
Alphabet's earnings miss profit estimates as spending grows - daegloe
https://www.reuters.com/article/us-alphabet-results/alphabet-cracks-100-billion-in-annual-revenue-as-advertising-soars-idUSKBN1FL6H4
======
jthegiant
Advertising industry insider here: I am seeing a lot of misinformation in this
thread. Advertisers have been using (installs / In-app purchasing / shopping
cart tracking) to calculate ROAS (ROI) for YEARS. And the modern targeting is
actually pretty good in general.

Only big brand advertisers (like Clorox/PG/etc) evaluate ad spend on the
impression/click level. This is not the norm (unless you want to lose your
shirt to bots/fraud). We have made it a long way from the blunt-instrument
advertising of past years. Full disclosure: there may indeed be a 'changing-
of-the-guard' happening with regard to brand advertisers waking up to the
available tech, but that is a different story..

Overall, this is a non-story. Many corporations were slapped with a massive
bill after the passage of Trump's tax cuts. Not just Google. So with that
liability, of course PROFIT dropped. But the REVENUE is what you want to look
at for these 'bubble' discussions (and that is strong), so nothing to see
here...

~~~
CamTin
Can you explain why a tax _cut_ would lead to a huge bill?

~~~
goldenkey
They decided to finally pay their (lower) taxes to move them into U.S banks
instead of illegally holding the funds offshore

~~~
tanilama
Illegal? In what sense?

~~~
tedunangst
In the sense that if I were god emperor I would have made a law against it.

------
clay_the_ripper
There is a lot of anti-ad sentiment here but as someone who runs ads on google
and Facebook for clients, I find that google and Facebook have leveled the
playing field in some respects for small companies. Now I can definitively
show a client that they pay me X dollars per month and my ads for them
generated X*5 revenue for them that month. The attribution for these platforms
is quite robust, and if you know what you’re doing you can produce positive
ROI even on small budgets. Previously when advertising was done on an
awareness basis (billboards, newspapers) small advertisers might be shut out
of the market because advertising is expensive and they can’t reliably say
whether their ads are working.

I work mainly in the health/wellness space and I’m able to effectively target
people who will be legitimately interested in the services the companies we
represent sell. There seems to be this idea that advertising is “shoved down
our throats” and while I certainly agree in some cases, people who buy from
our clients are buying because the products or services improve their lives in
some way and they only buy because they want to. I think that google and
Facebook (whatever your feelings on their other practices) do provide an
unprecedented avenue for small businesses to find customers efficiently and
profitably.

~~~
executesorder66
> There seems to be this idea that advertising is “shoved down our throats”

For me it's not that ads are being "shoved down my throat". Even 'unobtrusive'
ads are fucking annoying. They are a waste of space and bandwidth.

I have never bought anything because of an advert. If I want something, I
search for a variety of competing products, compare the prices and features
etc. and then choose the one that best suites my needs.

Showing me a product that exists, will never make me want to buy it. That
information is completely useless to me. If I want something I will go look
for it. It mustn't find me, and then assume I want it, because then I will
hate it.

Please know that the more advertising I see for a product, the less likely I
am to ever do business with your company. If you want my business, just
provide easily accessible and clear information about all your
products/services on _your_ website.

~~~
ethbro
I understand parent commenter (who I agree with) and I are outliers, but the
utility of advertising to me boils down to one comparison.

advantage of product discovery << lying and inappropriate product suggestion
noise

I appreciate the discovery aspect has some value (to customers), but I'd
assert that it's always less than the latter two detractors

~~~
clay_the_ripper
Purely anecdotal, but my experience with Instagram ads has actually been
useful. I have run as blockers since i learned they existed and the only place
I see ads now is Instagram (I don’t use Facebook proper). Adverisisers have
figured out that I run a marketing agency, and I have found dozens of helpful
and informative ads through Instagram that show me what others are doing in my
business, offer free strategies, or provide software that can make my business
run more efficiently and provide better results for my clients. Without these
ads I never would have found out about these valuable services and products.

Of course I am of two minds on this. On the one hand, it’s useful and ads
value to my business. On the other hand, I agree that in the main ads are
intrusive annoying and slow down pages, serve malware etc etc. Plus the
privacy implications. But for Instagram specifically, I find many ads I see
useful and they are never intrusive since they are native to the platform.
Instagram is a product I enjoy using and it’s free. I don’t see why the
company that runs it shouldn’t make money on the product, esp since the ads
they serve are (sometimes) relevant and useful and reasonable in number.

I will continue to run ad blockers on every other site though because I do not
find this to be the case anywhere else besides Instagram.

------
djsumdog
Are we in an advertising bubble?

I mean it's difficult to quantify advertising. Most retailers can't depend on
just click through rates. If you see a ad for Vans, you might not purchase it
online, but like traditional ads, it could make you think about it when you're
near a shoe store.

And most normal (non tech/IT people) don't run ad blockers. But at some point
there's got to be a low of diminishing return. People are earning less, and in
some ways buying more to distract themselves .. yet like any industry, you
simply cannot have infinite growth.

What exactly will an advertising bubble bust look like? Or would we not see it
directly, as it would be more of an effect of fewer goods being sold due to
something else that kills jobs and stifles wages?

How will a dot com break in the 2010s/20s be different from the one in 2001?

