting is a major driver. And then there's the engagement which I just described. YouTube has higher video view and completion rates than FB and also a lower cost per view, but Facebook has higher engagement. YouTube is great for SEO and driving video views, but views have become a less important KPI to marketers & advertisers in recent years. In several recent national advertiser surveys, views actually rank at the bottom of the top 5 KPIs that advertisers care about most when running video ads on social, behind engagement, shares, conversions, and total time spent watching. FB offers a larger opportunity for engagement and shares, which is why more advertisers are turning to them for their video campaigns. Unlike YouTube where most video viewing is search-based, FB is a discovery channel for content, brands and products.
On average, I think it's fair to say that combining YouTube and Facebook video buys is the most effective strategy for advertisers. YouTube is often better for reaching prospects, while FB video is often better for engaging with an existing or prospective customer community.
|Subject||Re: Re: Re: Re: YouTube vs The Facebook|
|Entry||11/04/2016 04:38 PM|
I'll freely admit to being biased toward thinking that Facebook in its entirety is a scam for advertisers, but FB video doubly so. I also think FB's years are numbered. Young kids hate it, and older people are sick of it. If YouTube is the wild west, then FB video is the Korangal Valley. I have literally never spoken to an advertiser who enthusiastically spent money on FB video. But I'm not saying that will stop them from spending there because they definitely will in increasing quantities. No one tells me they're growing their FB video spend any faster than their YouTube spend.
-Advertisers agree with you that they're different formats - basically YouTube is a long form linear TV substitute, and FB video is a substitute for display. Every advertiser I've ever asked has said FB video has never taken a dime from their YouTube budget, maybe it's taken some from Google's display network. But they do think that it's not zero sum even if there is some overlap, because like cable TV it was good for the ecosystem to add more content and outlets. So together they will improve the ecosystem and legitimize it, which is happening.
-The lack of demographic targeting on YouTube was a legacy issue that is no longer the case. AdWords Customer Match allows some demographic targeting, albeit probably not as good as Facebook demographics. But, on the other hand, it allows you to target people who have bought products similar to your existing customers, which FB will never be able to offer. What's more valuable, knowing if someone's a 20 y/o female or knowing they buy mascara? Some women don't buy mascara, and some mascara buyers aren't women. https://support.google.com/adwords/answer/6379332?hl=en
-Google Preferred allows advertisers to place their ads on brand appropriate content, whereas FB video advertisers have no idea where there ads are playing. Clinique could be running a mascara ad on the cockfight I'm watching right now (which is featured very prominently on the live video landing page). YouTube also uses its speech API to transcribe 400 years worth of video per day to help build better targeting.
-I don't know why you say the interactive elements are simpler and take up more real estate, that's demonstrably false. It's true that FB buries YouTube video shares.
-When you say FB has ~2x the engagement rate per impression, how are you defining "engagement"? I find that extremely difficult to believe.
-"more advertisers plan to run video ads on FB than on any other network" So are you saying that FB will do more video revenue than YouTube? Or are you just saying more than any other social network? The former is false, the latter is obvious.
When FB starts counting views after 30 seconds like YouTube does, instead of 3 seconds, and FB offers TrueView ads, then we can compare the two. Until then I just think it's an obvious scam.
|Subject||Re: Re: Re: Re: Re: YouTube vs The Facebook|
|Entry||11/04/2016 04:48 PM|
To clarify, I find it difficult to believe that the engagement rate is 2x per impression (whatever engagement means), just because the impression number they use for the denominator is so grossly inflated. I'm not just trying to be disagreeable.
|Subject||Re: Re: Re: Re: Re: YouTube vs The Facebook|
|Entry||11/04/2016 05:34 PM|
|Subject||Re: Re: Re: Re: Re: Re: YouTube vs The Facebook|
|Entry||11/04/2016 06:35 PM|
-I'll just have to take your word for it that there are advertisers who like FB video. For some reason advertisers are really hot and bothered for Snapchat, so I guess they're always looking for a new scam to fall for. I'll give FB credit for Instagram, they're doing a great job.
