Meta, Google, Amazon all post Q1 results - Analysis and market reaction

Speaker 0 · 0:01

Welcome to the Media Unfiltered podcast. We've had a week break. I was actually in The UK, for a couple of work things, which was lovely. We didn't get chance to record, but we thought we'd wait anyway because we knew this was results weeks for the major platforms and some unsurprising news really. As you can see or as you probably already read across the Internet, the platforms have had a spectacular year. There's been some really interesting announcements around their investment in AI as a result of that growth, and then some knock on effects on stock market valuations. And to go through all that, Ian's obviously gone through the numbers and had a look at the, sort of feedback from the financial world. And we're gonna talk about that and talk reflect also on the advertising and media industry and what implications these results may have. So, Ian, let's start with when we start with Google's results, and then we'll look at, Meta's. But tell me what's the word from the street? What's your view on what, Google posted and the response from, Wall Street and the markets?

Speaker 1 · 1:10

Well, I mean, look. I mean, you you look at Google's results, they're very, very good. I mean, the the core of the business still remains search. I mean, there is obviously, if you look at the the sort of option, the boom is often around YouTube, but YouTube is still minority of the business. The core business, for Google, Alphabet, as it's called now, is search, and that was up 19% in terms of ad revenues year on year. So some very strong set of numbers. YouTube is up 11%. What was really impressive was the cloud revenues up 63%. And I think this is if we look Massive. In terms of of, let's call it, the investment that's coming through in AI. One of the features that you notice across sort of the of all the platforms is that you are starting to see that CapEx having a meaningful impact on the growth rates when it comes to cloud in particular. So as I said, you've got Google, you know, up 63%. You have AWS, which is 28%, and that was its fastest growth in 15 quarters. You have Azure that was up 40% on here. Yeah. These are not small numbers, small growth rates, especially when you consider the large basis they're coming from. So, markets reacted very well, and and that's not a surprise. Where the markets have been particularly concerned about with AI for Alphabet is around its search revenues. It is bread and butter business, the driver of the majority of its profits. And, yeah, if you look at what's happening in its results, what you would say is not only is AI not impacting its revenues at the moment, but there's a case for arguing that it could actually be accelerating them. Yeah. We're seeing we're seeing that a little bit with, with Meta with,

Speaker 0 · 2:51

increase in, available impressions. That's content, probably, you know, AI based content and then AI based, planning and execution. But before we get to to Meta, search up 19%. The talk of Cannes last year and the year before was, all about the introduction of of AI and the impact that might have on search revenues. Didn't seem to happen. Up 19% compared to seventeen percent in the previous year, which is absolutely crazy. YouTube up 11%. Total ad growth was 13. I know a big portion of their growth is from their cloud services, but if you look at it how it breaks down, The US, up 23% compared to 17% previous year. European markets or EMEA is 12. APAC, 22%. So when you look at it, from a from a sort of product placement, from a from the the things that they offer to where they're growing around the world, do you see any sort of, interesting insights around that? Well, I I'd say I mean, it's

Speaker 1 · 3:56

you know, one of the things has always been a one question was always when the de minimis tower fields were were changed, what impact that would have, for example, Chinese exporters, exporting into The US market, whether that would have an impact on the major platforms. So far, that has not showed up in any of the numbers, you know, whether it's Amazon, Meta, or or indeed Google Search. It is interesting that differential between EMEA and, and certainly North America. There's nothing sort of, it'd be interesting to see whether this is one quarter or whether it's continuous. This sort of gap, I haven't really seen that wider gap, in quite a while, sort of, certainly on my recollection of results. So we have to keep an eye on there on what's happening particularly in EMEA, with things. But I think across the board, what you'd say is these are strong set numbers. If you did want to also point out another what you could say is interesting fact, It's just the differential in advertising growth rates between search and and YouTube. Yeah. There was a time, of course, when YouTube actually was was growing ahead of search and was seen as the part of the business that was grow sort of accelerating the advertising growth rate. Whereas now, and it's been the case for the past few quarters, it's actually trended below search. So, again, is that a permanent pattern, or is it something that we see

Speaker 0 · 5:15

in later sets of results tends to reverse itself out? Yeah. It it's it's incredible that they continue to to grow search to such a level, and it it just shows the dominance that they have. And, it's it's basically a monopoly business. What's also interesting is the investment that they announced in their earnings was about 200,000,000,000 in AI just short of it, and the markets didn't even blink, did they? That's that seems like an acceptable figure.

