Alphabet (Google; GOOGL) – Chief Business Officer Philipp Schindler Interview & Some Contemplation – March 09, 2024
Most of this interview was a review of recent earnings reports and press releases. It covered product innovation within cloud computing and advertising that I’ve already covered multiple times in detail.
The dialogue around search and GenAI disruption is the only item worth covering. There’s a class bull/bear debate forming around Google. Bulls say that Google seamlessly embraced previous search revolutions like mobile and social better than most expected at the time. They’ll tell you that Google’s unmatched search data set, world-class talent and fortress balance sheet put it in the best position to succeed amid the GenAI boom. They’ll say Google isn’t concerned with first mover advantage, but instead with model perfection for its generative search product in beta testing. The most powerful models still give wrong answers more than 10% of the time. Google is more fixated on eliminating that issue vs. rushing out upgrades to its search experience.
Bears will say that search drives Google’s entire business. If they lose even a few % in market share, that would be quite material to results. They’ll also say that generative search will never carry the margins that its current search product does, so succeeding here may be good for revenue, but not margins. Schindler expressed conviction in monetization for GenAI search eventually being strong. He discussed all of the new interactive advertising opportunities that it will have and how better targeting should improve impression value too.
This is hauntingly similar to what Meta was going through in 2021-2022. It needed to shift to Reels, but Reels didn’t monetize at a rate anywhere near its other content formats. Fast-forward to today and it’s a monetization and revenue growth tailwind for Meta overall. The first greenshoot for Reels was the engagement boost. The second was improving monetization. We’re already seeing engagement boosts from Google’s Generative Search (SGE) product in the markets where it’s testing.
One could also argue that OpenAI and Microsoft provide a newly intimidating competitive threat just like TikTok did for Meta. Despite the similarities, Google is still within sniffing distance of all- time highs while Meta plummeted by 70%+ from peak to trough. I think Google will figure things out just like Meta did. I think there will be growing pains just like there were for Meta. I think there could be some stock turbulence associated with those headaches. And I’d be eager to start a new position here if Mr. Market decided to give me an overly compelling deal. I am candidly concerned about Google’s profit and share position in search. Still, Google Cloud is a 20%+ grower, younger generations live on YouTube and its balance sheet provides significant opportunity for manufactured earnings growth.
Schindler called visual model bias Google has been criticized for “unacceptable.” It’s hard at work on fixing the issues and has already “made significant progress.”
