Earnings
Alphabet GOOGL reported solid first-quarter results, wherein earnings of $7.73 blew past the Zacks Consensus Estimate of $7.24 while ex-TAC revenue of 20.12 billion also topped the Zacks Consensus Estimate of $19.65 billion. Revenue and earnings continued to grow strong double digits from the year-ago quarter.
Since advertising remains its primary business (86% of gross total revenue), the strong report was largely a factor of prices (CPCs were down 19% because of strength in lower-margin mobile and Trueview ads), and paid clicks (that increased 44%). Encouragingly, Other revenue (including Google Play, hardware and Cloud) jumped 49.4% while Other bets (currently Nest, Verily and Fiber) revenues grew 47.9%.
Management said that the much-talked-about ad pulling from YouTube didn’t have an impact on results.
Android
Settlement with Russian Regulators: Google has reached a settlement with the Federal Anti-Monopoly Service (FAS) in Russia wherein it agreed to pay $7.8 million in fines and not demand exclusive pre-installation of its services on Android phones. This seems to indicate that the Russian authorities have allowed pre-installation of the Google bundle (so it can recover Android costs), but competing services like Yandex search can also be pre-installed, can appear on the first screen and users can choose their default search engine.
This is actually not a bad deal at all, especially in the era of intelligent (including voice controlled) personal assistants that fetch you the information you’re looking for either on the device or anywhere on the web.
Android Overtakes Windows: Mainly because of the smartphone becoming the primary device to access the Internet, the secular decline in traditional PC sales and the emergence of Asia as the biggest market for connected devices, Android is now the most popular OS for connecting to the Internet. StatCounter says that in March 2017, Android garnered a 37.93% share of Internet usage compared to Windows’ 37.91%.
While Microsoft still dominates the desktop, there’s evidence that Google’s Chrome is the most popular browser. Google’s Android and Chrome strategies remain hazy and with these stats there are now renewed speculations about their merger.
Google Home
Google Home Assistant Recognizes Voices: The Google Home Assistant can now recognize up to six voices, provided they have been registered with it. The process involves speaking a few sentences that help the Assistant to create a voice profile to which it attaches all the mail, news, music etc that goes with that profile. Thereafter, whenever any of the six registered people ask for assistance, it will recognize the voice and provide the requested information.
This is a very convenient feature that Google was the first to provide. But since the feature is only available on Pixels and the very latest Android phones, it will have very limited reach. Amazon AMZN offers many useful features through Echo and Alexa although not this one, but it has significantly greater reach.
Google Tests Voice Ads: "By the way, Disney's live action Beauty and the Beast opens today," the Google Home smart speaker told people after giving them the time, weather and travel update as part of its “My Day” feature. Google said it wasn’t an ad but speculation is running rife as everyone tries to figure out Google’s monetization strategy for Home. "We're continuing to experiment with new ways to surface unique content for users and we could have done better in this case," Google said by way of explanation.
Google Earth
Google Earth recently got a major new update. Searching for any location inside Earth surfaces not just detailed images of that place but also knowledge cards that tell you things about it, like history, points of interest etc.
The newly introduced 3D button offers 3D images of 20K places along with their knowledge cards. The imaging is more real because it isn’t picked up by a satellite but by hovering planes capturing the data that Google later stitches into 3D images.
Most exciting is a feature it calls Voyager ( activated when you click a wheel icon) that takes you on guided tours of places including cities, forests, islands, and so forth. These tours (“stories”) have been created in partnership with scientists, storytellers and non-profits. Google currently has 50 stories available but plans to add more every week.
For now, you need a Chrome browser of Android app to launch the app, but Google has promised to add support to other browsers and operating systems soon.
Google YouTube
YouTube Top App on Apple App Store: A relaxation of the live streaming requirements apparently helped YouTube to the top position in Apple’s AAPL App Store, reports Tech Crunch. Previously, users with at least 10,000 subscribers were allowed to live stream but YouTube recently brought down that number to a thousand. YouTube hasn’t held this position since Dec 2015, according to App Annie.
Ad Controversy: YouTube will host its Brandcast event on May 4, a marketing event at which it shares success stories while helping brands reach their targeted audiences. So any controversy at this time is bad for YouTube, because it can be used by brands to negotiate advantageous deals for themselves. And that’s exactly what seems to be happening…
Some time back, the UK government discovered that its ads were appearing next to inappropriate content and leading around 250 companies operating in the UK including L’Oreal and McDonald’s to withdraw their UK ads from the platform. Although Google apologized and made changes to its ad platform giving more control to advertisers, big Fortune 500 companies like Pepsi,Starbucks,General Motors GM,Wal-Mart, J&J, JPMorgan Chase, Ford, AT&T T and Verizon pulled their U.S. ads as well. Analysts currently estimate that the revenue hit could be anywhere between $750 million to a billion dollars.
