- Alphabet is experience massive decline in revenue growth. (Only 6% YoY growth vs 41% YoY growth in 2021)
- Internal costs are sharply increasing (Only a 25% Operating Margin vs 32% last year). A 7-point swing is massive. To put this into perspective, outside of tech, most companies only have ~10-point Operating Margin. So this swing of 7 points in margin, for most companies, could be the difference between being profitable vs not.
- Even though they are generating more total revenue than last year (same quarter) - they are considerable less profitable overall ($14B this year in Net Income vs $19B last year same quarter). This is related to the previous bullet.
I think what happened was a the perfect storm: remote working made people be more at home and so more time spent online. Additionally, stimulus checks were juicy targets for advertisers that tried to sell people stuff to spend time.
Now, we are having inflation due to all those stimulus checks that forced central banks to hike interest rates. Moreover, energy prices and supply chains disruptions exacerbated the situation by driving more inflation and the cost of doing business. Advertisers understandably prefer spending less money.
Under these circumstances such a drop in unsurprising IMHO. Similar to the drop in Q1/Q2 2020.
EDIT: I wrongly used stimulus checks as an umbrella term. I really meant all the actions that pumped a lot of money into the economies.
Friendly advice: As a current googler, you should refrain from posts like this, even with the “opinions are my own” disclaimer. You have access to internal info that shapes your opinion, etc. Even an innocent post such as this is potentially a breach of your employment contract.
"Potentially" is doing a lot of work there. If the lawyers get involved, marcyb5st is going to have to explain themselves and their comment, but their lawyer is going to ask about what material information is in the comment. The social media policy requires the disclaimer, btw.
It's probably slightly less risk, yes.
But Google has a specific policy about this and they are following it to the letter. This is pretty low-risk as far as things go.
Apple has very, very different policies on this than Google. Google is getting more conservative, but it's still a long way from Apple.
> You have access to internal info that shapes your opinion, etc. Even an innocent post such as this is potentially a breach of your employment contract.
As a Googler also, I question is this really true? The only thing I can think that you are referring to (internal info of something I'm not directly working on) is...memegen. Anything secret I'm exposed to is much more technical than business directions. When we are talking about the general economy, we really are just talking about the general economy.
> Let your Marketing, PR, and CFO handle the comms on this.
Yes, Google doesn’t expect or allow SWEs to handle comms on anything. But we are also allowed to express are opinions on anything unrelated to our work. I can imagine that you work or live in a much more strict/stifling environment?
Don’t let your corporation muzzle you out of fear, especially one like Google which 1) has a specific policy about this and 2) is big enough that no post on HN is going to move the needle.
Disclaimer: I don’t work at Google and my pseudonymous internet opinions are all definitely correct.
You're correct! I used stimulus checks as an umbrella term, but it's not correct. But I meant all the measures that pumped a lot of money into the economy. Here in Italy loans were frozen for 2 years which equals to a much bigger injection.
When supply remains the same or declines at the same time demand goes through the roof through a combination of lockdowns and helicopter money (as the other commenter points out, government sources show nearly $1T in direct payments), big time inflation happens.
Said inflation is most likely the biggest culprit behind this (or upcoming, depending on how you define it) recession. Disposable income is evaporating and people are adjusting their purchasing behaviors. After all, who wants to buy anything they don't have to, when they feel that everything is so much more expensive than it should be?
inflation is a giant beast with multiple causes, one of which is definitely stimulus. There are others too, including the cause you listed. Most things have multiple causes
Corporations raising prices that people are more willing to pay because they have more available spending money because of all of those stimulus checks...
Stimulus checks did not cause high inflation. It's a relatively small factor. The major impact was supply chain issues, changes in how people chose to spend their money, and two major impacts to oil (people suddenly commuting much less and then starting to again, and Russia).
Its not about the inflation rate, its whether it's controlled. The fed reacted slower than expected to inflation, and claimed it would be transitory for a long time.
Hiking is meant to take heat out of the economy, doing so while the government was still pouring covid stimulus money into the economy would've been counterproductive.