Speaker 1 · 5:40

Well, I think what you've got here with the market so there's a couple of things that they're they're looking at. I think one is, yeah, the markets don't necessarily not companies for spending per se. It's when they don't feel comfortable that they'll see a meaningful return on that spending. Now if you're you know, the thing with Alphabet is, again, to point out, is cloud revenues sort of the year on year growth really accelerated. Search, which is the core of its business, again, accelerated and is still doing extremely well. So a market's perspective, the way they're looking at things is to say, they're spending, and we can translate it into growth. I think the other thing that you've got here as well, and this is why I think, for example, Meta was somewhat impacted. I think part on the QT guidance, which, you know, may have been seen as slightly disappointing to some people, but, you know, there's a question mark whether that was not, intentionally conservative. Yeah. Amazon, Microsoft, and, and Alphabet, if you look at their revenue streams, they've got several different revenue streams. You know, they are diversified. So the risk is spread across different units. A thing with Meta Yeah. Is where, again, it sort of increases spending, but bear in mind, it's only really got one engine of growth. Yeah. And that's just advertising revenue business. And that's doing extremely well at the moment. But again, if we take the point of view that the markets, what they really are concerned about is not necessarily growth, but actually sort of reducing risk, then they're looking at Metro and saying, it's doing extremely well now. And you would argue that in terms of of AI, certainly helping to accelerate some of the growth rate, but it is relying on this one pillar. And I think you have got an element of that, which is it makes the markets more sensitive if there are any areas where they're particularly concerned about. So the q two guidance, as I say, was a sort of if certainly would have impacted the the share price, but I think that reflected a more fundamental concern, which is, you know, with Mesquite is, you know, we're really relying on this one area to drive the growth. And if at some point AI doesn't work out, that's gonna be an issue. And that's what it really reflects.

Speaker 0 · 8:11

Yeah. What the point that you were trying that you were making there is the the market's reaction to Meta's results, which were incredibly strong. I think growth of 23% or so. But advertising revenues contribute to 9098% of their total revenue. So when you look at the other businesses, they're well diversified. You know, they don't just have advertising products. They have all sorts of products. Whereas Meta, 98% of their revenues are obviously from from advertising. WhatsApp is obviously a product of theirs that's growing. It's, like, 10,000,000 conversations each week, up from 1,000,000 at the beginning of the year. So they're they're they're growing that asset too. But, they've also they're leaning a lot more into AI and, they're actually able to, up their pricing as well by about 12% and increase their impressions by about 19%. I'd say they're doing that using AI, which you could call it AI slot, but they're they're providing a lot more content on their platforms, and that's the way they're growing. So it's quite interesting now. We've done a little bit of analysis here because we we we believe that most of their growth is coming from the the SMB side of the industry where they rely on 85% of their their market to to grow their business. We actually look at, I'm using some guideline data here, and they look at the major whole coast plus large Indies globally. And actually, from twenty twenty twenty three to 2024, huge growth in Meta. You know, you're looking at United States, 27%, UK, 15%, Canada, close to 10. But from '24 to '25, that's actually come down a bit. 14% in The US, 10% in The UK, Canada down to 4.5. So do you think you know, that whole narrative, you've seen all the news and you've seen some of this negative stuff again. The the EU now come out saying that they're in breach of, the Digital Rights Act. Do you think that's having an impact on major brands? Are they starting to think twice about their meta spend?

Speaker 1 · 10:20

Yeah. I think there's that there's possibly an element of that. There's also as well, I think, you know, '23 into going into '24. Yet you were still getting many brands who who quite frankly were still benefiting from the price increases that come through from the the global inflation crisis. So so there there's probably a natural sort of deceleration of growth that that came due. And you've it came through. You probably had a realignment of spend. I think in to some degree, I mean, it's, you know, it's natural that that growth rate would come down. And I think you're probably right. It probably has been I think at the margins, there's probably been some advertisers who have thought maybe it's time to actually rewrite. I mean, the question is whether actually it is going it's now going to more brand traditional avatar traditional media platforms. You're not seeing too much of that, I'd argue, in terms of of the numbers, coming through from those platforms, or is it going what's happening is it's being diversified into different, you know, maybe different online platforms. There's more money going to TikTok, for example. I mean, if you look to the Bloomberg report Yeah. Yeah. You know, number of months back talking about TikTok's growth, it was talking, you know, that you were looking there at around 60% revenue growth expected for 2025. So, you know, which is a meaningful number, and that growth has to come from somewhere else. So I I think probably at the margins, it might do. I think the thing is though is that, yeah, all businesses at the end of the day, what they're really concerned about is their results. And, you know, for the moral aspects of things, well, I think, you know, some of them may feel as though there's a need to do something. What they're really gonna be concerned about is what works. And that's really what's gonna drive where Sven goes to the do the platforms actually work in delivering the result that they want? If you do see growth decelerating in the platforms from large advertisers, that will be the driver. It will be a change in the belief that what they can offer actually ties in with what businesses need. But the general point that you said before is also absolutely right. You look at the growth rates from larger advertisers, compare them with the full year advertising growth rate, somebody like a Meta, and it's pretty clear that in terms of SMEs, they are really fueling they and probably an element also as well of advertisers from China are fueling the growth.