~~~
ajkjk
I really hope so. Excepting the fact that it'll probably be bad for the
economy as a whole, I can't wait for it to pop and for most ads to be
eliminated from my life. It's miserable to be surrounded by constant reminders
about a million corporations trying to persuade me I need to give them money.

And it seems like advertising is yet another industry (alongside payment
processors, legal services, and real estate) that have managed to 'insert
themselves' in the middle of all other commerce, skimming vastly outsized
portions of profit off of the entire economy, by being intrinsically 'needed'
to do business.

It seems to me that all of these things should be driven by competition to
infinitesimal profit margins, because everyone needs them and there should be
a big payoff in undercutting each other to take everyone else's business. In
practice that's not true at all, which I think means that 'everyone else'
severely lacks high-level bargaining power to _force_ these industries down to
reasonable cuts.

I fantasize about a scandal in which it emerges that click-through rates all
lies and advertising barely actually works and the whole industry goes belly-
up as a result.

... okay that's enough cynicism for today.

~~~
duncan_bayne
A market correction is not bad for the market. Think of it like the symptoms
of a cold - your body is fighting an infection, so you'll feel unwell for a
while, but ultimately you'll be healthier for it.

This is one of the many reasons that interfering in an economy to prevent
"recessions" is a bad idea. It prolongs the problem and worsens the inevitable
side effects.

~~~
wffurr
Yeah except that "feeling unwell" is code for a ton of human misery as people
lose jobs, lose healthcare, go broke, some even die. And it's
disproportionately the working class that feels the effect of recessions.

"Market corrections" might be less of a tragedy if societies like the USA
could muster the moral courage to pick up the slack for the market and make
people's lives not literally depend on it.

~~~
duncan_bayne
All a market for is to determine the price of a resource, so that people can
choose where to spend their money.

Looking after people who can't look after themselves - be it for reasons of
market correction, injury or infirmity - is an entirely orthogonal concern.

In other words yes, I agree with you - but think that picking up the slack is
the job of charity, and shouldn't involve interference with the market just
because it's giving you prices you don't like.

~~~
rtpg
I feel like it's hard to say that it's orthogonal when people not being able
to look after themselves is pretty highly correlated to these people losing
jobs.

The market exists for us, we don't exist for the market. If distortions are
all that's needed to make sure we have the society we want, then that's great!
Nothing inherently just about a market.

Gravity makes things fall, but it doesn't mean that we let everything crash to
the ground because we don't want to mess with the laws of physics.

~~~
jezclaremurugan
> The market exists for us, we don't exist for the market

And we are also the folks who create the market - deliberately or not. Its our
collective decisions which results in corrections. We need a safety net for
the people - the jobs however, are lost for the rest of eternity.

------
gxs
Makes Apple's recent $88B quarter seem gargantuan.

Apple's quarterly profit is nearly half of Google's quarterly revenue.

These companies have a very similar valuation.

Is the proper way to interpret this that investors are a lot more optimistic
about Google's future vs Apple's?

~~~
yeldarb
Apple's multiple has always been much lower than almost every other tech
company. It's always seemed completely irrational to me.. which is why I hold
a lot of AAPL.

They continually grow, make a boatload of money every quarter, and pay a good
dividend.

For reference, P/E Ratios:

AAPL 18.26

GOOG 38.9 MSFT 63.9 FB 35.8 AMZN 350.9 IBM 36.6 HPE 66.7 NFLX 211.9

~~~
nostromo
You forgot my favorite P/E, Salesforce's:

14,776

~~~
opportune
That's not necessarily bad, it could just mean they're re-investing basically
all of their would-be earnings into themselves

~~~
fancyfacebook
It's a fraction with a numerator and denominator. The demoniator can be
0.00001 sometimes. Any PE over 50 or so is effectively meaningless, everyone
in finance knows to just ignore them at look at better valuation metrics.

Also there's a pretty good argument that the PE is a useless ratio that should
be actively ignored, they haven't correlated strongly with anything in like 20
years.

------
aplorbust
Earlier HN title: "Alphabet cracks $100B in annual revenue as advertising
soars"

------
ggm
If you told me that ad spend has become a complex diritive, and has no
neccessarily strong linkage to outcomes for the supposed entity 'inside' the
ad, I wouldn't entirely disagree.

I am sure for some businesses, the ad spend and placement against search has
strong immediate benefit. I am less sure that a lot of ads have anything like
that role.

I am completely unconvinced that 'targetted' advertising against keyword or
context has any merit whatsoever. My baseline reasoning for this is that very
few ads in food magazines make me go out and spend money on a new stove or
coffee maker. At best, they get brand recognition and positioning but thats a
weak linkage: they would have got that from placement in a magazine aimed at
BMW and Merc owners.

No: targetted advertising is stalking and is creepy.

I think its a CFD. Weak linkage to real world events, brokered, and sold
forward in a spot and futures market.

