To The Moon

$Alphabet(GOOGL)$ Google's parent company, Alphabet reported Q2 earnings that beat both revenue and EPS expectations, with its cloud business surpassing $10 billion in revenue for the first time. However, YouTube ad revenue fell short of expectations.

Key Q2 Metrics:

• Revenue: $84.74 billion, up 13.6% year-over-year, beating expectations of $84.37 billion

• Adjusted EPS: $1.89, up 31% year-over-year, vs. $1.84 per share expected

• Traffic Acquisition Costs (TAC): $13.39 billion vs. $13.54 billion expected

• Operating Margin: Expanded from 29% last year to 32%

• Cloud Revenue: $10.35 billion, up 29% year-over-year, vs. $10.09 billion expected

• Core Advertising Revenue: $64.62 billion, up 11% year-over-year, slightly above the expected $64.53 billion

• YouTube Ad Revenue: $8.66 billion, up 13% year-over-year, below the expected $8.95 billion.

• Google Search and Other Revenue: $48.51 billion, 14% year-over-year, surpassing the expected $47.65 billion.

Business Segment Performance:

Core Advertising Business grew 11.2% year-over-year to $64.62 billion, slightly above expectations but at a slower growth rate compared to Q1's 13%.

• YouTube Ad revenue increased 13% year-over-year to $8.66 billion, missing the expected $8.95 billion, possibly due to competition from TikTok.

• Revenue from Google Search and Other grew nearly 14% year-over-year to $48.51 billion, exceeding expectations of $47.65 billion, remaining the largest contributor to revenue.

• Revenue from Google Network declined by 5% year-over-year to $7.44 billion, below the expected $7.87 billion.

• Google Cloud revenue surpassed $10 billion for the first time, growing 29% year-over-year to $10.35 billion, beating market expectations of $10.09 billion. The growth was driven by increased demand for AI.

• Revenue from subscriptions, Platforms, and Devices was $9.31 billion, slightly below the expected $9.38 billion.

• Other Bets, including ventures like the autonomous driving startup Waymo, revenue grew 28% year-over-year to $365 million, below the expected $389.6 million and significantly weaker than Q1's 72% growth.

Capital Expenditure: $13.186 billion in Q2, exceeding Q1's $12 billion.

AI Spending grew to $2.2 billion on building AI models in its DeepMind and Google Research divisions.

Google is still trying to find its footing with AI Overview, the generative AI feature that shows up at the top of Google Search results pages. In May, the company rolled out the search function, only for users to quickly discover that its answers weren’t always accurate, with now-famous responses telling users to put glue in their pizza or to eat a rock every day. Google responded by pulling back some of the generative AI features.

While it spends on AI, Alphabet has been cutting in other areas, including headcount. In Q2, the company reported having 179,582 employees, down from 181,798 in the same period last year.