 Hello and welcome to episode 110 of the market maker podcast and it's very much going to be a tech Titan earnings focus Barring Apple, which doesn't come out so next week we have had the lights of meta Microsoft alphabet and Amazon have all come out this week and we're going to dive into each individual company talk about some of the good the bad and is there any ugly maybe a few hidden spots we can highlight for sure but peers why don't we kick off with them meta we've always given them a bit of a hard time as is the market. Over the recent I guess 12 months at least but they've had a phenomenal comeback year to date and then they've topped it off with a 10% response after their earnings report came out so thoughts on that. Yeah, a new new highs I mean the share price I mean this this year has just been quite phenomenal well if you actually take it further back they kind of they bottomed out in November of last year okay share price 87 and a half dollars 87 and a half now clocking in at 238. You can do the quick math on that but that's like tripling your share price in six months less than six months I mean so that kind of gives you an indication of what what's going on and obviously this is coming off an incredibly depressed low they've had. You go back over the last few years or a couple of years let's just say if you take it from like the summer of 2021. Let's say to the end of 2022 was the worst 18 months in Zuckerberg's Facebook story like literally from from from the start where the wheels came off of course don't forget it was a bag. Several factors kind of several speed bumps let's call them so obviously Facebook Queens think about metal you still think Facebook don't forget they own Instagram and WhatsApp and so on but you know they're they're they're kind of original product Facebook was considered to be a bit of a kind of dying. App in terms of usage as you know tick tock and snap kind of take over the kind of youth of this world so that it was thought that they were a bit of a dinosaur and they haven't adapted. Apple changed the settings the privacy settings on the iPhone which meant that Facebook's that that directly impacted Facebook's ability to generate advertising revenue which of course is the majority of the money that they have coming in. And a few other bits and bobs right and then Zuckerberg's kind of seemingly obsessive kind of stance in terms of wanting to win them the race for the metaverse, which of course doesn't exist and maybe it won't exist and who knows and the future and investors can't see that far. And he was pumping so much money into that initiative that the investor thought it just taking his eye off the ball. The current business wasn't being run very well. And it's all just about this pipe dream in the future and so that the share price got got absolutely slammed of course and when I say slammed summer 2021 $380. All time high $380. Yeah, bottoming at 80. And in November last year, but look they're back. And I think the earnings call this week and the earnings generally have proven that the year of efficiency, which is what Zuckerberg is calling the kind of restructuring you might as well call it right where you know, they've laid off 20,000 people. The strategy is just to what's called flatten the management structure. So loads of redundancies, you know, a little bit more, you know, focus on costs and spend. And so his year of efficiency I guess you could say is off to a better start than we have thought. And I think the corner has officially been turned. And whilst the share price has rocketed, I mean it's still, it's still well over 100 bucks off that high from back in 2021. And I think that, yeah, he's had 18 months of wobble, and now he's back on track. There's a few different elements here because there's the daily active monthly active users numbers which on the daily side came in above expectations. Again, these numbers are just crazy when you hear them 2.04 billion. And so did you say that's daily active daily active users across all is that across all the apps. That's Facebook. That's just Facebook. Wow. Yeah. Well, don't forget that we're sat here in the UK. Yeah, in the US, you might think, yeah, it's a bit of a dying horse. Yeah, for rest of world. Yeah, they're still very much users of that platform. So the other thing was add impressions. So the way they packaged this up when they deliver their earnings as they call this the ad impressions deliver across the family of apps is how they refer to it and that increased by 26% year of a year. But the average price per ad did decrease though about 17% year of a year but an interesting point within that was they were talking about how, and this will be a very common theme throughout this episode, how artificial intelligence technology help the company choose the right type of short form content, i.e. reels, and they were talking up this idea of how AI is improved basically the algorithm as to what is best to push to the user to increase the stickiness on the platform and the better that more efficient that processes the more you can advertise to people. Yeah, that's how they're utilizing that technology but to give it some context, Meta said they're making more money from reels and time spent on Instagram has gone up by 24%. I mean that's huge that number sounds huge. Don't have much context to be honest but that sounds like a lot. Yeah, I've got a few highlight bullet points, notes on Facebook or Meta's kind of earnings, a lot here but the one I highlighted in red as in easily the standard stats of the whole thing was exactly what you just said. The AI driven recommendations and boosted time spent on Instagram by 24%, that's kind of blown my mind that and I think I think obviously AI, you know, 2020 quarter one of 2023 will always forever be the kind of the start of the race, like proper. Obviously people have been building AI stuff for years and years right but this quarter is officially you know chat GPT is officially, you know that the gun has been fired, and we are off. And so AI is all over these earnings calls of course and everyone wants to talk about it and what Zuckerberg was saying that. I mean he kind of was trying to justify in some sense, the big, what you might consider overspend over the last few years, which was one of the key catalysts for that big sell off in that Facebook in the Meta stock but he was trying to defend it by saying that he said that we were behind, kind of on building out our AI platform, but he said, you know, we spent a lot of money over the last couple of years, trying to catch up on that and now actually, not only have we caught up he thinks that they're in a position of strength, moving forwards and he was saying that, you know, deploying AI tools to make is the platform more engaging to make advertising more effective, and then also on the cost side to streamline internal processes, and there's stuff like because he was saying around generative AI, he thinks he's in a really