~~~
bufferoverflow
It's relatively easy to debunk/prove your point about targeting. Test both on
the website you control. At the very least you can geolocate the visitor and
present an ad in the most appropriate language about a product in their local
store.

I'm pretty sure targeting would win by a wide margin.

Google ad guys are the best in business, and you're basically implying they
are in a weird targeting cargo cult.

~~~
ggm
No, I think the entire ad economy is a weird targeting cargo cult. I don't
think they're any worse than anyone else in the space.

Google ads: serving me pictures of the shorts I bought three months ago, on a
daily basis. Seriously? You say they're the best in the business, and their
business is selling to an advertisor "he bought a pair of cargo shorts three
months ago" as a reason to sell me .. cargo shorts.

~~~
morgante
> You say they're the best in the business, and their business is selling to
> an advertisor "he bought a pair of cargo shorts three months ago" as a
> reason to sell me .. cargo shorts.

Someone who bought cargo shorts 3 months ago is _far_ more likely than a
random individual to buy cargo shorts tomorrow.

You're thinking about this from the perspective of a single individual
consumer, but that's not how the ads business works. Ads are bought in the
form of aggregate possibilities.

If I were a cargo short vendor, I'd happily pay considerable sums to reach
everyone who had recently bought cargo shorts. Maybe they're unhappy with
their cargo shorts and want a different brand. Maybe their shorts tragically
broke after bending over too far a few weeks after purchasing. Maybe you loved
them so much that now you want a separate pair for every day of the week. All
of these are reasons that betting you'll buy cargo shorts is a much better bet
than betting on a random person.

People buying ads are not idiots. The ones buying digital ads are the smartest
ones and many have strong backgrounds in analytical fields. It's arrogant for
you to assume otherwise just because you're sick of cargo short ads.

~~~
ggm
well.. arrogant is a strong word. anyway, your general case is that if you
express any interest in some thing in time, then you are better-than-random to
target. I'd posit that its a spread, and whilst its an edge, its nothing like
100% foolproof. I also buy ads (I help run experiments using google ads to run
HTML5 in the browser to measure IPv6) and I know how the ad bidding process
works, and keyword matching and its pretty crude. Yes, it has age and other
profile selection, but so does traditional print ad.

digital ads are better than print ads because print is dying. I think the
whole metrics thing, its pretty oversold.

since it was known I visited cargo short buying and advertizing sites, its
also known the exponential dropoff in not visiting them. their ageing out
algorithm needs adjusting.

------
jxub
Interesting mention about appointing John Hennesy the chairman of the company.

------
omot
I guess they're trying out the Amazon model?

------
JonRB
The article and the title don't seem to match. This title is misleading.

~~~
nostromo
"Alphabet cracks $100B in annual revenue as advertising soars" was the
original article title.

As the earnings release progressed, Reuters decided to change the title to,
"Alphabet's earnings miss Wall St. estimates as spending grows"

~~~
IMTDb
Always fun to see how two correct interpretations of the exact same number can
be seen as correct vs misleading depending on the tone of the writer.

~~~
theDoug
Absolutely. Also continually interesting to me to see response, given Google
gives no guidance, compared to other companies that provide guidance and then
'miss' resulting estimates.

(Disclosure: I work at Google)

~~~
jnordwick
What do you mean? Google might not give guidance but they still certainly miss
street consensus.

------
Feniks
A 100 billion dollar industry that I have almost no exposure to thanks to an
unpaid developer.

Thanks Gorhill and all the list maintainers out there you're my only hope!

------
staunch
Google and Facebook are propping open the internet advertising door, against
the forces of technological progress.

Google only controls Chrome so that they can ensure it never incorporates real
ad-blocking. Google controls Firefox by bribing Mozilla with a tiny slice of
its advertising winnings. Facebook plays second-fiddle, but has its own
influence as the second largest ad network.

Larry Page and Mark Zuckerberg are smart and must realize what they're doing
is wrong. They must simply not know how to replace their advertising revenue
with something legitimate and future proof. In both cases they're (arguably)
one-hit wonders. Google is still Google Search and Facebook's social network
is still just a social network.

You can buy Oculus or clone iOS but if your only plan is to stick ads on
everything, you're not making any real progress.

They both have a single-point-of-failure in their businesses. I predict this
single point is going to fail catastrophically in the surprisingly-near
future.

~~~
guyzero
Advertising as a business is nearly 200 years old. Seems pretty future-proof.

~~~
staunch
1\. Internet advertising is 20 years old, which is the business model that is
at risk.

2\. It doesn't make sense to suggest that the future will be like the past,
particularly in the modern world of rapidly accelerating technological
progress.

~~~
Retra
Why would internet advertising be at risk? Are people going to stop looking at
media over the internet?

