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Earnings

Alphabet earnings: A rocky road ahead

Alphabet earnings: A rocky road ahead
Alphabet
  • Q1 revenue: $41.2 billion (+13% YoY, -11% QoQ, vs. $40.3 billion expected)
  • Q1 earnings: $6.83 billion (+2.7% YoY, +/-36% QoQ, below expectations)
  • Q2 guidance: Alphabet is "optimistic" about the long-term growth of the business, but the second quarter will be "a difficult one," according to CFO Ruth Porat.

The big number: With the pandemic shutting down industries around the world, the writing has been on the wall that Google was likely going to take a hit in its advertising revenue — far and away its biggest business — as far fewer people are advertising right now. Even still, Alphabet managed to beat revenue expectations by nearly $1 billion. Google's advertising revenue was up over 10% to $33.7 billion over the $30.6 billion it posted in the same period last year. Alphabet's CFO Ruth Porat suggested on the call with analysts that much of the advertising revenue for the quarter came before the West went into lockdown near the end of March, when attentions turned to "less commercial" interests — presumably all of us Googling COVID-19 symptoms.

People are talking: "Performance was strong during the first two months of the quarter, but then in March we experienced a significant slowdown in ad revenues," Porat said in a statement. "We are sharpening our focus on executing more efficiently, while continuing to invest in our long-term opportunities."

Opportunities: Alphabet isn't entirely about advertising. There have been a few other promising, if relatively small, areas of growth in recent quarters, including Google's hardware division and its cloud services businesses. It started breaking out its Google Cloud revenue at the end of 2019, and it posted $2.78 billion in revenue for the quarter, a massive 52% jump over the $1.825 billion it posted in the quarter a year earlier. As more companies consider the value of flexible, cloud-based architectures, it's likely this business will continue to contribute to Alphabet's bottom line. CEO Sundar Pichai said the company would be "recalibrating" its investment focus in data centers given the pandemic.

Google's whole "other revenues" line, which includes sales of Pixel phones, Nest smart devices and other hardware products, as well as cloud, also jumped over last year, contributing $4.44 billion — though if you take out the revenue from cloud services, the segment actually shrunk by about 8%. It seems like fewer people want new phones or smart-home products when they're stuck at home, and Pichai said that fewer devices had been activated in the quarter.

Threats: Google is likely going to be seen as the canary in the coal mine for the advertising industry during the pandemic; its main competitor, Facebook, reports Wednesday. For now, it seems that Google managed to weather the start of the pandemic with revenue that came in before things really went south. The company recently cut its own marketing budgets, with Pichai hinting at hiring freezes on the call as well. Advertising revenue is Alphabet's cash cow — what will it do if no one wants to buy ads?

"There's still a great deal of uncertainty about the path to recovery," Pichai said on the company's call with investors. "Q1 was clearly the tale of two quarters."

The power struggle: Beyond the softness in the advertising industry, Alphabet has another millstone around its neck: everything other than Google. All of its other companies — which it groups together in its earnings as "Other Bets," and includes things like Waymo, Loon, Verily, X and Wing — may one day produce technology that'll revolutionize the world like Google has, but for now, are primarily a massive cash pit for Alphabet. Other Bets generated $135 million in revenue for the quarter (a 20% drop over a year ago), at a loss of $1.12 billion for the quarter. That's about 30% more than it lost in the same quarter a year ago. If Google is facing lean times ahead in its advertising business, how much money is Alphabet going to continue to want to throw into its Other Bets?

Microsoft wants to replace artists with AI

Better Zoom calls, simpler email attachments, smart iPhone cases and other patents from Big Tech.

Turning your stories into images.

Image: USPTO/Microsoft

Hello and welcome to 2021! The Big Tech patent roundup is back, after a short vacation and … all the things … that happened between the start of the year and now. It seems the tradition of tech companies filing weird and wonderful patents has carried into the new year; there are some real gems from the last few weeks. Microsoft is trying to outsource all creative endeavors to AI; Apple wants to make seat belts less annoying; and Amazon wants to cut down on some of the recyclable waste that its own success has inevitably created.

And remember: The big tech companies file all kinds of crazy patents for things, and though most never amount to anything, some end up defining the future.

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Mike Murphy

Mike Murphy ( @mcwm) is the director of special projects at Protocol, focusing on the industries being rapidly upended by technology and the companies disrupting incumbents. Previously, Mike was the technology editor at Quartz, where he frequently wrote on robotics, artificial intelligence, and consumer electronics.

People

Google's union has big goals — and big roadblocks

Absence of dues, retaliation fears and small numbers could pose problems for the union's dream of collective bargaining, but Googlers are undeterred.

Recruiting union members beyond the early adopters has had its challenges.

Photo: David Paul Morris/Getty Images

When the Alphabet Workers Union launched with more than 200 Googlers at the beginning of the year, it saw a quick flood of new sign-ups, nearly quadrupling membership over a few weeks. But even with the more than 710 members it now represents, the union still stands for just a tiny fraction of Google's more than 200,000 North American employees and contractors. The broader Alphabet workforce could prove difficult to win over, which is a hurdle that could stand in the way of the group's long-term ambitions for substantive culture change and even collective bargaining.

The initial boom of interest from Googlers was thrilling for Alex Peterson, a software engineer and union spokesperson. "It's really reinvigorating what it means to actually be a community of Googlers, which is something that's been eroding over the past four or five years, or even longer."