The main problem according to Moody’s is the extremely high volumes (400 hours of video are uploaded to YouTube every minute) that make it very difficult to police the content. But because ads placed alongside content that doesn’t correspond to the brand’s positioning hurts the brand, Moody’s thinks it’s an objection well taken and would be credit negative.
However, the agency says that these brands contribute relatively fewer dollars than the vast majority of YouTube advertisers that continue to spend on the platform and the pullback is in any case temporary because of measures taken by Google. Also, while Google’s fix will increase costs related to investments in personnel, AI and machine learning to facilitate review of material being uploaded, this won’t be significant enough to warrant a change in the current Aa2 investment rating.
Bottom line: There are only two really big digital ad-serving platforms (Facebook FB and YouTube) that draw a very large number of users and it’s advantageous for brands to be on both of them. Moreover, the controversy is an industrywide phenomenon with the problem not restricted to YouTube. So while YouTube can’t take too hard a stand when negotiating with brands, it may not get pushed into a corner either; more so because it can also point to Google Preferred that offers access to the top 5% content on YouTube (at a premium of course).
The bottom line impact will likely also be insignificant because Google is anyway investing in artificial intelligence and machine learning to improve and enhance its algorithms and search results.
Google Cloud Event
At its Cloud Next conference in California last week, Google demonstrated that it finally has a big growth engine that isn’t driven by the search services it is identified with. The cloud strategy has been unfolding over the past few years for both Microsoft and Google. But the companies have taken different approaches based on their existing strengths and weaknesses. In Google’s case, its intentions became clear when it hired VMware founder Dianne Greene roughly 16 months ago.
Greene has clearly worked to form, bringing in a steady flow of big clients including Walt Disney, Home Depot, Apple and Snap. At the conference, Google announced HSBC, eBay EBAY, Colgate Palmolive and Verizon indicating the growing confidence in its platform.
Google also announced a big collaboration with SAP that will bring its enterprise applications to the Google Cloud Platform (GCP). This will benefit customers in many ways, giving them access to real-time insights based on big data and offload more complex tasks to GCP when constrained for memory. Within a couple of months, SAP will make its own cloud run on GCP and soon start offering G Suite products including Gmail and Google Calendar to its own customer base of more than 345,000 companies, including most of the world's top 2,000 firms.
There were also some new enterprise-focused Google Drive tools including Team Drives (allowing administrators to create, add and delete team members and assign permissions to them within a shared space that will retain shared files even when members change); Google Vault for Drive (that stores data on Google Drive for companies to export, search, hold and retain as required); Drive File Stream (already available for early adopters, this allows you to work directly with files on Drive using applications like Microsoft Word and Adobe Photoshop, which updates the changes automatically to Drive for access from any of your devices later); and Quick Access with Team Drives (that uses artificial intelligence based on an analysis of activity, interactions between colleagues, and workday patterns to serve the most relevant Google Drive files at any given time.
And that’s not all: Hangouts also got an enterprise version called Hangouts Chat that could help with corporate communications.
As far as acquisitions are concerned, the company announced a couple: AppBridge, which has a tool of the same name to facilitate migration of data (along with file permissions) from other storage solutions whether it’s on-premise devices, cloud services, or hybrid solutions to Google Drive. The second was Kaggle, which hosts data and facilitates machine learning contests.
Google-Uber Lawsuit Developments
Alphabet’s Waymo added a fourth patent that it says was infringed upon by Uber and furnished further details including the statement of an eye-witness in a fresh filing. The statement is from Pierre-Yves Droz, a former colleague and close confidant of Levandowski's (the ex-Googler who has allegedly run off with Waymo self-driving technology and trade secrets to form self-driving trucking company Otto, which was subsequently bought by Uber for $680 million). The lawsuit specifies the time at which Levandowski met Uber executives in Jan 2016, registering the company that would become Otto the following day. Waymo is seeking an injunction to prevent Uber from using the technology in its self-driving vehicles and seeking damages for any proven infringements.
Uber says that since Google has in October, filed for private arbitration against Levandowski for violating confidentiality obligations in his contract to improperly recruit his Waymo colleagues to Otto and Uber, it should also move the allegations of trade-secret theft and unfair competition against Uber into arbitration. The logic is that since both these are related to Levandowski they should be handled similarly. Arbitration proceedings are private and also have different rules related to evidence, which could safeguard Uber’s reputation. The company is willing to continue the patent infringement aspect of the case in court.
Gender Inequality at Google
The U.S. Department of Labor (DoL) has made a sweeping statement that it had “found systemic compensation disparities against women pretty much across the entire workforce” and DOL Regional Director Janette Wipper said the agency had received "compelling evidence of very significant discrimination against women in the most common positions at Google headquarters.
