We all know Google. It's an investor's favorite.
Many people love this company because of its low valuation,
its high quality earnings. It puts up cash quarter after
quarter. And despite its best efforts,
Google always seems to be underrated, a company that
professional analysts never seem to give full credit.
In fact, in this case, the professional analysts are even
comparing Google to eBay. If I was going to kind of put
this on the most basic terms, Google is becoming eBay.
Google is now on eBay, an anequate business a has been,
according to the analysts in this episode.
I think it's time to dive deeper into these claims.
Is Google becoming eBay? Is it antiquated?
Is the business on track to be disrupted by Chachi, BT and
other LLM's? We're going to take a look at
the data and what it's currently showing us.
We're going to go over a comprehensive overview of
Google's earnings. Now, of course, we have some
other news we'll be getting to in this episode as well.
For example, we're starting to see the impacts of the tariffs
kick in with corporate giants shredding their outlook over
tariff uncertainty. This is something that I warned
about a while ago, that these companies would say that they
can't predict the future because of how unpredictable the tariff
policy is. And now we're starting to see
that show up in the earnings reports.
We also have news that consumer sentiment continues to sour week
over week. And some of the latest data,
especially with companies like Chipotle, show that consumers
are pulling back. And then finally, just today, we
had the announcement of a new electric truck on the market.
This one apparently is America made.
It cost $20,000. It's backed by Jeff Bezos and
it's retro. There's no LCD display in this
one, so we have a lot to get to. We're going to be going over all
of it in this episode. Now, we first have to jump into
the headline news, which is Google reported their earnings.
This was one of the most anticipated earnings of the
week. I would say one of the most
owned retail stocks in the world.
Google's also a company that I have in both my portfolios.
I have it as one of the mid holdings here.
It's at a $49,000 position, currently around flat $1400 in
the red. This is this has been a rather
disappointing position so far, but I'll mention that it's
mostly in line with my newer positions.
My most recent but smaller position is Equifax.
This one's currently well in the green now.
It blew away their earnings and it's on a good track.
But if we look here at Google, this company's important to me
and a lot of investors because I have a good amount of exposure
to it. Google's in my passive income
portfolio and it's one of the few positions in my story fund
portfolio. Now Google has done OK in this
portfolio. I bought it at around $90.00 per
share. So we're stillwell in the green
on this one. But this portfolio overall is
being led by Netflix. Google stock performance
continues to be mediocre and part of the reason why is
because of multiple compression. Simply put, Google's growing
their earnings per share faster than the share price is growing,
meaning that the multiples of the company on APE ratio become
more compressed over time. And now we sit here with Google
at an 18 Ford PE that's less than the S&P 500, meaning that
investors in Google have reason to be bearish.
And that's because they've been told a narrative that ChatGPT
and other LLMS present a dramatic risk to Google's
business, that there is a paradigm shift causing people to
move away from Google search, their biggest and most
profitable form of business, to other forms of consuming
information. Gene Munster, a long term Google
bull, has recently turned more negative on the company and he
shared this dramatic shift in sentiment on his most recent BBC
appearance. Good, but not great.
We didn't get any clarity on that critical question that
we're all talking about what's going to happen with search.
I just want to put some quick parameters on that.
A year ago, GPT, 200 million weekly users, it's probably
about 600 million weeklies today.
I mean that is off the charts growth.
At the same time, if we compare that to what Google said on the
call related to monetization of AI overviews, it's basically
unchanged over the past few months.
And so the users are going up, they're rolling out to more
countries. But in other words, we still
haven't learned much about how this whole search question comes
out. The first claim he makes is that
ChatGPT is around 600 million monthly active users, which that
number seems correct. The last number they shared
publicly was 500 million users, and ChatGPT is growing rather
quick, so it seems like 600 million is a really good
estimate. But then he goes on to say that
Google has shown no progress in the amount of users engaging
with their AI tools, which is simply false.
And I'm not sure how Gene Munster arrived at that
conclusion, but he continues on sharing this overall bearish
sentiment on Google. Besides the other competitors,
GPT in particular Grok are getting a ton of traction, Grok
top app and the iOS and Android store.
And so I think Melissa, as I say, good but not great.
It's going to be really tough for long term investors to get
comfortable that this in fact, is going to move in a different
direction over the next few years.
They've been at it two years now and still aren't seeing
meaningful uptake. And if I was going to kind of
put this all in the most basic terms, Google is becoming eBay.
Effectively, its energy is getting zapped out.
