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Alphabet Betting on AI

Posted on Wednesday, Jul 25th 2018

Last quarter, Alphabet (Nasdaq: GOOG) was hit by a $5.1 billion fine by the European Commission. But despite the hit, the company surpassed all market expectations and saw its stock soar to record high levels.

Alphabet’s Financials

Alphabet’s second quarter revenues grew 26% over the year to $32.66 billion, ahead of the Street’s forecast of $32.17 billion. Adjusted EPS of $11.75 was significantly better than the market’s forecast of $9.59 for the quarter. The improvement in earnings was attributed to Google’s efforts at reigning in costs.

By segment, revenues from the Google segment grew 25% to $32.5 billion. Traffic acquisition costs grew 26% to $6.42 billion. Revenues from Other Bets grew 49% to $145 million.

Among operating metrics, aggregate paid clicks grew 58% over the year and 15% sequentially. Aggregate cost per click fell 22% over the year and declined 10% over the quarter. Impressions on Google properties improved 1% over the year but reported a 4% decline over the quarter. Cost per impression on Google Network Members’ properties grew 14% over the year, and 7% over the quarter.

Recently, the European Commission slapped a $5.1 billion fine on Alphabet for forcing handset makers to take its Chrome, Search, and Play Store apps when using its free Android mobile system. Google will appeal the decision.

Alphabet’s AI Focus

Alphabet continues to focus on machine learning and AI. During the quarter, it revamped the Google News app to create reviews. The service leverages machine learning to highlight top stories, organizes it for users, and helps explore topics more deeply from a range of clustered news sources. It is also integrating machine learning into Google Assistant so that it can be available in more than 30 languages and 80 countries. Alphabet has also expanded the number of smart devices that are now compatible with the Google Assistant including doorbells, dryers, refrigerators, and others to more than 5,000 devices in the home.

It is leveraging AI to improve Google Maps by adding the Assistant and AR features. According to Google’s reports, its machine learning deployment in Maps has resulted in a 25x increase in its ability to build maps algorithmically. It has added 110 million algorithmically drawn buildings to Maps. It is also integrating AI into the new version of Gmail. It added a feature called Smart Compose that helps users craft emails faster. Similarly, AI is improving Google Photos, which suggests to users how to brighten, share, rotate or archive a picture.

Finally, it announced a new ad format that is based on machine learning called Responsive Search Ads. These ads automate the process of building text ads and optimizes them in real time to show the best performing ad for each search query. Advertisers can also get a first look at local campaigns and design smart campaigns that are designed to drive traffic to local businesses.

Besides AI, Alphabet is focused on YouTube that continues to grow tremendously. Last quarter, it revamped the YouTube Music service across 17 countries. The service is getting positive reviews from both users and artists. YouTube also recently rebranded its subscription service YouTube Premium, which now provides several original features.

Alphabet’s stock is currently trading at $1,248.08 with a market capitalization of $839.18 billion. It touched a record high of $1,250 in the after-hours trading session. It was at a 52-week low of $910.67 in August last year.

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