Google AI Technology Starts to Generate Substantial Revenue

Google's cloud business performed exceptionally well in the second quarter, reaching a new high. Meanwhile, AI technology helped advertisers increase profits by 15%, driving advertising revenue up 11% year-over-year.

01 Google's Financial Situation for 2024Q2

  1. Revenue was $84.7 billion, a year-over-year increase of 13.54%, exceeding the consensus expectation of $84.3 billion;

  2. Net profit was $23.6 billion, a year-over-year increase of 28.6%, surpassing analysts' expectations of $23.0 billion;

Regarding dividends and buybacks, the company continued the first quarter's plan. It announced a cash dividend of $0.20 per share, and the amount of stock repurchases in the second quarter was $15.684 billion.

02 Google's Revenue by Business Segment for 2024Q2

The main advertising business and cloud business achieved significant year-over-year and quarter-over-quarter growth, with cloud business reaching a new high, but YouTube advertising business was slightly below expectations.

  1. Google Services revenue was $73.9 billion, a year-over-year increase of 11.5%. Of which,

  • Google Search and other revenue was $48.5 billion, a year-over-year increase of 14% and a quarter-over-quarter increase of 5%;

  • YouTube advertising revenue was $8.7 billion, a year-over-year increase of 13% and a quarter-over-quarter increase of 7%;

  • Network advertising revenue was $7.4 billion, a year-over-year decrease of 6% and flat quarter-over-quarter;

  • Subscription, platforms, and devices revenue was $9.3 billion, a year-over-year increase of 15% and a quarter-over-quarter increase of 6.9%;

  1. Google Cloud revenue was $10.3 billion, a year-over-year increase of 28% and a quarter-over-quarter increase of 7.3%. Cloud business performed strongly, with quarterly revenue exceeding $10 billion for the first time, reaching $10.347 billion; it also achieved a quarterly operating profit of over $1 billion for the first time, at $1.172 billion.

  2. Other Bets revenue was $365 million, a year-over-year increase of 28.1% and a quarter-over-quarter decrease of 27%.

03 Google's Conference Call for 2024Q2

  1. Cloud business reaches new high: Quarterly revenue exceeded $10 billion for the first time, reaching $10.347 billion, a year-over-year increase of 29% and a quarter-over-quarter increase of 7.3%. At the same time, cloud business achieved a quarterly operating profit of over $1 billion for the first time, reaching $1.172 billion. Growth was mainly driven by AI, with AI infrastructure and generative AI solutions contributing billions of dollars in revenue to the cloud business (year-to-date) and being used by over 2 million developers.

  2. Operating profit margin improvement: The operating profit margin improved compared to the previous quarter, mainly due to the company slowing down its hiring pace and reducing costs through restructuring and personnel optimization. Additionally, legal-related expenses decreased this quarter, further reducing administrative expenses. The company plans to expand Alphabet's operating profit margin for the full year 2024 relative to 2023.

  3. Capital expenditure growth: Capital expenditure for 2024Q2 was $13 billion, mainly used for technology infrastructure investments, with the largest portion being servers, followed by data centers. The company expects quarterly capital expenditure for the full year to remain at or above the Q1 level of $12 billion. In 24Q2, Google announced the establishment of its first data center and cloud region in Malaysia, and expansion projects in Iowa, Virginia, and Ohio.

  4. Diversified cloud platform: The latest NVIDIA Blackwell platform will enter Google Cloud in early 2025. Meanwhile, Google expanded support for third-party models, including Anthropic's Cloud 3.5 Sonnet and open-source models like Gemma 2, Lama, and Mistral.

  5. AI-empowered advertising business: In 24Q2, Google announced over 30 new AI-empowered products, with advertisers seeing an average 15% increase in profits. The company also stated that it is conducting beta testing for virtual try-on and shopping ads, with plans for widespread release later this year. Feedback shows that this feature receives 60% more high-quality views than other images and higher click-through rates to retailer websites. Retailers like it because it drives purchase decisions and reduces returns.

  6. Subscription business growth: Subscription business growth was mainly due to increased YouTube subscription revenue (YouTube TV and YouTube Music Premium), but the growth rate slowed due to the impact of YouTube TV price increases in the second quarter of last year.

  7. Search business growth: Mainly benefited from strong performance in the retail industry, followed by the financial services industry.

  8. Cybersecurity: The company reiterated the importance of cybersecurity but did not respond to market rumors about "acquiring cybersecurity startup Wiz for $23 billion."

  9. Litigation-related: Last year, Google was ordered to pay $62 million for violating user privacy, resulting in a large one-time expense. Currently, due to large-scale restructuring and personnel optimization, analysts believe there will be one-time expenses such as severance pay. Additionally, Google's antitrust investigation is ongoing, and if it loses, it could lead to decreased revenue and market share, as well as one-time expenses such as legal fees.

  10. New Chief Financial Officer: New CFO Anat Ashkenazi will take office on July 31. She is expected to make her first appearance at the next quarter's earnings call. The previous CFO, Ruth Porat, will not leave the company entirely but will take on a new role.

  11. Waymo's impressive performance: In June, Waymo removed its waitlist in San Francisco, and now anyone can ride. So far, Waymo has performed impressively, providing over 2 million rides and driving over 20 million fully autonomous miles on public roads. Waymo now provides over 50,000 paid public rides per week, mainly in the San Francisco and Phoenix areas.

04 Analysis of Google's 2024Q2 Performance

  1. Search business: The search business maintained strong growth, with revenue of $48.5 billion, a year-over-year increase of 14% and a quarter-over-quarter increase of 5%. Growth was mainly driven by the retail industry, followed by the financial services industry.

The main reason for growth is that Google continues to apply AI technology in its search engine, attracting more users and advertisers. In 24Q2, Google announced over 30 new AI-empowered products, with advertisers seeing an average 15% increase in profits.

Additionally, according to Statcounter data, Google's market share in search engines has not been significantly affected by competitors (such as Bing, ChatGPT). Bank of America also mentioned in its July report that as of June, the total daily traffic of emerging AI websites (such as Perplexity, Claude.ai, etc., excluding ChatGPT) was less than 0.3% of Google's daily visits.

  1. YouTube advertising business: Revenue was $8.7 billion, a year-over-year increase of 13% and a quarter-over-quarter increase of 7%. Although YouTube's advertising business grew significantly year-over-year and quarter-over-quarter, it was still slightly below market expectations due to high market expectations.

Growth was mainly driven by brands, followed by direct response advertising. At the same time, the strong performance of Shorts also partially contributed to YouTube's 13% year-over-year growth in advertising revenue. In the fourth quarter of last year, Google launched advertising features on YouTube Shorts, after which the monetization rate of Shorts steadily improved, especially in the US market. Additionally, shopping-related video watch time increased by 25% year-over-year, highlighting YouTube's investment potential in the e-commerce sector.

Although YouTube's advertising business improved year-over-year, data shows that YouTube's usage slightly decreased in the second quarter compared to the previous quarter.