About the Google Crash📉
It's never fun to watch your largest position crash 13% after the earnings. Personally, I have seen this so many times, and I have developed the habit to read the earnings report first, reaching my own conclusion before looking at the market reaction.
I see Google's revenue continue to accelerate, growing 25% compared to 24% last quarter and 16% a year ago. Operating income increased 30% to 40.5 billion, with operating margin expanded 1%. Free cash flow is negative due to heavy capex.
Earnings are down caused by a large investment loss, unrelated to the business operations. And increased depreciation charge, which is expected with the significant cloud investment. Google Cloud growth rate accelerated again to 103%. This is highly impressive, and as a long term investor, I'd like to see them invest into this growth as much as they can, which is exactly what the management is doing with the capex spending.
A more valid concern is the deceleration of ad revenue growth, which has slowed for 2 consecutive quarters. This is caused by lower rate of monetization of AI searches and it makes sense as people is clicking less into websites if they get the answers right away. That said, people's habit is very difficult to change, and I expect continued growth of Google search usage for the foreseeable future. As long as Google can continue to grow the search volume, they should be able to find a way to more effectively monetize it in the future, but it will take some time. Even if they fail to improve the monetization, they still have the Cloud and subscription business to offset the slower growth. Despite slower growth, Google ad revenue still grew 11%, which is not bad at all at Google's size.
Overall, I think this is a great report if you believe in their AI investment. I personally do as I've seen how AI completely change the way I work as a software engineer in less than a year. Now I can't imagine how I can work effectively without it. I think AI is here to stay, so I will continue hold my Google position for the long term.