-Linear TV doesn't have complete demographic data and never will and they've done just fine, advertisers pay high CPMs with confidence on linear, so there's a bit of hypocrisy when they complain about that with YouTube. No one thinks you need 100% certainty. Even some girls on FB are Nigerian men. Like I said, just because you find a 20 y/o woman, doesn't mean she wants to buy your mascara. So demographic data is like the cow bell, it's just one instrument in the band, and I think people lean a little heavy on the cow bell. Linear TV never had purchasing data, and FB won't.
-I'm sure eventually FB will be able to target brand safe content
-If YouTube auto-rolled video after video after video in your face, and counted you as a viewer if just one pixel (not making that up) played in your screen for 3 seconds, they'd get more views per video. I'm not sure why likes/shares/comments matter much. By virtue of watching a video to completion I'm expressing interest. By virtue of watching a TrueView ad I'm expressing interest in the ad, which I think is enormously undervalued even by advertisers.
-You may be right that the % of advertisers planning to spend more on FB video is higher than YouTube, I've never done that poll because I care more about dollars than units. I think FB video gets a lot of local advertisers who are probably running relatively smaller campaigns. YouTube doesn't seem to be as good for that. From my polling, the budget share isn't shifting among big agencies. Not that it matters, like we both agreed, it's not zero sum.
|Subject||Goldman cloud report|
|Entry||11/17/2016 06:57 PM|
Great Goldman report out today comparing AWS, GCP and Azure (and AliCloud for some reason). She confirms everything I've been trying to tell you jabronis. She has GCP doing $16 billion of revenue in 2020, a 100% CAGR, and 30% mature EBIT margins. Though I would note that if she's confident in her 2015 GCP revenue of $450 million, then her 2016 revenue of $900 million and every subsequent year is wrong, because she only has GCP growing 100% in 2016 and Diane clearly stated that all services are growing several multiples of that this year. Apple alone is a $400-600 million customer and would ostensibly account for all of the growth she models for GCP in 2016.
-Where GCP is competing with AWS today, GCP performs much better (i.e. BigQuery vs Redshift/Aurora), though the stack isn't as broad yet.
-GCP is 40-50% cheaper than AWS and offers more customer-friendly billing
-Azure is good for Microsoft applications but not much else (and editorial note, Azure is significantly more expensive than AWS)
-Kubernetes (GCP's container engine) is changing how applications are built and are a big draw for GCP
-GCP is early (and insurmountable in my opinion) in new areas like machine learning and speech recognition APIs. This will matter most to developers, who have larger storage and compute needs versus a basic enterprise customer.
|Subject||Re: Goldman cloud report|
|Entry||11/17/2016 07:02 PM|
Also she thinks GCP is worth $100/share today
|Subject||thoughts ahead of 4Q16?|
|Entry||01/26/2017 11:13 AM|
While the long-term fundamentals remain in tact, two things seem to matter heading into 4Q16 earnings tonight: ex-FX websites rev growth, and core Google margins. How are you thinking about the impact of Pixel on core margins in 4Q? Seems a lot of folks haven't done the work around Pixel impact -- I think it could be up to a 200bps headwind to core Google margins in 4Q, but if people are indeed lazy and haven't done the work to back out the low-margin Pixel contribution, core Google margins could appear shockingly weak (on the surface).
|Subject||Re: thoughts ahead of 4Q16?|
|Entry||01/27/2017 12:19 PM|
Welp, paid clicks accelerated in Q4, massively so on a two year stacked basis. And core incremental margins were better in Q4 than Q3.
|Subject||Re: interesting article re online advertising / Amazon|
|Entry||01/30/2017 11:55 AM|
Search/display % of Google revenue 75%
Product ads % of search/display rev x 40%
North America % of Google revenue x 50%
AMZN share of US product e-commerce x 30%
% of Google revenue at risk 4.5%
Years to full ad penetration 5
Annual Google revenue headwind .9%
|Subject||Re: Re: interesting article re online advertising / Amazon|
|Entry||01/30/2017 12:02 PM|
Also, these numbers imply $2 billion of Amazon ad revenue. If Amazon is already doing $1 billion, then only half is incremental. And, why must it be zero sum? Maybe the money is taken from other, lower ROI, parts of marketing budgets. Maybe it's thought of as an additional Amazon tax just to sell into Amazon. Maybe it drives more Google spend to send more customers to increasingly more lucrative other online channels.