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Anna Kramer

Anna Kramer is a reporter at Protocol (@ anna_c_kramer), where she helps write and produce Source Code, Protocol's daily newsletter. Prior to joining the team, she covered tech and small business for the San Francisco Chronicle and privacy for Bloomberg Law. She is a recent graduate of Brown University, where she studied International Relations and Arabic and wrote her senior thesis about surveillance tools and technological development in the Middle East.

Power

How Google workers secretly built a union

And why one labor leader says Google organizers have 'sparked a fire that is going to spread throughout the entire tech industry.'

Google employee holds a sign as thousands of employees walk off the job to protest the company's handling of sexual misconduct claims on November 1, 2018, in Mountain View, California.

Photo: Mason Trinca/Getty Images

More than a year ago, activists inside Google began to seriously investigate how they could go about creating a union. Frustrated with conflicts over fair treatment of workers, sexual harassment and equal pay, and facing punishment for organizing a massive walkout, some workers started to talk quietly about more official organizing. In January 2020, a group reached out to the Communications Workers of America to learn the first steps, and began quietly discussing structure and bringing more workers on board without tipping off Google leadership. Recruiting was limited to a group of closely-connected friends, peers and colleagues and secret word-of-mouth discussions, meaning that most Google workers had no idea the union was being formed.

Dylan Baker, a software engineer who joined the recruiting process in October, described a careful process fearful of Alphabet retaliation. "We needed to keep things under the radar. We added one person at a time, very incrementally," they said. Almost every worker they approached about the union agreed to join. "From here, I think every single person has a lot of reasons and a lot of things that they want to change," they said.

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Anna Kramer

Anna Kramer is a reporter at Protocol (@ anna_c_kramer), where she helps write and produce Source Code, Protocol's daily newsletter. Prior to joining the team, she covered tech and small business for the San Francisco Chronicle and privacy for Bloomberg Law. She is a recent graduate of Brown University, where she studied International Relations and Arabic and wrote her senior thesis about surveillance tools and technological development in the Middle East.

Politics

Globally, mayors grapple with tech backlash in cities

Mayors Sadiq Khan, John Tory and Fernando Medina discuss the tough questions facing their cities — and how COVID-19 has made it even tougher.

"What we're trying to do is give Londoners and others confidence about emerging technologies," said London Mayor Sadiq Khan in conversation with Protocol.

Photo: David Paul Morris/Getty Images

For the mayor of any modern city, an increasingly large part of the job entails managing the public backlash to new technology being deployed in those cities. The COVID-19 pandemic has only added to public fears about surveillance and data sharing. As tech tools are being used to track who's infected with the virus and who they've come in contact with, local government officials are facing a crucial question: Who gets to know?

For this year's virtual Web Summit, Protocol spoke with Mayor Sadiq Khan of London, Mayor John Tory of Toronto and Mayor Fernando Medina of Lisbon about how they're adopting new technologies in their cities — from the London police's new real-time facial recognition pilot to Toronto's failed smart city partnership with Alphabet's Sidewalk Labs — and what new challenges COVID-19 poses. The mayors discussed how they're grappling with public expectations and trying to fend off tech's many unintended consequences.

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Issie Lapowsky
Issie Lapowsky (@issielapowsky) is a senior reporter at Protocol, covering the intersection of technology, politics, and national affairs. Previously, she was a senior writer at Wired, where she covered the 2016 election and the Facebook beat in its aftermath. Prior to that, Issie worked as a staff writer for Inc. magazine, writing about small business and entrepreneurship. She has also worked as an on-air contributor for CBS News and taught a graduate-level course at New York University’s Center for Publishing on how tech giants have affected publishing. Email Issie.
Power

Sonos CEO Patrick Spence: There’s money in ad sales for us

The smart speaker maker adds in-house ad sales as radio service continues to grow.

"Given the kind of customer base that we have and given the adoption we've seen in Sonos Radio, there's absolutely advertising revenue there," Patrick Spence says.

Photo: Andrej Sokolow/Picture Alliance via Getty Images

Sonos is doubling down on its efforts to monetize services on its platform, and is now looking to build out an in-house ad sales team for its free Sonos Radio service. Sonos CEO Patrick Spence confirmed the news in a conversation with Protocol on Wednesday, saying that in-house ad sales could help the company attract the right kind of brand advertisers to its platform. "Given the kind of customer base that we have and given the adoption we've seen in Sonos Radio, there's absolutely advertising revenue there," he said.

Spence made these remarks ahead of the release of the company's fiscal Q4 2020 earnings results. The company grew its revenue 16% year-over-year, to the tune of $339.8 million for the quarter. Earnings per share came in at $0.15, ahead of the $0.02 that analysts had expected. The company added 1.8 million new households to its customer base in its fiscal 2020, and close to 11 million households now own Sonos products, with an average of 2.9 Sonos products in each of those households.

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Janko Roettgers

Janko Roettgers (@jank0) is a senior reporter at Protocol, reporting on the shifting power dynamics between tech, media, and entertainment, including the impact of new technologies. Previously, Janko was Variety's first-ever technology writer in San Francisco, where he covered big tech and emerging technologies. He has reported for Gigaom, Frankfurter Rundschau, Berliner Zeitung, and ORF, among others. He has written three books on consumer cord-cutting and online music and co-edited an anthology on internet subcultures. He lives with his family in Oakland.

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