Alphabet Third Quarter 2021 Results [pdf]

https://abc.xyz/investor/static/pdf/2021Q3_alphabet_earnings_release.pdf

by nappy-doo • 5 years ago

110 135 5 years ago

easton• 5 years ago

In January 2021, we completed an assessment of the useful lives of our servers and network equipment and adjusted the estimated useful life of our servers from three years to four years

Does anyone know what the observation was here that made this possible? Have Google's internal workloads not grown in size as quickly as they thought, or is this a "Moore's law is slowing down" thing?

kyrra• 5 years ago

Googler, opinions are my own. I know nothing about this.

I wonder if this was Google's response to the chip shortage? Maybe the cost/benefit (and just sheer inability to get certain parts) made them hold on to hardware for longer.

DennisAleynikov2• 5 years ago

That would be an interesting adjustment

bduerst3• 5 years ago

Could also be the fact that Google has built a ton of new data centers in the last two years. Newer hardware, infra, utilization, etc. could lead to better quality/lifespans.

sidibe• 5 years ago

I don't think the workloads would have much to do with this, probably saw that they were having less failures than anticipated or memory/chip shortages have them keeping equipment around longer than they planned.

jdavis703• 5 years ago

My assumption is the hardware was more reliable than expected. If it was about slowing workload growth one might expect them to switch to a usage-based (instead of time-based) depreciation schedule.

DennisAleynikov2• 5 years ago

Seemingly the latter. Less benefit between generations and more stress resistance in hardware compared to earlier data center practice

cj• 5 years ago

I wouldn't be surprised if the decision was driven by Google's army of accountants.

Extending the life of an asset would affect the depreciation schedule, which would affect when depreciation is recognized / recorded on their books in a given tax year.

slo_news2• 5 years ago

While I'm unsure of the the reason the computers are lasting longer, I would bet this observation was originally triggered from the public company accounting firm that audits Alphabet's financials. The accounting firm likely asked Alphabet to prove out why they used a 3 year estimate and found out 4 years was more accurate (FYI 3 years is a standard useful life for computers for most companies - sometimes even shorter).

hogFeast• 5 years ago

It doesn't work this way.

If Alphabet wanted to prove they lasted three years, they would have found a way to prove it. Auditors don't go around challenging on things like this. In particular, they don't go around challenging companies on depreciation because that is a key lever that management can pull if they need to hit numbers.

It is very difficult to discern exactly why they will have done this but the functional answer is: they have done this because they needed earnings to increase. In this case, it looks like the difference between a 15% and a 20% beat (I believe the change was made in January, I think they had quite a big beat in that quarter after some flattish momentum, middle of the year very strong anyway).

bpodgursky• 5 years ago

This is probably less exciting than you imagine. It's hard to estimate HDD and CPU failure rates 5 years into the future, especially on new-generation hardware. 3 years was an informed guess.

greenail3• 5 years ago

AFAIK it comes down to some degree to a tradeoff between the projected density and power efficiency gains of newer gear vs the cost savings of keeping older gear around and in the racks. Some datacenters simply can't support higher density due to power constraints and if the newer gear isn't offsetting the capital costs by pulling in more revenue then you might as well keep the old gear around longer.

jeffbee5• 5 years ago

I don't know why people always mention density. Google isn't constrained on floor space. If they need another 100 acres of Iowa for their servers to stand on, they'll just buy that for a comparative $0 cost.

Density is an issue for people who are still renting from Equinix.

mattlondon• 5 years ago

Probably because intel chips feel like they have stagnated somewhat performance-wise while they milked the market IMHO.

Why upgrade to the latest intel CPU when you get a paltry 100Mhz clock increase for the bother? May as well wait another year if 3 year old CPUs are pretty much the same performance as current models (give it take a few %)

jeffbee5• 5 years ago

Uh, both 3 and 4 are radical understatements of the economic lives of servers. They are TCO+ for 10 years in reality. For a company like Google or any other company designing their own equipment the usual reason to retire equipment (end of warranty) does not exist.

There are still Sandy Bridge CPUs available in GCE. Sandy Bridge came out in Q2 2011.

ChuckMcM2• 5 years ago

No, computers typically have a service life of 5 years, but depreciating them faster gives you more loss to to write down against your income.

What you are seeing though is the trick they used to make 'net income' pop. Let's say they had a million servers and a server costs $5K each. When depreciated at 3 years that is $1.6 billion dollars a year of depreciation. But you stretch that out to 4 years and now its only $1.25 billion dollars in appreciation. Since depreciation is subtracted from revenue you just "bumped" up your revenue by $350M and you didn't have to do anything at all (except change how you treated your assets).