|Subject||Re: Re: Re: interesting article re online advertising / Amazon|
|Entry||01/30/2017 12:11 PM|
If search is your highest, or second highest, ROI spend (which is what advertisers consistently tell me), then why would you take your AMS/AMG budget $ from search? Why wouldn't you take it from other media? People fetishize these tech company wars of attrition for some reason, but the real loser every time is offline media.
|Subject||Re: Re: Re: Re: interesting article re online advertising / Amazon|
|Entry||01/30/2017 01:03 PM|
Also, Amazon is a huge buyer of AdWords. And they started buying Google PLAs for the first time in late December. So a lot of this money will end up at Google one way or the other.
|Subject||Re: Re: thoughts ahead of 4Q16?|
|Entry||01/30/2017 05:44 PM|
Very solid quarter. Pleased to see core Google margins up despite the sharp Pixel ramp (backing out the one-time COGS charge).
Miser, to clarify my previous post -- I never said core margins would be weak; I simply postulated the risk that they could appear to be, given the inaugural quarter of Pixel contribution potentially obfuscating them. And in fact, by my estimates, Pixel was a ~170bps headwind to core Google margins. Fortunately core Google margins still grew through this headwind and actually showed YoY improvement, which was impressive and confirmed one of my signposts. My question had been about asymmetry into the quarter for purposes of risk management, not a criticism or lack of belief in the fundamentals. Part of my investment process is managing risk along the (often non-linear) investment path; this name has become a consensus HF long in recent months (which I believe is largely warranted), and in light of that, my question was more around the risk/reward of maintaining my full-size position into earnings given how we've seen the fast money crowd behave when elevated expectations meet optically "less good" results (case in point: Google put up an amazing quarter and it still didn't "meet" buyside expectations). In no way was I trying to be a wise guy and trade quarterly earnings; there is a difference between managing position sizing and trying to call the quarter (not saying that is what you were alluding to, just clarifying).
|Subject||Re: Re: Re: thoughts ahead of 4Q16?|
|Entry||01/30/2017 07:29 PM|
I was surprised that Q4 core margins were up even with Pixel, I expected them to be down. I still think 2017 percentage margins will be down, if Google sells as many Pixels as I think they will, and if YouTube and GCP continue to grow their share of revenue. Probably margins will be down more than the sell side consensus. I hope that margins will be down a lot, because it means the emerging (higher multiple) businesses are doing well.
The discussion around margins, particularly incremental margins, is inane. Google has at least four new businesses with a high probability of being very valuable. How many companies even have one? And what does the market do with this information? It worries about the incremental margins of those businesses. If I ever lead a jihad, it will be against the focus on incremental margins. Me and my jihadis will fund ourselves by seizing the production of low margin public company subsidiaries. We'll post YouTube videos of us cutting the prices of high margin products.
|Subject||Re: Re: Re: Re: thoughts ahead of 4Q16?|
|Entry||01/30/2017 07:48 PM|
Agree completely. However I think the market is smart enough to look past incremental margins if total operating profit dollars are beating estimates. Ultimately I think that's what matters and if google can deliver on that front the stock will work quite well even if total % margins come down. And especially well, if, to your point, those operating profit beats are coming from higher multiple businesses.
|Subject||Re: Pinterest good match for GOOG?|
|Entry||02/09/2017 02:24 PM|
"for the first time ever it's possible to understand what someone sees, and turn it into a search."
I'm gonna go out on a limb and predict that Pinterest won't build a better image recognition algorithm than Google. Pinterest can run the Vision API on GCP though.
|Subject||Amazon Rivals Have Big Clouds to Fill: Google and Microsoft are scaling up fast, but Amazon’s lead i|
|Entry||02/21/2017 07:27 AM|