Over the past year, Google has grappled with two of the biggest threats in its 25-year history: the rise of generative AI and the increasing drumbeat of regulation. AI in particular has shaken the company to its core: it made major changes to search, realigned the search, Android and hardware teams around AI, and launched its own Gemini AI model to to take advantage of the opportunity.
Google executives cut projects and laid off employees to refocus, and yesterday the company announced its first dividend and a $70 billion share buyback alongside first-quarter 2024 earnings.
At least investors are eating it up: Google parent Alphabet has finally officially reached a market cap of $2 trillion, holding it for a full day of trading after briefly hitting $2 trillion in November 2021. Google is the fourth most valuable publicly traded company in the world, behind Nvidia ($2.2 trillion), Apple ($2.6 trillion), and Microsoft ($3.0 trillion). Amazon is currently at $1.8 trillion and Meta is at $1.1 trillion.
Unlike Meta, whose share price fell 10 percent after Mark Zuckerberg said it would take years to make money from “massive” bets on generative AI, Google said yesterday it is already finding some small ways to sell it – for example, it helps advertisers target people with AI in their Performance Max tool and that these advertisers are “63 percent more likely to publish a campaign with good or excellent ad strength.”
The company also says Discover Financial is rolling out AI tools to nearly 10,000 call center agents and that Ikea is seeing an increase in a form of revenue through “value-based bidding solutions.” And while there’s no talk of monetizing AI answers in Google Search yet, CEO Sundar Pichai said, “…we’re very confident that we can handle the costs of servicing these queries.”
Google doesn’t want to disrupt search too much for now: “We will be measured by how we do this and will focus on areas where Gen AI can improve the search experience while prioritizing traffic to sites and merchants,” Google said Pichai.
Google’s existing businesses also appear to be doing well: according to its first-quarter 2024 earnings report released yesterday, the company posted a profit of $23.7 billion on revenue of $80.5 billion. This is not only 15 percent more sales compared to the previous year, but also 14 percent more profit than the previous year the holiday district when search and advertising revenue were each slightly higher.
And while Google may have cut more than a thousand employees to boost those profits, it appears that layoffs have slowed or been paused. We reported last quarter that Google spent $700 million on layoffs in January alone. However, the new first-quarter report shows that Google only spent $716 million on “severance pay and related costs” in January, February and March.
Search and advertising revenue each increased 14 percent year-over-year in the first quarter, YouTube ads increased nearly 21 percent, and “subscriptions, platforms and devices” increased 18 percent year-over-year – primarily due to premium YouTube subscriptions, said Google CEO Philipp Schindler (so not necessarily Pixel 8 sales).
Google said it is improving its ability to challenge TikTok and Instagram Reels as well, with Schindler talking about how 50 percent more creators are uploading short videos to YouTube Shorts and how the monetization rate of Shorts increased 12 percent in the last quarter alone.
Google will host its Google I/O developer conference on May 14th.