Covid stimulus went on too long (later stimulus checks, mortgage forbearance, eviction bans), well after people had returned to their lives. And we are only beginning to see just how much of that money had no productive impact on the economy (PPP fraud, theft of unemployment benefits, scams around fake tests and masks).
Billions of dollars have been spent without contributing to GDP, governments need to cut back fiscal policy to control inflation.
If it was all supply side we would have seen a accompanying reduction in national income. It’s a combination of both a reduction in aggregate supply and an increase in aggregate demand.
You're the first person I have ever seen with this opinion. I want to know, back when this was released, what made you ignore all the people that said that the product would be a failure and that Google would shut it down quickly? I always saw that as the majority opinion.
I thought that they would be serious about it given how much investment it took to get it off the ground and also how they were actively seeking relationships with indie devs to maintain vast amounts of quality titles.
Obviously I was wrong and have been actively ending my own usage of Google products because I have been burned for the last time.
I'm pretty sure you can transfer your save game for Cyberpunk off of Stadia to PC or consoles. It's not true of every game, but I think it works for Cyberpunk if you plug it into your search engine of choice.
regarding stadia, What did you think they would happen? They have a graveyard of great projects that should still be used by millions.
The only things I see continuing are android, ads, search, I even feel with the severe losses their cloud unit is seeing even GCP could be shut down. Hell I could even see them abandoning Waymo, I mean this is google after all :)
They're not killing chrome. I doubt they kill their office suite either, it has really good numbers among young people, and microsoft's entire business is built on the back of its enterprise productivity software. It's a trillion dollar market cap business.
But why would they? The Google Docs suite is a billion+ user product, which is monetized through Google Workspace and Google for Education (with many millions of paid user subscriptions).
This is just not remotely plausible of a shutdown target. It also dates back to 2006. I'm struggling to think of even five Google products I would name as being less likely to be shut down.
Hangouts functionality basically still exists, just under a different name. It's still integrated in Gmail, with the same contact list, and all the previous conversations from Hangouts were still there. It's so similar that I bet many people don't even realize anything changed.
This is unlike, say, Reader, which was canceled with no replacement to this day.
I'm I dumb for assuming that google must use GCP internally? Therefore making it pretty much immune from being shut down. I guess they could go full internal tool with it?
That seems less improbable than even a lot of other cuts. A science experiment that doesn't have a clear path to an assistive driving revenue opportunity much less something transformational? I'd probably make an argument that they have to keep plugging on GCP but could cut Waymo loose without much collateral damage.
Waymo has taken a fair bit of external funding. Google could in theory cut them loose which would effectively kill them, but I'm not sure they could just shut it down.
It's also wild internally. It feels like headcount is incredibly tight, and even tighter now. Like 20% of my time as a manager is spent being asked to propose large new projects only to be told "nope, no HC for that." But somehow the company is like 4x larger than it as when I joined.
I suspect it is a property of subexponential growth. If every team gets new HC then the entire company grows at ridiculous pace. But it does feel disempowering to see the company grow like mad while we are told "not you."
Honestly as an end user, the growth seems to be backwards. Search results are worse than ever, YouTube recommendations are broken, and for the first time in years, Google Maps is showing me weird as hell routes.
People are so quick on HN to say "why does company X need 1000 employees when clearly it could be done with 10?" but I find people tend not the ask the even more obvious question "Why does company X need 100,000 employees when they seemed to be doing just fine with 50,000?"
I do get that there is a lot of extra complexity that goes from a startup solving a hard technical problems to a pre-IPO company that is solving a bunch of business problems as well as technical challenges. Yes companies gain less efficiency per hire as they grow, and many do grow for growth's sake these days, but it does make sense that some companies need a thousand people to do what a startup thinks they can do with 10.
But it certainly doesn't seem like Google is making great use of doubling headcount. On a product by product basis, at least for me, it feels like most Google products are worse than they were pre-pandemic.
If they had shown revenue growth highly correlated with headcount I would see strong evidence that my view is wrong, but the facts don't seem to point that way.
There's diminishing returns as the company grows in headcount.
