Google’s search volume grew faster last quarter than at any point in the past five years...
But search revenue barely budged.
It rose $79 million on the previous quarter. On a business bringing in $63 billion every three months, that’s a rounding error.
Sundar Pichai led with the search volume number when Alphabet reported last Wednesday... but smart investors lasered in on the revenue number… and the stock fell by 12%
Now compare Apple, which reported last night.
Apple grew revenue 12%… compared to Google’s 25%
(With Google’s cloud business more than doubling)
Apple also has a pile of near-term headaches.
Rising memory chip costs mean it expects its gross margin to drop from 47.9% to 45-46% next quarter…
iPad sales fell 10%…
China revenue came in light too…
Half the growth and more problems.
Yet Apple’s shares were down roughly 3% after hours and closer to 5% before this morning’s open, still in the upper part of their 52-week range, whereas Google is almost at the bottom.
On the surface, the faster growing company took the beating…
But it helps if you look at a share price as the market’s guess about the next decade of profits.
Last quarter matters only for what it says about that guess… and investing on last quarter’s numbers is driving with your eyes on the rear-view mirror.
Apple’s problems have expiry dates…
Memory prices will flatten eventually… (anywhere between late 2028 and 2030)
But Google’s problem has no expiry date.
Google earns most of its search money when you click an ad beside the results…
So when an AI writes the answer for you, there’s less reason to click. Google itself said its AI search mode earns less than traditional search.
Search growth has slid from 19% in Q1 to 17% in Q2 and now just 12% in Q3
Think about the last time you asked an AI a question. Did you click an ad afterwards?
In fairness to Google, the cloud business is booming. Google may solve this.
But the market has to price the chance it doesn’t, and search still brings in half of Alphabet’s revenue.
So when you read an earnings report, you gotta ask yourself whether the company’s problems are temporary or permanent. And understand that ten temporary problems will cost a business less than a single permanent one.
Oliver
P.S.
Today’s the last day to submit your review for the Investing for Teens competition
Here’s how to enter…
Step 2: Leave a review after it arrives (instructions on how to do that are here)
Step 3: Forward me a screenshot of said review
Winners will be chosen at random and I’ll announce them later this week
Happy reading
Oliver