Speaker 0 · 12:50

Yeah. When you look at the total spend across those markets, it is down from it's 23% growth between '23 and '24 down to 12.8% for those markets. So Mhmm. It's it's it's a fairly significant decline. And I do disagree with you about, you know, advertisers wouldn't do it if it wasn't working for their business and all that sort of stuff. I just I just think it's always the feedback loops. I think it's the data that they're getting. And I actually think this pressure, morally that they're having is making advertisers, actually dig a little bit deeper to see if they are getting the results. And, while I was speaking with and working with plenty of advertisers, we're we're we're seeing a lot of them do geo testing and switching off certain aspects of their media spend to see if it's actually delivering anything. And,

Speaker 1 · 13:36

and I think I think you see a lot more of that. I'm I'm quite Yeah. I was just about to say. I think that that's a that's a different element of it. I think if they're, you know, they're geo switching off and saying we don't see any impact. And it's exactly what happened with that as a number of years ago with Google in Latin America. Then there is a clear case for saying, actually, the spend is a delivery result. You switch it off. I just think on the moral case is that for many companies, they're slightly wary of, you know, whether it's a public commentary they have to make. You know, they they they tend to be slightly sort of an easier getting into

Speaker 0 · 14:15

getting into these conversations around sort of of is it morally right or not? Yeah. And I and I think when you look at Google's results, and I know what you're saying. You're saying, yeah, where's that money going? And you're you're looking at Bloomberg data. I think you're right. I think I think they switch it off, but the the performance bucket keeps the money. I don't think it's going to brand advertising. I don't have any data to support it, but when you look at Google's results, it's probably shifting between the two, maybe going to TikTok as well. So I I complete I'm completely on board with that. Why don't we have a quick reflection on Amazon? Yeah. 22% growth, huge. I didn't really dip in too much to to what it is that their DSP is is growing, their ad business is growing. Their we we know from talking to advertisers, they're growing their, their their sort of global deals as well with advertisers. What views have you got from from Amazon's results?

Speaker 1 · 15:10

Well, again, I mean, like, yeah, it's the traditional view of Amazon is it's a it's a retailer with all the AWS and advertising on the side. I mean, certainly from a profitability standpoint, I'd argue that that's inverted. I mean, really, you'd you'd say that any advertising in AWS that are really driving the operating profit of the business and actually the the retail commerce side. You could argue depending on how you select the numbers is actually, you know, potentially losing money. So I think, you know, both from AWS and and advertising, the growth was strong. I mean, advertising, if you stripped out the effect of currency, it was up 22%. Mentioned before in terms of AWS accelerating nearly 30% growth in in the quarter. They're gonna be vital, 5%, because, again, it comes back to this point before. Those are the businesses that drive the profit within the within the company. So they continue to be strong then particularly with advertising that has a very high drop through rate when it comes from, revenues down to profit, then that will provide the profit and also the cash flows in order for Amazon to make its investment. Now you look at if you were to annualize the numbers for Amazon in terms of AI spend, and it's again you know, it doesn't necessarily mean that's what they'll end up spending in 2026. You're looking at a figure of nearly, you know, you're close to $200,000,000,000 altogether. So, yeah, there is a they're definitely spending. You're definitely seeing it in results, you would argue, certainly on the, on the AWS side. I think, again, from an investor standpoint, Amazon sits in one of those sort of buckets that investors go, well, they're delivering. Yes. They're spending a lot of money, but we can see it coming through in the numbers. And, again, because the business is diversified, we feel a little bit more comfortable, so, about it. And, you know, I think the shares Amazon shares were put around 4% sort of post market close after the results. So that tells you tells you something

Speaker 0 · 17:21

about what investors feel. Yeah. That's, that's that's interesting. And it's, it's a great roundup of the, the, the results that we've seen, over the over the course of the day. I appreciate that. We've got, you don't know this, but, we've got, a couple of guests coming up on the podcast in the next, next few weeks. We're gonna be actually talking to Guideline, and I think we need to do a proper proper measurement, discussion as well. Ian, as always, this one, particularly today, as we're talking a lot about, returns, shares, market valuations, and all the rest of it, this is most definitely not investment advice. Is it, Ian?

Speaker 1 · 18:01

It's definitely not investment advice.

Speaker 0 · 18:06

Okay, mate. We'll, we'll, we'll post all this, and, thank you guys for listening. And, Ian, once again, thanks for your time. Yeah. Not at all, Justin. Great to be here, and goodbye to everyone.