That they had to resort to this level of shenanigan to get their revenue numbers up is interesting to me.

gradys• 5 years ago

Since depreciation is subtracted from revenue you just "bumped" up your revenue by ...

No, you bumped your net income. Revenue is unaffected by the depreciation change. Revenue is up 61%.

Also, nobody would be fooled by an accounting trick like this. Analysts routinely compute EBITA, earnings before interest, taxes, and depreciation, exactly for this reason - filtering out the more purely financial/virtual expenses that are less informative for understanding the core business.

They likely did it because you're required to report things like depreciation in a way that reflects reality. There could be tax implications for instance, since you can count depreciation expenses against your taxable earnings (though often companies maintain separate depreciation accounting for financial reporting vs taxes due to the different rules for each).

remus• 5 years ago

Looking at it from a naive point of view, could it just be an actual change in what they estimate to be the useful life of their servers? Accounting shenanigans for a (relatively) small bump in revenue seems not really worthwhile.

green-eclipse• 5 years ago

This was announced back in July:

https://www.convergedigest.com/2021/07/google-extends-deprec...

belval• 5 years ago

Net income up 68%, that's terrifying high for a company that size. Good job everyone at Alphabet/Google.

kansface• 5 years ago

More like the pandemic is good for pushing activities onto the internet of which Google takes its slice.

TrainedMonkey2• 5 years ago

And $2T dumped into stock market, portion of which companies have used on online ads to compete for increased revenue.

deadmutex• 5 years ago

Umm, a pandemic is not good for business. Many of the ads are bought by real businesses.

"Alphabet has been viewed as a key beneficiary of the **reopening trade**, given it stands to gain from a pick-up in travel-related searches and advertising on Google Search." (** emphasis mine **)

Source: https://finance.yahoo.com/news/alphabet-google-reports-q3-20...

dekhn4• 5 years ago

There's a part of Chaos Monkey where the author describes driving past Google on a weekend and seeing empty parking lots while Facebook's were full (this was during Google Plus). He concluded that Google no longer had a fire in the belly and facebook was going to overcome it, not just in social mindshare, but ad revenue.

Conditions changed.

buryat• 5 years ago

empty parking lots

people working remote

DenseComet• 5 years ago

Thats an insane conclusion imo. Weekend work being normalized leads to unhappier employees. Working longer also doesn't just mean more productivity, there's been many cases of four day work weeks causing no change.

Employees are a company's most valuable resource. A company looking to grow and innovate must take care of its employees and part of it is respecting their time.

nostrademons2• 5 years ago

The dirty secret of tech is that markets matter more than effort or smarts. If you have product/market fit and a decent technological lead in a market that is large and growing, you will do better than a company that does not have PMF or a good market, regardless of how hard you work. (This explains so much about Oracle.) Social media mentions are probably a better sign of how well you'll do than full parking lots.

I'd bet that Google & Facebook's current run-up is largely driven by inflation and higher ad prices. FB even said as much in a recent earnings call. Jerome Powell did more for their business than any employee up through the CEO did.

Factorium• 5 years ago

Lockdowns and money printing are great for business. No wonder Google is deplatforming scientists and engaging in mass censorship.

klelatti2• 5 years ago

Alphabet + Facebook revenue now represents 1/2% of world GDP and still growing rapidly.

Edit: possibly not quite but almost certainly 1/2% excluding China.

TameAntelope2• 5 years ago

Considering the world would be more than 0.5% worse without Google, I guess they're still undervalued?

gmiller123456• 5 years ago

You're making the assumption that no company, or companies, would step in and provide a similar service for a similar or better value.

theevilsharpie2• 5 years ago

This isn't even close to being true.

caturopath• 5 years ago

It's not quite half a percent by most accounts of GWP, but it's around there.

beambot• 5 years ago

World GDP is $80T. Google's run-rate is $240B revenue and Facebook's is $116B. That's $356B / $80T => 0.445%. Close enough for internet math.

ksec2• 5 years ago

Judging from all the comments below I guess I am the only one confused.

Because I interpreted it 1 or 2% of world GDP.

purple_ferret• 5 years ago

I like to think I'm doing my part as a sharehholder.

Every so often I'll google something like Criminal Defense Attorney, send money, or file taxes and click on the highest ads.

echelon3• 5 years ago

That seems like fraud, especially if you were to do it at scale.

TameAntelope2• 5 years ago

A lot of things we do are a little fraudulent, no? The measure is probably impact.

netr0ute• 5 years ago

You won't want to know what AdNauseam does.

seoulmetro• 5 years ago

You mean like owning Tesla stock and buying a Tesla?