When you hire large number of engineers, you need to hire engineers to support those engineers. Then you need to hire people to support the engineers that are supporting the engineers and so on...
This is pretty common in most large companies. Remember the mini-msft blog? This doesn't happen as much on product teams but in all the support functions which don't hire world class people like they do on software engg.
Basically as companies revenues grow, every cost center gets to put in a request to grow headcount. If you don't your colleagues will and you'll be looked down upon. then you take on shiny new non-essential projects and find ways to justify it. Launch it get promoted and leave. The next person comes in- decides it is crap- shuts it down and starts their own new project to reinvent the same thing . Org politics.
Google is getting deeper into silicon, both datacenter and device. That R&D has substantial capital costs which I think are still included in R&D top line.
The silicon would be to save money compared to general purpose compute. The savings should overcome any fixed cost. Doubt it's having that great an impact to R&D cost growth.
One subtle deception in such reports is that dollar v22 is 30% smaller than dollar v21, so $14B x USDv22 is way worse than $19B x USDv21, about 2x worse I'd say.
- EMEA + APAC largely driving slowdown in growth as both regions were -2%, USA + Americas are still at +12%
Feel like this might be a pattern this quarter - declining margins + growth as companies over-extended themselves last year not foreseeing just how bad things are outside of the USA + Americas
Alphabet was seeing around 15% YoY revenue growth prior to 2021. Then 2021 hit and the growth rate jumped to 41%. Now with the 6% YoY growth this year, it's evening out to ~22% annualized growth over the last 2 years.
If I'm reading the financials correctly, ads constitute just shy of $54b in earnings while Cloud just $6b.
As long as consumers are buying stuff, companies will advertise to them. As long as Google has a captive audience and they can continue to mint keywords for advertisers to bid against, I think this flywheel continues.
And yet their search product results are declining rapidly in terms of quality. So much so that people in HN report having to write "reddit" at the end of their queries to get reasonably interesting results.
Sure HN notices this first, but for sure the "regular people" are not far behind.
Still, there are no good alternatives -- yet. You can bet if Google is the new Altavista, then the new Google is just over the Horizon waiting to steal their ad revenue...
The declining quality we notice is likely because Google is getting better at serving everyone else. It's only going to get worse for handling off-mainstream queries, and it won't matter for most people who aren't looking for an obscure forum post from 1997.
Advertising margins are very high and cloud margins are very low, so the expectation that their cloud platform will grow and the expectation of high margins are sort of in tension.
Sundar took the easy way of trying to force revenue growth at all costs and achieved it in 2021, but the tactics are not long term sustainable and have slowed growth and profitability. Even more concerning is Sundar has no product vision. He focuses on technological capabilities and not value to people.
That is pretty general, but more important seems untrue. All I ever heard Sundar say both internally and externally was about making Google “more helpful”. He said it so much and it was such a boring and bland statement that it really frustrated and nearly angered me. So yes, he lacks vision and specific product strategy here, but I think he is trying (badly) to move the narrative away from technology towards people
The only thing I am refuting is his focus on technology. By beating the constant drum of “be helpful in peoples live” he is making the help explicit but the technology is implied. My point is he doesn’t _focus_ on technology. He is trying to get the company to focus on people
it's interesting to me that anyone would try to consider absolute results over the last few years.
I feel like there should be some kind of consumer behavior/overall market beta factor that normalizes results with respect to the extraordinary conditions that have played out over the past few years.
comparing year vs. year over the last few years seems to make no sense to me.
- Alphabet is experience massive decline in revenue growth. (Only 6% YoY growth vs 41% YoY growth in 2021)
- Internal costs are sharply increasing (Only a 25% Operating Margin vs 32% last year). A 7-point swing is massive. To put this into perspective, outside of tech, most companies only have ~10-point Operating Margin. So this swing of 7 points in margin, for most companies, could be the difference between being profitable vs not.
- Even though they are generating more total revenue than last year (same quarter) - they are considerable less profitable overall ($14B this year in Net Income vs $19B last year same quarter). This is related to the previous bullet.
Alphabets stock is -6% in after hour trading.
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