By Gene Munster and Will Thompson of Loup Ventures
Google shares dropped ~4% in after-hours trading. The company missed revenues by 1% and earnings were in line with expectations. This compares to the Jun-18 quarter when the company beat revenue estimates by 2% and reported earnings in line with expectations. While this may sound like an in-line quarter, jittery investors expected more. Our takeaways:
- Google focused on the evolution of Search, first mentioned in this blog post from Sept. 24th. The future of Search will be more visual (YouTube and Maps) and will place greater emphasis on predicting intent and contextual awareness with AI.
- We were surprised by the frequency with which the company brought up its Made by Google hardware products, highlighting the long-term commitment to that segment of their business. In our view, Google is adopting elements of Apple’s integrated hardware/software approach, which we’re watching carefully. (Microsoft also seems to have taken a page out of Apple’s playbook).
- Waymo has entered fractional commercialization (a small number of users now paying for rides) and continues to explore fleet and logistics applications. We continue to believe that, long-term, Waymo could be Google’s 3rd largest business behind Search and YouTube (ahead of Cloud). Comments around Waymo’s progress and plans are still very measured and always include emphasis on thinking strategically and safety.
- Notably absent were comments or questions on how Google is navigating the privacy environment today. We continue to wait for details from Google regarding its privacy strategy.
- The company gave few details regarding its requirement to charge for Android use in the EU. CEO Sundar Pichai commented that, while they will be implementing the remedy in the next few weeks, its eventual effect is unclear and it may take some time due to the smartphone replacement cycle. We think it’s likely this could add 1% to Google’s revenue next year.
- AI, naturally, came up throughout the call but took a noticeable back seat to topics like hardware and YouTube. This quarter, AI, machine learning, and other related terms were mentioned 25 times, fewer than last quarter’s 38 mentions, but in-line with the two-year average of 25 mentions. This quarter was the first time in two years that Sundar has not opened by stating that Google is an AI-first company.
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