What about owning McDonalds stock and buying dinner?

Obviously fraud is not easy to label.

HWR_144• 5 years ago

Once more, I don't understand how advertising revenue keeps growing. Once people install ad blockers, they don't typically remove them. And ad-blockers keep growing.

So who is actually seeing these ads? How can those numbers be going up?

I understand, intellectually, that not everyone thinks like me. But I don't fundamentally understand why people allow ads on their devices when they can prevent it. Then again, I don't understand a lot of behaviors people exhibit.

lotsofpulp2• 5 years ago

The price of the ads could be going up at a quicker rate, especially as more and more viewers from previous ad spending channels (such as TV channels) move to online options (such as Youtube).

Also, the number of people using ad blockers must be extremely low. Even crazier, most people who I talk to about content blockers on iOS zone out of the conversation before I can even get to how easy it is. They do not even care that much about the ads or notice how annoying they are.

Then again, many or most people still watch live sports and old school TV channels, which are chock full of ads. I cannot even stand too obvious product placement, much less ad breaks. So while I will go out of my way to remove ads from my life, there are probably 9 others who will not spend a single second thinking about it.

simfree• 5 years ago

Sounds like a bad pitch then. Shorten it up, better not to overdo a sales pitch than to do too short a pitch.

I don't pitch Signal, but when I do see it pitched those that are most successful pitch 1 directly useful feature as why you should install it.

Eg: Get Signal, our videos won't look like a fuzzy potato lens image

Remember, your reason should be a problem the person your pitching to has faced and would like to see fixed. If they are having trouble with a different issue, pitch that instead!

Kafkish• 5 years ago

Then again, many or most people still watch live sports and old school TV channels, which are chock full of ads. I cannot even stand too obvious product placement, much less ad breaks.

Everybody is different. Back in the early 2000s when I used to watch TV, I actually enjoyed ads, because they tended to be more entertaining than the TV shows themselves (remember the Budweizer lizards and eTrade babies). Even when online ads because popular, when they were still contextual, I really did not mind. It was only when ads began to follow people around online that I put an end to it.

But I still watch live sports - only online, since I no longer have TV service. I get around ads on NFL games by having more than one game streaming on different tabs, then switch to the one that's not in an ad break.

Online, there are no ads during football (the real one), tennis and volleyball matches, so I have very little to complain about.

HWR_144• 5 years ago

Out of curiosity, which ad-blocker/content-blocker on iOS do you try to steer people towards? Or do you propose a DNS based solution?

antisthenes• 5 years ago

So who is actually seeing these ads? How can those numbers be going up?

Advertising spend could be going up without more people seeing the ads. Since businesses compete for limited advertising space, they are likely to keep increasing the size of their bids for click.

Alphabet's revenue could be growing as a result of eroding the margins of other businesses, who are now forced to spend more money for the same amount of clicks.

I don't claim this to be the exact scenario that reflects reality, but it is a very plausible scenario nonetheless. A nice little lesson in why lots of things are zero-sum (even though we'd like to pretend they aren't)

vlovich123• 5 years ago

Assuming Google has a good handle on click fraud and the growth is real:

* Some % of people install adblockers, but that number doesn't grow that much.

* There are more people being reached by advertising than ever before. 7.7 billion people in the world & still only about half are online. So overall the number of users they're reaching is growing even if they lose some to adblockers.

* You currently have to install an adblocker per device or even application (unless you are in the minority putting it on your router at home). This means that adblock rates vary and a user installing an adblock somewhere doesn't mean that user is globally lost from advertising reaching them somehow.

* There are multiple modalities for ad networks (app, web pages, etc etc). Google is involved in all of them. Ad blocking has variable performance across those networks unless you really know what you're doing (e.g. in-app advertising is very hard to block on iOS).

* The price of ads can vary driving up revenues. Not all ads are priced equivalently so Google can drive value that way by making the ads more valuable to advertisers or making more expensive ads more appealing.

* Inflation will naturally increase total dollar amounts even if everything else remained constant.

human• 5 years ago

I manage near 1M$ in Google Ads per year and can tell you CPC is going up while impressions are stable.

flyinglizard• 5 years ago

Ads become more expensive, conversions and ROI keep sliding down, but Google and Facebook are almost the only game in town for online advertising. Where would you go that’s not one of their properties?

pcurve• 5 years ago

I also think there's a lot of negative ROI on ad campaigns, with no shortage of new players queuing out the door to try their luck in digital space.

TheDong2• 5 years ago

Once people install ad blockers, they don't typically remove them. And ad-blockers keep growing
don't fundamentally understand why people allow ads on their devices when they can prevent it

The market share of iOS also has increased a bit, and iOS does not allow ad blocking very easily. You have to configure some sorta DNS-based ad blocking, which is harder than the traditional desktop firefox/chrome adblockers to install.

Usage of computers has also shifted towards phone/tablet apps, away from desktop browsers... And ad-blocking in apps is hard to impossible compared to on desktops.

I'm not surprised people continue to see a lot of ads as we move from the web, where mature ad-blockers exist, to apps, where ad-blocking is harder and less mature.

Even very technical people usually don't bother with pi-hole and see ads in free android apps.

Oh, and also, there are occasionally cases of an ad-blocker removing itself somewhat, i.e. adblock plus used to be the go to recommendation for ad-blocking, but they started allowing google ads through in an update (https://adblockplus.org/en/acceptable-ads)... so maybe someone installed adblock plus because that's what they remembered from 10 years ago (and adblock plus has better SEO than ublock origin too), and thus still gets google ads now.

lotsofpulp2• 5 years ago

The market share of iOS also has increased a bit, and iOS does not allow ad blocking very easily. You have to configure some sorta DNS-based ad blocking, which is harder than the traditional desktop firefox/chrome adblockers to install.

Are you considering installing a content blocker not easy? Or not ad blocking? Firefox Focus is free and a few taps away from the app store.

Seems easier to me than installing ublock origin on desktops. Which people can easily be misled into installing ublock, or adblocker, or any the other scammy ones that do not really block ads or do something else nefarious. It is harder for a non technical user to get fooled by an iOS content blocker.

vgeek2• 5 years ago

They can adjust Quality Score parameters or bid floors to increase the CPC and/or make ads look more like organic results to increase the ad CTR. Both will increase their earnings per pageview.

More auction participants mean higher bids.

Removing match types such as phrase, while automatically shifting phrase to broad modified helps increase their fill rate & number of participants per auction.

Eliminating second price proxy auctions in display ads (search likely soon to follow?) will likely yield measurable increases in CPC.

A few years back they went from up to 10 ads to 7 on most-- they have that dial to adjust if necessary.

Products like Google Shopping take up more and more space on the SERPs and are typically pay to play. They have higher CTR due to carousel images & once you click into that ecosystem, nearly every click yields ad revenue.

Chrome behavior with URLs is conditioning users to search for brands (versus typing in the full domain name), who then have to pay to defend their brand terms from brand poachers.

bduerst3• 5 years ago

adjust Quality Score parameters or bid floors to increase the CPC and/or make ads look more like organic results to increase the ad CTR.

That's not really how auctions work. Raising the price floor would just exclude ads with CPCs below the floor from paying, and since they're already getting paid for the maximum CPC bid at the time anyways they would just make less revenue.

If they messed with quality score discounts in an exploitative way, the entire billion-dollar SEO industry watching it would notice and cry foul.

sahadeva• 5 years ago

1. More people are getting on the internet all the time, especially new markets like India (who likely don't use ad blockers).

2. We're still early internet, and people rely on the internet more and more (and therefore search more). E.g. in Covid, people are likely transitioning more of their life online, which is good for Google.

3. As companies and the broader economy do better, companies will invest more in growing themselves, often by buying more ads. Companies are doing very well right now (see stock market), so there are more ads being bought AND the price per ad will likely go up because there is more competition.

4. There is still plenty of untapped ad real estate for Google to monetize as well (searches that could generate ad revenue, and web pages that can surface better ads).

This combination is great for Google.

HWR_144• 5 years ago

I would say, with regard to (1), that the people getting on the internet now have to have far less disposable income (at least on average). I mean, sure it's 1/2 of humanity, but it's not 1/2 of the ad audience value.

summerlight• 5 years ago

1. There's a sizable amount of budget in a process of migrating away from offline advertising market, partially thanks to COVID. This increases auction competition.

2. Online advertising still have a room for better optimization in many ways. You'll be surprised on how primitive bidding systems are for a large fraction of advertisers. Better bidding means ads more likely to convert.

Also note that HN readers are extreme outliers compared to usual people who actually spend money on ads. My gut feeling is that perhaps >90% of people don't care much about whether it's ads or not if it seems relevant enough for them.

jarek83• 5 years ago

Please mind that google started to show search results in a fashion that if search "A company" then the first link is the ad pointing to the "A company" website and only next is the same exact link to that company website. This is pure cheating and I'm amazed how they can both: laugh at advertisers face and keep it legal.

slownews453• 5 years ago

Don't advertise that way if you don't want to? I'm failing to see what the issue is. If you don't mind and advertiser saying, hey, look at me instead, then don't pay google to advertise.

ur-whale• 5 years ago

when they can prevent it.

