Good morning. QQQs -1.2% / SPX -35bps after a set of less than great Tech earnings overnight: GOOGL -11% on a search miss that has bears salivating on AI concerns, MSFT +2% fading on CFO opening the door to an equity raise, NOW -18% with a huge whiff taking down app software with it (software -4%), FTNT -25% an even bigger whiff with bears finally getting paid taking, Cyber names down along with it (PANW/CRWD/OKTA -7%). EBAY +4.5% on a set of better numbers.
Outside of earnings, Semis -2.2% with some pointing to the lower than expected headline capex #s from GOOGL/MSFT although q-specific reasons for each of those. META +1% getting some love after the GOOGL miss. Neoclouds lower with NBIS -7% as some speculating the MSFT 3p capacity delay is them. LITE +5% as MRVL -11% said to be in advanced talks to buy them. CART +5% (halted) as DASH to acquire them for $65/share. Samsung -4% after an operating profit miss and delaying capital return announcement until end of Jan.
Another busy night tonight with AMZN the big one. We dive into GOOGL, MSFT, KLAC, FTNT, and NOW below, then the usual.
Let’ get to it…
EARNINGS
GOOGL -11%: Just an overall bad print on the 3 KPIs that mattered most: search, GCP & EBIT. Search missed at +12% vs. Street’s 14.7% and the ~13-14% buyside bar, Cloud ($30.7B) beat Street but fell short of $31-32.5B bogeys, and EBIT missed by ~$2.8B. YT miss. Cloud EBIT beat the one bright spot although that’s being debated as well.
Stock was shorted coming in but this was worse that expected and helping feed bearish investor fears that search is AI hampered. Comps continue to get tougher for the next couple quarters and just running the decel forward gets you to something like 7% search growth in Q1. Lots of talk from bears in Slack saying downside is now 15x unless they can show evidence of monetization. AI Mode is diluting Search monetization (paid clicks +8% on five-year-high query growth) as Google struggling to figure out how to monetize AI. Sundar and Philipp really didn’t say much to help things on the call. CY27 Buyside EPS coming down to a more street ineline-ish # around ~15-$15.50 although bears will frame an even lower #. A 20x gets you <$290, which is where stock is at while bears will push for a teens multiple given the search decel & fears. Remember this is a company where Total Ads are still 65% of the topline (and ~80% of the EBIT) so the Cloud not really big enough to make up for search fears. Uphill battle for Google longs now. R
META +1% as its looking a lot better in comparison after the print, with 70% of investors in Slack preferring to pay 18x for META vs. GOOGL and pointing to META’s better ROI:
Lots of Bearish Investor feedback overnight in the Slack earnings thread:
“Lower monetization on AI queries. He basically just admitted it’s going to be a transition between AI Overviews and search... Search going off patent.”
“AI Overviews / AI Mode are cannibalizing traditional search queries and are not really being monetized, at least not even close to traditional search levels. They gave a lot of stats on AI improving their ad engines, but it just seems like the monetization layer for these cannibalizing modes isn’t there yet. AI search ad monetization does seem harder to crack than social.”
“Meta is proof that LLMs can improve ad performance materially. We’ve had ~2 years straight of Meta growing CPMs and impressions at the same time. That never happened before. So Google blaming lower monetization just feels wrong. Q/q: Meta’s Family of Apps +$3.8B, Search +$79M. Zero reason to own this stock over Meta.”
“8% paid click growth y/y... in line with my backsolve, still decel on 2y/3y stacks.”
“This will derate to 18x. Underwriting $15 was also dependent on Search holding up better, and $15 might be high given the opex trend. 15x feels like the near-term floor, but that’s a big haircut from here.”