Before eBay, it was Amazon kind of taking its energy out.
Now it's GPT Anthropic and Grok doing the same.
A few months ago, G Munster referred to Google as the oxygen
of the Internet. Throughout all of your life, you
interact with Google thousands and thousands of times.
They're almost everywhere. Now, the comparisons of Google
to eBay may seem outrageous on the surface, and saying that
Google has made no progress seems patently false.
But this is not just a narrative that Gene Munster alone shares.
Many people share this same sentiment around Google.
And figuring out how much of a problem LLMS and ChatGPT are to
Google is a serious question for investors.
As investors, we can measure the progress of Google by looking at
what's going on with the Business Today, and there's a
couple key metrics that help paint a clear pitch picture of
how this company is doing. We can start off by looking at
the revenue of the company. Overall.
Google is an entire company with every segment of business grew
around 12% year over year, which is an acceleration of its growth
rate a year ago. So not only is the growth strong
with Google, but it's actually accelerating.
If we smooth this out and look at it on a trailing 12 month
basis, this is what it looks like.
You can see that Google for a while had relatively low growth,
around 3% a year ago and now it's accelerated back up to 12
percent. This is mostly due to a recovery
in the ad market and cloud growth.
When we look at Google, the Google search, YouTube ad
subscription and Google Cloud businesses are all growing at a
fast pace. Now beyond just the top line
growth, there's a lot of things happening under the hood and we
can see what's going on with this summary of the latest
events. The financial performance of the
company overall was strong. Net income increased by 46% to
34.5 billion. Earnings per share increased by
49% to $2.81. Now part of this earnings per
share growth was due to a one time sale, so it was a little
bit lower, but even accounting for that it well surpassed their
earnings expectation. So Google is growing faster than
investors expect. The operating margins rose again
up 2.3 points. This shows that Google still in
their Business Today has operational leverage as they
grow with revenue. Each incremental dollar of
increased revenue increases the margins.
They say that they now have a more favorable revenue mix
that's offsetting the higher depreciation costs.
Free cash flow for the quarter was 19 billion cash and
marketable securities ended at 95 billion.
Google's a company that today earns around $70 billion in free
cash flow per year and the company authorized another $70
billion in share repurchases. Now overall, these metrics look
really strong. They don't show any signs of
weakness in the business or any core aspect of the business when
we look more specifically, Google was asked over and over
again pointed questions about ChatGPT, about the risk of LLMS.
The analysts dug in. They wanted to know if there's
any signs of weakness in the amount of searches, the amount
of search volume, if people are leaving Google search to now
search on ChatGPT. They didn't beat around the
Bush. They didn't avoid these
questions. Google addressed them head on.
Search continued with robust double digit revenue usage
growth globally with over 2 billion people using search
daily AI overviews, which is this new feature that's
basically Chachi PT built in above your search queries.
So you have the nice AI overview and then you have the links
below. That exceeded 1.5 billion
monthly users and drove an expansion in the numbers and
types of answerable queries. Positive user reception for the
new feature like AI mode, which is basically ChatGPT built into
Google search with a longer and more complex queries and
positive early feedback. They have a successful roll out
of AI powered experiences in search in 140 countries over 15
languages. The commercial queries and
monetization rate for AI overviews remain strong and
consistent with previous search features, meaning that even when
they add in the AI overviews, their queries are monetizing at
the same rate. They're actually having
increased engagement with these new forms of searches like
multimodal search circled a search on Android with 250
million devices, 40% plus usage this quarter and Google Lens,
Corey's and visual shopping also up significantly.
So across the board in regards to search, the data shows that
at least right now they are seeing strong growth in search
both in total revenue and Corey volume.
People are searching more frequently and they're doing
different types of searches, broadening the type of search
they typically have done. When we look at specifically the
AI progress in Gemini, Gemini 2.5 is Alphabets latest
generative AI model. It rolled out with breakthroughs
and reasoning, coding and math, achieving top tier industry
recognition and early user adoption.
Now Google's showing off here that they're a real competitor
in building the best models. They've continually been at the
latest and greatest models in AI.
It's true that Chachi BT has a really nice app and they have
great models themselves, but Google's a very strong
competitor here. Gemini and it's AI stack.
The infrastructure, models, products and platforms power all
key products. 15 products with over half a billion users
including Android, Pixel, Google Assistant now being upgraded to
Gemini across devices. This is where we see a very
different strategy between Gemini and Chachi BT So far, the
comparison that people want to make continually is comparing
the amount of users on the Gemini app to the amount of
users on the Chachi PT app. But Google's taking an entirely
different approach. They're simply integrating
Gemini into every aspect of their company.
It's integrated into search with AI overviews.
It's integrated into Google Documents.
It's integrated into YouTube. They have it in Android.
It's now becoming like this Siri of the Pixel phones and the
Samsung phones. It's now the Google Assistant
and this is what makes the analyst job difficult of doing
these comparisons of Gemini to Chachi BT They're simply being
used and consumed in different form factors.
AI agents, new multimodal models of Imagine three VO2 and open
models of Gemma 3 are broadening use cases in areas like robotics
and health. The Gemini app and Gemini
powered consumer experiences show rising momentum with
increased product adoption and improved user feedback.
While there's analysts talking about them not making any
progress here, Google, Google noted many times and showed many
examples in the data of making substantial progress in AI and
consumption of AI tools in all of their various products.
Google Cloud revenue continues to be a strong portion of this
company, growing 28% year over year now to $12.3 billion,
driven by core product and especially AI and cloud
solutions. Google Cloud operating income
increased by $2.2 billion, margins up to 17.8%.
They have continued customer demand outpacing capacity.
This is a repeated theme that they can't build these servers
fast enough. They're requiring heavy
infrastructure investments projected at $75 billion of
CapEx for 2025, up from 55 billion in 2024.
Now Wall Street's estimates going into this quarter was for
73 billion and they went just above that with their CapEx
investments. This is a good sign for Google.
It means that even in the face of uncertainty and tariffs and
everything going on right now, they still have so much demand
for cloud that they need to build these investments.
As Google Cloud grows over twice as fast as the rest of their
business, this will make up a bigger portion of the business.
And this is a fast growing margin expanding portion of the
business. It's a good thing for Google
Cloud to become a bigger portion of Google.
They noted on the call that they have AI infrastructure advances
including TP, US GPUs, plus their partnership with NVIDIA.
They're also enhancing the security of their cloud with
Wiz. This company they're acquiring
that will have deeper Gemini integration and it will have
more secure multi cloud. The cloud portion of Google
remains a fast growing high margin business.
Then we get to YouTube. As an investor in Netflix and
someone that studied Netflix in depth for a number of years,
it's one of my largest investments.
I will note that YouTube is considered the largest
competitor to Netflix by far. In fact, in my assessment, it's
the only real competitor to Netflix.
YouTube is an incredibly powerful property that Google
owns outright. YouTube ad revenues up 10% to
8.9 billion. Subscription and key growth
drivers, YouTube Premium and Music are at 125 million
subscribers. The total subscribers between
YouTube and Google One now has surpassed 270 million.
They are the ongoing leader in streaming with the number one US
streaming watch time with strong growth in TV, podcasting and
shorts. And YouTube's ad subscription
business benefited from AI usage and product innovation.
In the call, they also noted a lot of progress with their
advertising, their cost structure.
The company continues to show operating leverage.
And then we get to Waymo, which is now being addressed
one-on-one in the calls. Sundar Pichai had his first
question directly about Waymo. We know rapid progress now over
250,000 paid passenger trips per week, five times growth year
over year. And Waymo is currently in the
process of expanding into multiple cities, into Silicon
Valley, into Austin, Atlanta, Washington, DC, Miami, Japan and
so on. One of the KPIs we added, the
Qualtrum, clearly shows the rapid progress in the amount of
rides that Waymo's doing. This shows the amount of weekly
rides that they've reported every single quarter that
they've reported it. For example, Waymo first started
reporting 10,000 rides per week way back in Q2 of 2023.
So a couple years ago, they started off with this report of
10,000 and then they didn't give us any updates.
It was just 10,000. And then in Q2 of 2024, they
said that it's reached 50,000. In Q3, they said that it's
reached 100,000, in Q4 they said that it's reached 200,000, and
then in Q1 of 2025, they say that it's reached 250,000.
This is what exponential growth looks like, going from a factor
of 10 to 250,000 in only a year. They have partnerships with
companies like Uber and fleet operators to deepen operational
scale. They have ongoing development
with capabilities like airport access and freeway driving.
They're exploring a range of business models, including
licensing, partnerships, fleet OPS, rather than a single
direction. There's one case where Waymo's
trying to figure out what they believe will be the best
business model going forward, and they'll go with which one's
best. Waymo's becoming a rapidly more
valuable part of Google. As the amount of trips they do,
the revenue grows and the capability grows.