In a detailed response to the allegation, Google’s VP of people operations, Eileen Naughton said that the claims had been made "without any supporting data or methodology." She also explained the salary analysis system Google currently employs:
"Each year, we suggest an amount for every employee's new compensation (consisting of base salary, bonus and equity) based on role, job level, job location as well as current and recent performance ratings…The analysts who calculate the suggested amounts do not have access to employees' gender data. An employee's manager has limited discretion to adjust the suggested amount, providing they cite a legitimate adjustment rationale." The model then measures individual salary calculations against those received by their peers, which is done to eliminate "statistically significant differences between men's and women's compensation”. Naughton also said that Google's methodology is available to other businesses if they want to test their own compensation practices for equal pay.
This has been going on since Sep 2016, after which a case was filed in January, asking for Google’s compensation data. Things came to a head after Google failed to comply with a routine audit.
Google Wants to Invest In LG
South Korea's Electronic Times reported that Google has offered to pay LG Display up to $880 million (one trillion KRW) as its contribution toward a production line for flexible OLED panels for use in second-generation Pixel phones. LG is considering the offer. Google’s Pixel, which has the appearance and features of a premium device and has been marketed as such, will fall back in the race with Samsung and Apple on features if it doesn’t get some OLED screens of its own. So Google’s needs are clear. Google would also rather not get into a deal with Samsung, which uses OLED in its own phones and is also in an agreement to supply to Apple. So it’s trying to find another supplier.
Other News
Google Building Ad Blocker for Chrome: Google could be putting up some real competition to ad blocking companies. It now intends to build an ad blocker into Chrome that would help users shut down pop up, auto play and such other annoying advertisements. What constitutes unacceptable adverts will then be decided by the Coalition for Better Ads (an independent group set up by a consortium of major advertisers and agencies in March to develop standards after “comprehensive research” involving more than 25,000 participants).
While Google does derive the bulk of its revenue from ads, it has over the years framed guidelines and policies to ensure that ads weren’t too intrusive. So if it does go ahead with the ad blocker, it wouldn’t be opposed to its own policies. On the other hand, Google would be able to save the money it often has to dish out to ad blocking companies to whitelist ads (nice way of saying unblock). The news was reported by WSJ and is yet to be announced by the company.
PayPal, Google Partner on Payments: The partnership allows Android Pay users to make payments using PayPal's app. This extends Android Pay’s reach and makes Android Pay more useful. Since PayPal is growing closer to Google (it already uses the Google Cloud), this partnership renewed speculation that Google might acquire PayPal some time in the future.
Payments Through Gmail: Google is extending the peer-to-peer payments service for Gmail users to the Gmail app for Android. Clicking on the attachments tab will now also throw up options to send or receive money with the funds then being transferred from one bank account to the other. The service will be directly pitted against PayPal’s Venmo (although without its social aspect) and SquareCash.
Smart Jackets with Levis: Google’s Project Jaquard, which combines thin, metallic alloys with natural and synthetic yarns to create touch-sensitive interactive fabrics is finally inside smart jackets from Levi’s. The jackets, which will allow you to skip songs, use Google maps and make phone calls by the brush of your sleeve, will sell for $350 from this fall.
Data Highway with Facebook: The highest-capacity Internet link between Asia and the U.S. is about to be constructed by Chinese real estate magnate Wei Junkang’s Pacific Light Data Communication Co (60% share), Facebook (20%) and Google (20%). American contractor TE SubCom will lay the 17-millimeter wide, 12,800-kilometer-long cable, which will in all probability be operational by late 2018.
Google Fake News Fix: Similar to Facebook’s “disputed” tag, Google has also decided to create groups called review teams to flag content they deem "upsetting-offensive". Some of the criteria Google’s using to flag content would make you smile: "high-quality" pages could be the home page of a newspaper that has "won seven Pulitzer Prize awards," and "low-quality" pages could be articles that include "many grammar and punctuation errors." Thankfully, the results will still show up, but with the flag.
Google, Facebook Lead in Digital Ads: According to eMarketer, U.S. digital ad spending will increase 16% this year to $83 billion with Google and Facebook claiming the largest share by virtue of their strength in search and display, respectively. Google’s overall share of digital ad spending will be 40.7% this year while Facebook’s will be over 19%. Facebook is expected to continue growing much faster than Google off a smaller base.
Google will dominate in search with a 78% share and Facebook in display with a 39% share. Twitter, which derives 89% of its total ad revenue from mobile, will for the first time see mobile ad revenue shrink, by 5%. Snapchat, which commands just 1.2% of the total U.S. mobile ad market, and just 4% of the total growth in U.S. digital advertising, will grow its ad revenue by 158% to $770 million.
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