GOOGL - Google: Don't Underestimate YouTube Especially Ahead Of Earnings

2024-04-24 02:07:22 ET

Summary

• YouTube has gained market share in streaming in Q1 24, setting it up for good results in the upcoming earnings report.
• Margin expansion in the Cloud segment could make Google Cloud a more meaningful operating profit contributor in the next few years.
• The trend in the number of paid clicks and costs-per-click for Google Search will be one of the most important things to look out for.
• Gemini AI opens up several opportunities to expand GOOGL's business, despite the initial problems.
• The single major risk is the possibility of disruption in the search business.

Introduction

After writing on Seeking Alpha for nearly two years, this will only be my second article (I covered Amazon (AMZN) before) on one of the big tech companies. This will be my initial article on Alphabet ( GOOG )( GOOGL ). In this first article, I want to cover as much ground as I can so that I can keep covering the in my opinion, most relevant key metrics in future update articles (probably once or twice per year).

I will start this article with an overview of Alphabet's financial reporting before discussing the different reported segments. After that, I will discuss the financials for the past decade, the current valuation, risks, and end, as I always do, with a conclusion.

Reporting Overview

Accounting and reporting is usually one of the less exciting topics to talk about, so let's get it out of the way first. GOOGL changed its way of reporting significantly in 2017. In that year, the "YouTube ads" segment was first reported as a stand-alone segment. Until then, it was included in "Google Search & other". In the same year, GOOGL first reported the "Google Cloud" segment separately. The Cloud segment was reported under "Google Subscriptions, platforms, and devices" until 2016.

As of today, GOOGL reports six segments:

1. Google Seach & other: Includes all the search revenue (including revenues from generated traffic), Gmail, Google Maps and Google Play
2. YouTube ads: YouTube ad revenue excluding YouTube Subscriptions
3. Google Network: Ad revenue stemming from ads that are shown on partner websites (like the little ad banners on websites)
4. Google Subscriptions, platforms, and devices: Consumer subscriptions (YouTube TV/Music/Premium, NFL Sunday Ticket, Google One), Google Play App sales and In-App purchases and the Pixel devices
5. Google Cloud: Google Cloud Platform and Google Workspace (collaboration tools for enterprises, such as Calendar, Gmail, Docs, and Drive)
6. Other Bets: A sort of Venture Capital arm, with the most commonly known venture being Waymo (self-driving cars)

For further details see: