Over the weekend, the Wall Street Journal released a new
detailed report regarding Google.
They make the claim that Google is losing its ad market share,
its dominance in advertising. Google is on the decline and
from competitors like TikTok and AI startups.
Now, I've gone ahead and read through this report.
I have a few opinions on it as a Google shareholder.
I don't think this tells the full story.
And furthermore, this is the type of thing that I've been
talking about for over a year. So we're going to be looking at
this new report from the Wall Street Journal.
We'll be going through some other graphics, and I'll give
you a little bit of a detail to get further understanding and
what's really going on with Google.
Now, of course, we have some other news to get to.
Amazon is down around 3% today after a Wells Fargo analyst
downgraded the stock. We're going to listen to the
video clip of the analyst explaining his reason for the
downgrade, and that way we can both look at it together and see
how ridiculous his reason for this downgrade really is.
We have news that Apple's likely moving away from their yearly
release cycle. That's right.
With the iPhones and how similar they are every year, you may
assume the Apple's going to be moving to a release cycle that's
every two years. I'll be explaining why that's
not the case. In fact, Apple is likely going
to be releasing products more frequently than every year, so
I'll be talking about that as well.
And then there's a trend going on right now that needs to be
addressed where a lot of wealthy people like Jamie Dimon, Jeff
Bezos, Warren Buffett have been a net seller of stocks.
They're dumping stocks. They're building up a lot of
cash. Is this a warning sign for
investors? Should we be concerned when
people like Warren Buffett, Jeff Bezos, Jamie Dimon and many
other wealthy people are loading up on cash?
So we have a lot of news to get to.
Let's go ahead and jump in. Just a shout out before we jump
in. Qualtrim is under free trial.
If you haven't already tried it. If you join a new account today,
you'll have the rest of October to try out this software.
The way it works is super simple.
Join the Patreon at patreon.com Joseph Carlson Once you join the
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So once you have it validated, you have the entire month to try
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I think you're going to love it, Qualtrim.
It's come a long ways. We're really building out some
cool tools. We have a lot of KPIs and
different things we're doing with it, so try that out if you
haven't already. Now, of course, I want to start
off with the headline news here. We've had a story come across
that the Wall Street Journal detailed out where they're now
saying that Google is losing its grip on the search market, on
the ad market. Now, I think it's important to
highlight that even as a shareholder of Google, I do not
approach this from the perspective of needing to defend
Google. I'm not a Google apologist.
I'm not someone that needs to own the stock.
In fact, I welcome valid bear cases and arguments and where
people bring new information to light telling me that I should
be concerned about one of my companies.
If I believe the claim, if I think that there's some reality
to the claim, I may sell out of Google and replace it for a
company that has a brighter future.
So I'm not looking at this from the perspective of just needing
to defend Google. I just want to mention that
before jumping in now, they start off with a big claim.
Google's grip on the nearly 300 billion search advertising
business is loosening. For years, the tech giant has
seemed invincible in this corner of the ad market, which is the
foundation of its business. Now rival are beginning to eat
into its lead, and new offerings, fueled by the rise of
artificial intelligence and social video, threatened to
reshape the landscape. So we have the introduction
there. Google's grip on the ad market,
and the search market in particular, is loosening.
The tech giant seemed invincible in the past, and now they're
just losing it. They're losing control of the
territory that they once had and then they go into the specific
arguments of the competitors taking their market share and
first of all we have TikTok. The wildly popular short form
video platform has recently started allowing brands to
target ads based on users search quarries, a direct challenge to
Google score business. Next we have perplexity an AI
search startup backed by Jeff Bezos plans to introduce ads
later this month under its AI generated answers.
Until now, it's made revenue mostly from the $20.00 a month
subscription offering that grants access to more powerful
AI technology. So they outlined 2 competitors,
TikTok and Perplexity, both stealing market share from
Google. But they don't stop there.
The next one is Amazon. The new initiatives add to the
pressure on Google from the rise of Amazon.com, which has taken a
chunk of search ad spending. Many consumers begin their
product searches on the e-commerce platform.
Google share of the US search ad market is expected to drop below
50% next year for the first time in over a decade, according to
research firm E Marketer. And that's the punchline right
there. Google's market share supposed
to drop below 50% of ad search revenue.
And we even have a visual hair showing the decline of Google
overtime. Since 2018, Google has held
roughly 60% market share of the US search advertising revenue
market, and now it's going down to 48%.
Meanwhile, at the same time, you can see Amazon's rising.
Amazon is expected to go above 25%, closer and closer to 30%,
while Google is expected to go below 50%.
They note that Amazon is expected to have 22% of the
market this year with 17% growth compared to Google's 50% share
with 7.6% growth. So Amazon is growing its ad
revenue around 2 1/2 times as fast as Google.
So we have TikTok search, quarry ads, We have a perplexity and we
have Amazon, of course, which has that big product search box
all eating away at Google. And they go further into how
these different companies introducing ads is taking away
ad marketing spend from Google. Targeting search budgets is a
logical step for TikTok. Up until now, the company has
offered brands the option of displaying ads near the search
results, but advertisers couldn't target their ads based
on keywords in user search. So previously this was more
limited technology and tick tock and they're advancing their
advertising features. Advertisers are drawn to Tick
Tock because of the platform strong appeal to young adults.
The pitch to the advertisers is that search behaviors have
evolved, and they added that the platform had global daily search
volume of over 3 billion. So TikTok is correct in saying
that the ad market is evolving and that is posing a different
challenge to Google. And that overall summarizes the
report from the Wall Street Journal that Google is losing
its dominance. The ad market is evolving and
Google's now in a tense situation between this challenge
and of course, their legal challenges with the Department
of Justice. But who could have seen this
coming? Who could have really
anticipated that the ad market would evolve, that there's more
and more ways to search for information, and that Google
really doesn't have the same dominance they once had?
Well, of course, anyone paying attention, anyone paying
attention should have anticipated this, especially if
you're a Google shareholder. In fact, this is something that
I tweeted about over a year ago. Here's a tweet that's still
live. You can look it up, it's on X or
Twitter. September 11, 2023.
So this is over a year old. Let's go ahead and zoom in and
let me just read this tweet here and see if it shows any
resemblance. Google search does not have the
market share that every analyst report shows.
Those reports compare the search market of Google against
competitors like Bing and DuckDuckGo.
In reality, search is anywhere you go to type something into a
box and get a result. Amazon is a massive search
engine. You type in the products you
want and get results with sponsored listings and products
to buy. How is this any less of a search
than Google? Because it's simply more
segmented to shopping. What about Facebook and
Instagram? People searching these everyday.
They find content, communities and answers.
What about Reddit search box to find communities and posts?
Netflix search to find TV shows and movies.
Tiktok search to find content and creators?
Google search? Dominance is always nearly
defined because investors like that they can control the huge
market share fulfills the mote thesis.
Google owns the search market and regulators like that because
it paints them as a monopoly so they can attack Google's search
business. In reality, if you define search
accurately and include all competitors, Google's market
share and dominance is to a far lesser extent.
That was a tweet I made a year ago after reading article and
article about how dominant Google search was.
That it controlled 92% market share, That it controlled the
world, That Google faced no competition.
But even a year ago, I could identify that that wasn't the
case. There's search boxes everywhere.
There's advertisements everywhere.
Google doesn't own search, and they never have.
So this claim by the Wall Street Journal that Google's losing its
grip on search like this is a recent occurrence.
Google has never had a full grip on the search market.
If you accurately define the search market, Google's never
controlled Olive Reddit. They've never controlled
Facebook and Instagram. They've never controlled all the
different places you can shop like Amazon and eBay.
All these different places outside of Google where you can
search in a box and they can display your results alongside
an ad have existed for years and years and years.
So the Wall Street Journal and investors seemingly today are
realizing that something exists and something is the case.
That's already been the case for five years.
Nothing has changed. There's no big meaningful
changes to the search market. You might say, Joseph, the LLMS,
the artificial intelligence searches, those are new, sure,
but those are at least a year or two old.
Remember, just a year or two ago, Google investors were
supposed to be concerned about Bing search?
Bing Search and Satya Nadella were making Google dance.
Remember that whole fiasco? Bing's new AI powered search by
Open AI was supposed to take it to Google.
Everybody was downloading it. It had a spike of activity all
across social media. It was talked about on CNBC and
Twitter. And what happened since then?
What happened to Bing search? What about perplexity?
This isn't the first time we've heard about that one.
Shouldn't it have already affected Google's business?
If we see all these companies like TikTok, Perplexity, Bing,
you name it, taking market share from Google, then shouldn't that
impact Google's earnings and free cash flow and revenue?
Well, we can take a look at the actual fundamentals here to see
the big negative way that's impacted Google's business.
If we look at Qualtrm and we go to the KPIs, which are key
performance indicators of the company, we can look at Google's
revenue by segment. Again, this is breaking down in
specific the search business of Google over the past 3 1/2
years. We look at the search business
of Google by crossing out all the other lines of business.
This is just the search business.
Look at the devastation all these competitors have done to
Google, the utter devastation to this company.
The revenue in Q2 of 2021 was $35.85 billion.
The revenue in Q2 of 2024 was $48.5 billion, a growth rate of
around 10% year over year for the past three years.
I will say Google is a company that as long as I followed it,
there's always some boogeyman for this stock.
I don't know what it is about Google, but there's just always
something causing investors to be concerned about this company.
It really never ends. I've never owned a stock that
has such good fundamentals, where the numbers go up and to
the right on such a consistent basis, where it has so many
secular trends of growth, where every line of segment is
growing, where they have this incredible business called this
Google Cloud business that never gets a lot of mention, but it's
growing 28% per year while growing it's margins.
They're doing this while also growing their biggest core
business, which is search. And even Despite that, the
company really can't catch a break.
It trades at a multiple that's lower than the S&P 500, a 19
Ford PE ratio. Plus they have $100 billion in
cash. The free cash will yield a nice
3%. They're getting their stock
based comp under control, they're third place in cloud,
and they own YouTube, which most people consider to be a de facto
monopoly on user generated content.
But despite all that, we're still told to be worried about
Google. We should always, always be
worried about Google and the so-called competitors, even if
it doesn't show up in any of the numbers over years of time.
So you can decide whether or not you want to be worried about
Google. As of right now, I'm not too
concerned. Now moving on, we get to news
that Amazon is being hit Today. If you looked at the stock
price, it's down nearly 3%, which is quite a bit even for
Amazon. It's more volatile company but
dropping 2.7% is quite a drop. Qualtrum here notes that Amazon
shares are trading lower after Wells Fargo downgraded the stock
from Overweight to Equal weight and cut its price target from
2:25 to 183. Now, anytime a stock of mine
gets downgraded, I like to figure out the reason why.
What is this Wells Fargo analyst know that I don't know?
What has he figured out about Amazon that I don't know?
Because I still believe Amazon's worth around 220.
He's saying no longer is it worth 220, it's now worth 180.
So what happened? What did he figure out?
Let's go ahead and take a listen.
This is the Wells Fargo analyst explaining his downgrade.
So I think there's a couple elements here. 1, is there,
there are some new investments they're making in this Project
Kiper, which is a satellite in an Internet service.
And there's some near term costs, There's some pretty heavy
upfront costs that will pressure margins.
So the first thing that he mentions is a reason to
downgrade the stock and say it's worth 180 instead of 220 is
Project Kiper. This is the Amazon Starlink
competitor where they launch off the satellites and they give you
a satellite Internet access. Amazon is a lot later to the
game then then a Starlink, but they're going down the same
route. And we've seen that this
business model is proven by Starlink.
Starlink is doing incredible. Amazon's basically just copying
what they're doing. But he's he's saying the reason
that Amazon is worth less today is because they're making
investments into Project Hyper, which is going to push margins
down. Beyond that, I think to what
we're seeing is the cost of doing business for merchants has
risen relatively significantly over the last several years.
And we think that the that both in terms of advertising and fees
paid by merchants, we'll see a slowing of that trend over the
next several years. And can you talk about the
degree to which either Walmart or even other rivals is playing
a role in that dynamic? Sure, absolutely.
And I think this, this gets to the point of there haven't been
no scaled competitors in, in in North America market, the
marketplace business in the fulfillment and logistics side
of the of the business. Walmart is that scaled
competitor and just recently launched a service allowing
sellers and merchants on Amazon to be shipped via via Walmart.
So it is absolutely a key part of this.
And what we see here is that not that Walmart is going to take
significant share of either merchants or consumer dollars
away from Amazon, but it's going to limit Amazon's ability to
raise fees to those merchants. And and then that's how we,
that's what we we bake into our numbers going forward.
So those are the two big reasons that he's down grading the stock
Project Kiper and Walmart as a competitor to Amazon
specifically for the sellers. When I look at analyst
downgrades and upgrades like this, it just leaves me with the
impression that they must just get bored.
They must be at their job and get they get bored.
They have to feel like they, they feel like they have to
change something around once in a while.
Maybe they haven't given an upgrade or downgrade in a while.
They're looking at a company thinking how can I change around
this one? Because I can't find any other
reason, a reason to go from 2:20 down to 180 because of Project
Kuiper, something that Amazon has been visibly working on with
great transparency for a long period of time.
Nothing about this is new. They didn't do any new
developments with Project Hyper. This has always existed.
It's been baked into the stock price for a long period of time.
So a sudden out of left field downgrade because of that
doesn't make sense. And then in terms of Walmart
proving to be competitive to Amazon, like Walmart also came
out of left field, They're doing something new.
They're now a scaled competitor. Walmart has been competing
fiercely with Amazon for years. Even online, even with sellers.
You can ask any seller on Amazon.
They've all tried Walmart. They're trying to sell on
Walmart. Walmart doesn't have enough
traffic to replace Amazon. Amazon's shopping place, their
website is so valuable because of the amount of loyal customers
willing to spend money. They have more loyal customers
signed up browsing the website. They drive the traffic, they
drive the demand. That's the reason it's so
valuable. It's not because of the seller
tools that helps out sellers. I I think it's a nice quality of
life thing for the sellers, but if Walmart built all the best
seller tools in the world, if Walmart charged no fees to sell
on their platform, sellers would still sell on Amazon.
The same reason that sellers sell on the Apple App Store,
even though it charges a lot of money.
They do so because that's where the people are, that's where the
traffic is. So this is another case of an
analyst giving a downgrade for a stock.
It just strikes me as they don't know what to do.
They're looking at different upgrades and downgrades to make
both. The reasons behind this one I
don't find compelling at all. In terms of my outlook on
Amazon, my thoughts on the company, this doesn't change it
at all. I still believe strongly today
that Amazon is worth around 220. Now we move on to this rumored
news. This is from Bloomberg that
Apple is slowly moving away from its annual product release
strategy. Now if you're like me, you read
this headline and you got tricked by it.
Most people are being tricked by this headline because if you
read the news that Apple is moving away from its annual
product release strategy, you probably believe they're they're
moving to a more gradual release strategy, one that's less
frequent. One like NVIDIA where they
release the GPU every two years, instead of like Apple where they
release the iPhone every year. Because after all, the iPhone is
becoming less distinct every single year.
We've all seen the photos of it. It looks virtually the same.
They like rearrange some of the camera lenses.
They might add a like button, but overall, the iPhone is the
iPhone. It's looking the same every
single year. So you read this and you think,
oh, Apple's learning. They're adapting.
Instead of releasing an iPhone every year, they're going to do
so every two years or every three years.
And that's where you're wrong. That's where everyone is getting
the story wrong. Apple is inching away from its
annual product upgrade cycle, a move that could lead to more
frequent releases and fewer jarring delays.
If that didn't catch you off guard, then I don't know what
will, because when I read this I was a bit shocked the Apple
would remove their annual to go to a more frequent release
schedule. And of course my follow up
question is how frequent do we need Apple products?
What are they going to do? A release of an iPhone every six
months? Obviously that can't be the
case. There's not enough different in
the iPhone every year to release on a more frequent basis, so
this has to be revolving other products or different parts of
Apple. For years, Apple has updated its
biggest products on an annual basis.
We all know the drill. The company gives a preview of
its new software in June and then rolls out the company the
accompanying devices, iPhones, iPads and Macs during September
and October. That has been the tradition of
Apple for a long period of time. They say that there's benefits
to this approach. It helps motivate employees
toward a unified goal. Analyst and investors know what
to expect and Apple has an easier time planning its
marketing and public relations of its big bonanza.
So it's more of a big unified event.
It feels like Apples month in September.
A lot of focus on the company and a lot of companies have
tried to mimic this same thing with the annual product
releases. They say despite all of those
advantages, they're beginning to be cracks in the strategy.
For one, Apple has a wider range of products these days,
including several iPhones, iPads, Macs, and Airpods.
Updating all of those things on a yearly cadence isn't
practical. Moreover, there are some
products, such as the Apple Watch Ultra and iPhone SE, that
don't need to be updated that often.
Now, through the rest of this article, it details out the
problems with trying to do this annual upgrade cycle.
But if you were to boil it down to one reason.
It's because Apple's a very large company with a lot of
devices with a lot of OS's to update, and trying to make all
of those updates happen in the same time period is just too
difficult. It's too big, it's too complex.
They need different iterative time periods for different
devices, and they even mentioned that in some cases, good OS
updates that are tested and ready to go have been delayed by
two or three months because they need to wait for that big
upgrade cycle. So even their customers are
having to wait for things they shouldn't because of this
artificial upgrade cycle every single year.
So it makes sense that Apple is moving away from that.
We're going from a different time period, one where just a
couple years ago Apple seemed like an iPhone company.
They had their one major product that had huge changes every
year. And now Apple is a far more
complex company. They're a device maker of so
many different products, and it's clear they need to keep
adapting their business. Now finally, we move on to a
trend that's more concerning. This is something that I've
noticed for some time now. Warren Buffett has not been
doing a lot of buying. He's been selling companies.
He sold off Paramount Global. He sold off a lot of Bank of
America and Wells Fargo years ago.
He's been selling banks on a net basis for months now.
In fact, every month he seems to be selling more and more.
He exited out of half of his Apple position.
That was a bit of a shock even for Warren Buffett, and he
hasn't really bought anything. Have we seen any notable buys
from Buffett? We haven't.
In fact, Berkshire Hathaway now has record cash position over
1/4 of a trillion dollars. That's an incredible amount of
cash. We also see notable insiders,
people like Jamie Dimon, that's over JP Morgan, people like Jeff
Bezos doing more and more selling.
And this trend of building cash and not buying companies, but
rather selling them is not exclusive to the top dogs like
Warren Buffett and Jeff Bezos. Corporate insiders are net
sellers, they say. Corporate insiders have been
reluctant to snap up shares of their companies.
Of all U.S. companies with transactions by an officer or
director. In July, only 15.7% reported net
buying of the company's shares, according to
insidersentiment.com. That was the lowest level in any
of the past 10 years. So this is notable.
Insiders are selling out of their company on a net basis at
levels that we haven't seen. The figure ticked up to 25.7% in
August before falling to 21.9% in September, well below the 10
year average of 26.3%. Now it is important to note that
caveat that on average insiders do tend to sell.
They're working at companies, they're building wealth and then
they sell stock to afford their lifestyle.
So there is on net selling. In fact, if we look at the long
term averages, the percentage of insiders that regularly buy a
stock their own stock is around 25%.
So on average around 75% are selling stocks at any given
time. Then there's some time periods
where this changes like in 2020, March that spiked up to where
most insiders were buying stock. They saw the value in it.
But Even so, right now, insiders are selling at unprecedented
levels. They're selling at levels that
we haven't seen again in 10 years.
So insiders have an extra negative sentiment right now.
And based on history, insider trading does have some
predictive power. Quote, insider trading is very
strong predictor of aggregate future stock returns.
The fact that they're below average suggests that the stock
returns in the future will be below average as well.
Now, of course, there's no guarantees to that statement.
The stock market may race up the end of this year.
Even though insiders are selling.
And even great investors, ones like Warren Buffett, the best in
the world, have been holding a lot of cash for a period of time
where the market has raced up. Warren Buffett held a lot of
cash during 2020, during 2022. He wasn't doing a lot of buying
during those time periods when it was optimal to be buying.
So in some cases, you have to look at the situation of these
insiders. Warren Buffett has so much
wealth, so much capital that he is extra conservative.
And I don't believe investors just starting off their
portfolios should mimic Warren Buffett.
He is in a completely different situation than the average
investor building up their 401K or their taxable account.
They're not really relatable. And overall, it is true that
many people have been bearish on this market for the past couple
of years while it's raised up and up and up.
But Even so, as I look at the market today, I do agree
generally with this insider sentiment.
Things overall are looking expensive.
Most companies are up into that full and even overvalued
territory. And the deals, the companies
that are at a still are few and far between.
So as we continue investing, it's important to maintain a
discipline approach and focus on companies that still have
reasonable valuations. That's all for this episode.
Hope you enjoyed. See you in the next one.