Now, that's a bit of an overview of what's actually going on with
the company. And that brings us back to our
question of if Google's really becoming an eBay.
Ebay's not the only company that Google's being compared to.
There's even worse comparisons currently being made on
primetime TV. What you're saying there is
hauntingly familiar to what Ben writes.
He said about a month and 1/2 or two months ago and and he used a
comparison of Google, the Eastman Kodak, which oh boy
thought was. This is what they're saying on
TV, and this will instill fear in the heart of any investor
hearing that Google's becoming a Kodak or an eBay.
When there's people proclaiming the death of a company on TV,
talking about how it's the next Kodak or the next eBay, it
brings up some familiar memories.
I've been through this type of thing a time or two.
We've had Netflix declared dead many times in the past.
Everyone's boycotting it. It's a woke company.
Nobody's going to sign up for this company.
The password crackdown, Everyone's cancelling their
passwords. Disney, HBO Max, Apple TV.
Netflix has no competitive edge. They're getting beat out by all
the many competitors. Narratives spread very quick
about companies, but the facts are what matter.
The reason that Netflix is higher today than it was three
years ago is because the fundamentals, the actual
numbers, eventually punched through the negative narratives
on the company. And if we look at Google, we see
a similar dichotomy between the narrative and the numbers.
On this most recent quarter, there were no alarming metrics
that were flagged during the earnings call, which is notable
because the analysts pressed the topic on AI competition and had
there been any sign of erosion, declining clicks, shrinking cost
per click, lower advertising interest, it would have had to
been discussed. Google said there are no signs
of any of that. They didn't even hint at it.
Instead, management maintained a confident tone that search
fundamentals remain strong across the board.
Right now, there are no red flags from the internal data.
Despite the massive hype surrounding Chachi PT and LLMS,
we don't see any of it reflected in the report.
Another way of saying it is that had you not known about Chachi
BT, if for some reason you didn't know of its existence,
you would have no way of knowing that there's any type of outside
competitive force. None of it is showing in any of
the metrics. Advertisers are still preferring
Google, the budgets on advertising still have a strong
preference and intent, and they're having high conversion
rates through search queries. So far, competitors like Chachi
BT have created no compelling alternative for advertisers.
Part of the issue for Chachi, BT and these other LLMS is Google
simply everywhere. They're not just on desktop
search, but they're across Android, Chrome, Google Maps,
they're in Google Drive, they're in Gmail, they're on YouTube.
They are still the lifeblood of the Internet and Google is
wrapping their AI models into every facet of their business.
Simply put, as of this most recent quarter, as of today,
there is currently no quantitative or qualitative
evidence that Google score search business is being eroded.
There is none. Revenue is up, engagement is
high, advertiser demand remains strong.
Google is incorporating AI defensively and offensively.
Does Chachi BT present a risk down the road?
Certainly, as does any new competitor to any company.
But we don't see any of that weighing on Google today.
Even noting the long term uncertainty that remains with a
new competitive dynamic, I still continue to believe that Google
is undervalued. Today.
The stock is worth more than $200 considering the competitive
dynamics and the strength that Google has shown in the face of
it and the different properties this company owns from Waymo to
YouTube to cloud. This company has many tools to
grow its earnings, many tools to return a lot of cash flow to
shareholders, and I believe this one will eventually get back up
above $200 per share. This earnings report should have
made investors incrementally more bullish and have a sigh of
relief with many of the narratives being shared.
Now moving on, we get to news that the haphazard off and on
again way that the tariffs are being implemented is having an
impact on both consumers and businesses.
Corporate giants shred outlook over tariff uncertainty The
CEO's of American Airlines, PepsiCo, Procter and Gamble and
many other major U.S. companies warned that shape shifting
tariff threats make it virtually impossible to plan and are
spooking consumers. The major airlines told
investors that leisure travel has already softened and pulled
their full year outlooks because the economic climate makes it
too difficult to forecast. Procter and Gamble, the maker of
pampered diapers and Tide detergent, said it was
considering raising. Prices on some items and the
auto industry groups representing General Motors,
Volkswagen, Toyota sent a letter to President Trump imploring him
to reconsider the 25% tariff on car parts that goes into effect
May 3rd. In summary, the phrase that
they're repeating over and over again is we don't know what's
going to happen, and this has big implications when major
companies don't know what's going to happen.