Most people wouldn't know where to start to install an ad blocker.

They don't even understand the concept, much less know that it even exists.

jeswin• 5 years ago

Search ads and Youtube ads are unaffected by ad-blockers, and that's a big chunk of their revenue.

patentatt• 5 years ago

Um, YouTube ads and search ads are all blocked for me. It’s definitely something as blockers can block.

warabe• 5 years ago

wait, what!? what kind of blocker are you using? adblock plus with "acceptable" ads??

ChrisArchitect• 5 years ago

Your impression of ad blockers and the market for them is a bubble/wildly off. Likely drop in bucket compared to rest of real world out there! c'mon.

(aside: what ads? why are you surfing so many sites with ads where they're a nuissance? I don't even notice them on the few sites I come across them/what I do see is manageable, no plugins or extensions needed ever)

Search is the key - so many listings intermixed with search results, and search is a major part of everyone's life. And whether people are clicking them or noticing them is another thing but alot of ad sales are on the page impressions alone, so that's not nothing based on billions of daily searches.

HWR_144• 5 years ago

I mean, if you don't use YouTube, go to any search engine or go to any news site you can avoid ads. But I'm hardpressed to think of a major website that lacks them. Then again, I block most ads, so ads could disappear from the internet and I wouldn't notice for a while.

wdr1• 5 years ago

So who is actually seeing these ads?

Hacker News isn't representative of mainstream society. ~27% of Internet users block ads.[1]

How can those numbers be going up?

People continue to shift various activities online. Against, HN isn't representative here -- most of us probably already do most things online. There's still a very large chunk of time watching broadcast television, reading printed (offline) media, etc.

[1] https://www.statista.com/statistics/804008/ad-blocking-reach...

ksec2• 5 years ago

Only on HN will you see All Ads = Bad or Evil.

The reality is vast majority of people are fine with some ads.

Not to mention Ads are not just on the Web, but also In-App as well. In App Ads works way better than on the Web as it function more like TV ads. Especially as newer generation trends towards online media consumption vs old TV box. These are just Ads revenue shifting from TV to Youtube.

I dont think the Fundamental of Ads has changed much at all. It might have changed medium, but ads, from a marketing and product strategic perspective remains pretty much the same as in the 80s.

But then again, this is HN, defending Ads is contrarian.

disdi892• 5 years ago

I do not understand this financial books and lingo enough to understand this correctly so have to ask "Is google cloud business gone really down as compared to previous years? Am I reading this correctly?"

Tenobrus• 5 years ago

You're misunderstanding, the numbers show 4990 million in 2021 vs 3444 million in 2020.

disdi892• 5 years ago

Thanks for explaining.

dragonwriter5• 5 years ago

No.

Google Cloud Revenue went up from $3.4 billion for Q3 2020 to $4.9 billion for Q3 2021

Google Cloud operating losses went down from $1.1 billion in Q3 2020 to $640 million in Q3 2021. (Though it looks like this change is almost exactly accounted for by a change in depreciation expense due to revised estimate of the useful life of servers.)

So they are bringing in significantly more money through the front door with Cloud, though they are still losing money (either about the same or half as much, depending on how you look at it) on Cloud.

dustintrex• 5 years ago

The server depreciation changes affect all of Google. GCP accounts for only a portion of Google's server usage.

Shadonototra2• 5 years ago

What value do they provide to our society?

We empower the wrong things..

dietr1ch• 5 years ago

I'd love to have access to a free search engine, email, and a video platform. But objectively running and improving those systems takes money that people is not really willing to pay for. Wikipedia is a good example on how our anchor on that everything digital must be free keeps us from developing free systems. I wish we could change that.

Now, what value do those systems provide? I would definitely be living a much different (and likely worse) life if I didn't had access to the Internet and systems like those since middle school.

Shadonototra2• 5 years ago

it's not free, you pay with your data, privacy and is not "free" of capitalistic censorship (shadowing actual result with value because entity X bought the spot to get included at the top of your 'free' search)

wikipedia actually is free, and we do not empower it for the value it provides to our society

slownews453• 5 years ago

Quick summary.

Revenue up 41%!! Incredible for an already very large company.

Op Margin also up to 32%?

When you realize how hard walmart and friends works for every point of margin and growth - these guys are literally printing millions.

xHDC• 5 years ago

Automated bidding, Google's greatest invention yet. Google decides how much you pay them now...

They are also doing a good job at turning unsellable searches into sellable searches with their suggested search queries.

Alphabet Third Quarter 2021 Results [pdf]

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