What does it mean? It means that we don't hire as
much. It means that we don't bring on
as many planes potentially. It means reduction in the
overall economic activity. The same frustrating limbo looms
over people trying to plan vacations.
Now, as this is being reported, we also have other articles
highlighting that in conjunction with the greater uncertainty,
it's causing consumers to sour on the economy overall.
The University of Michigan said Friday its final index of
consumer sentiment for April was 52.2, down from from 57 in
March, although the reading was an improvement over the very
beginning of April. So it is going back up slightly.
Quote, consumers perceived risks to multiple aspects of the
economy, in large part due to ongoing uncertainty around trade
policy and potential for resurgence of inflation looming
ahead. Over the next couple of months,
we're likely to see a lot more of this news as the impacts of
the tariffs start to weigh on businesses.
But there's also many opportunities for the economy to
surprise higher. Any talk of tax cuts, any trade
deals being mentioned with different countries, all of that
could push the market's investor sentiment and consumer sentiment
higher. So for now, the economy is a
waiting game. Now finally we get to some
interesting news here that there's a new American made
electric pickup truck being announced and reportedly it's
going to be only $20,000 after the credit rebate.
They released a product demo showing off this new concept for
this stripped down truck. This is a slate.
This slate seats 2 and can carry sheets of plywood.
This slate seats 5 and can fit tons in the front.
It's actually the same slate. This is narrated by me, Jeff.
I work at Slate and just happen to have a great voice.
He really does. That's Chris, our CEO.
Chris thinks new cars are too expensive and too complicated.
A slate cost in the mid 20s. One SEC, Chris.
Actually under 20 after current incentives.
Go ahead, Chris. We took out everything that was
in a car. That means no fancy screen
colored lighting, cooled seats, self driving, self parking,
automatic cup holders. Yes, that's a thing.
But you can add accessories like.
Little screen, big screen, SUV kit, fastback kit, open air kit,
one speaker, a bunch of speakers, big bumper, spare tire
holder, slatelets, fun grills, even funner lights.
Colors, any color really. Wrap it in any color and slate
access points means you can add an accessory now, later, or even
make one yourself. It's like a potato head.
Wait, maybe there's a better analogy.
Actually, there is. Slate is the chameleon of trucks
and SUV's. Seriously, just add the SUV kit.
There are three. A slate is not like other cars
or trucks or SUV's, and slate is not like other car companies.
Slate, We built it. You make it.
OK, there you have it, the new demo for this new concept of a
vehicle. Now I must admit, this is a
really intriguing and well done demo.
We've seen cars go in One Direction of becoming more and
more complex, more digital screens, which notably people
don't really love the digital screens in cars because you
don't have that tactile fill when clicking buttons.
The screens can play a role, especially in navigation, but
people want to fill those buttons when they're using their
car. But this concept takes it a
whole step further. They're going really hard card
on the customization aspect of the vehicle where almost every
aspect of it can have little attachments, add-ons, different
wrappings, different styles. Even though it's bare bones and
cheap, you can make it your own and make it special.
This is a brilliant strategy. Now, they probably won't like
this comparison, but if I was going to compare this business
model to one company, it would be Crocs.
That's right, Crocs. Now, before you object, tear me
out for a minute. Crocs is a very simple product.
It's a shoe that's not really like any other shoe.
Or it's a sandal, not like any other sandal.
It's a simple mold of a product. No frills, no padding, no laces.
The simplicity is part of the appeal.
But Crocs are also highly customizable.
You have sports mode and you have leisure mode.
You can change it to whatever mood or style fits you best.
And then beyond that, Crocs has endless and endless
customizations with different paints or wraps that you can put
on the Crocs to give it your own individual style.
This is a huge part of the reason this company has been so
successful. They took something that was
simple on the base and then made it highly customizable.
Beyond customizing it through custom designs, they also have
these things called jibbets that you can add onto the Crocs
itself. They're like customizable
refrigerator magnets. Kids love them.
Crocs owns this product that at its heart is extremely simple
and bare bones, but it has endless complexities and
customizations to make make it unique.
I can see this product being extremely successful if they can
really pull it off for the price point that they're saying.
This would be such an attractive product to people that don't
want to spend 50 or $60,000 on a car, but they also want to have
something that fills their own. And there is demand for going
retro. And this thing's so retro that
it doesn't even have speakers or a screen.
In fact, you have to manually roll up and down your windows.
So competition in the EV industry continues to heat up
and I'm very impressed with the new vehicles coming out.
Now that's going to wrap up this episode.
I'll see you in the next one.