strong position and what we can expect to see, you know, I would say in 2023 as the months roll on is more on this but he's talking about generative AI tools to help brands create more personalized ads, more quickly, more easily. So yeah, I mean obviously that their businesses, they're an advertising business right so the more time you can get your user to spend on your app, obviously, tip 24% up on Instagram amazing, and then obviously whilst when they're on it, right how effective are the products that you present to them in terms of click throughs. So it looks like, looks like they're back on track. Meta. Yeah, generative AI part it almost feels like they're absorbing then some of the other players within that normal advertising process so if you talk about graphic designers you talk about graphic agencies marketing agencies. It's just like Facebook saying look, we've got the tech that can bypass all of that it makes actually for the client side cheaper, you're getting more bang for your buck, but the money basically is now being swept up swept up from all those other people who used to be part of that and they're just claiming it so yes it's interesting. So let's talk about this with some of the other earnings but obviously, you know, tech has done amazingly well in 2023. Okay, and they're the big, big tech, particularly has, you know, what massively outperformed the underlying indices like the 100. But of course, and generally speaking these earnings that we've had this week generally speaking have been very positive and have really surprised to the upside and it's like, you know, we weren't expecting too much sort of growth from them and actually they delivered it and it's like so it's saying well this whole idea around the US recession hasn't hasn't started yet the recession. There are no signs of the recession. And so what we want to know is well what about you know when is this recession going to happen is it going to happen how bad is it going to be. And I think that, you know, generally speaking, in recessions it's the companies that are reliant on their advertising revenue. They're the most vulnerable they're they're a bit more cyclical because as a business, you know going through a recession of course you're cutting costs, you know all businesses now and one of the one of the easier ones to cut is your spend on advertising. But if, if meta here can present tools that reduces the cost of your ability to present an add to your potential customer by cutting out the ad agency cost which is substantial right then then yeah maybe maybe these platforms can be less cyclical in terms of being less impacted by a recession downturn. So, it's interesting. Yeah, and just to kind of wrap up the meta story, they did actually issue a bullish outlook for q2 revenues. They're looking at a range of 29 and a half to 32 billion is very typical of what they do they issue a range. That was against a street estimate of 29.5 billion. And then the other things were meta labs. That that was kind of what you refer to as in the metaverse. Now that's still making a substantial loss 3.99 billion. That was a deeper loss than expected actually, but kind of like what you said when he said that we were behind Mark Zuckerberg we were behind on AI. And I think there's something to be said for someone who then goes, who says that sort of thing. Yeah, it's no excuses like we were behind. And then here what actually I kind of like is that the word metaverse doesn't appear until the boilerplate forward looking at the very bottom of their earnings report, which for him, I'm sure just just parking that idea is a big blow. I'm sure to his ego. And so the fact that he's done that. Yeah, although he did expressly mention it on the earnings call. He did. He did very, you know, deliberately make the point that, you know, yes all this AI stuff yeah yeah whatever that's all anybody cares about now. He did say the metaverse is very much still a key part of his, you know, core strategy going forwards. And if he can manage the, the costs. Yeah, and just play the long game very much sure the metaverse will become a very dominant revenue stream. And I'm sure they will be in a very strong position. I don't know if they can flip that advertising situation but yeah, so that's meta. Let's move on and talk about Microsoft. Okay, one that everyone's been kind of getting excited about the obvious reasons of chat GPT initially and then what's come thereafter. So a couple of things they beat on their earnings per share their revenues exceeded expectations, intelligent cloud business segment, be expectations, productivity business process segment be expectations. Let's go on basically. One of the other areas here, notably was search advertising revenues, they were also up 13% and up dramatically as being now integrated chat GPT I must admit, actually, I've been on being not that many times, to be honest, but I would say over the course of the last month of April. Now we're at the end of the month I'd say I've been on being about 10 times. And each time I've used the chat function just to play around with it. So, and my behavior was I would never have dreamed of going on being before. Yeah, yeah. Well that's interestingly, I have not been on being once. And that for the reason being that why go on being when you can just go straight to open AI and open AI dot com and get on chat GPT directly. That's, that's my behavior so I'm using chat GPT and still just using Google for search right but I'd say my Google searching has definitely reduced for sure, but it hasn't transferred to being it's just gone straight to the right so what I was testing out was that being is running open AI is chat GPT for rather than as it. So, what's the difference the actual UI is a little bit different bit cleaner a bit nicer. I actually like the 80s retro feel of the original open AI platform to be fair, just because I'm old. But GPT for if you go straight to open AI, you pay for that right it's 20 bucks a month to get the premium access. But are you saying that you can actually get use it for free on on big. Yeah, I'm pretty sure. I don't sure how they packaged the description yeah I know it's like what 20 bucks if you're getting like the pro version on. It's $20 a month yeah yeah. All right, I'll go and check it out. That would make sense right from a. Okay we are a major investor in this company, however, with by far the boss here and the traffic's got to come our way, we will have your your technological build of that product. Yep. But I mean like a purpose. And absolutely I mean going back to their earnings of course like on the earnings call, of course all anybody wanted to talk about was, you know, chat GPT and how amazing it is and, and so obviously, Nadella, you know, Microsoft. Yeah, it was saying that, well actually interestingly, because their earnings numbers were really strong, but he actually said AI capabilities were not a big driver. Yeah, yeah, right. But what he did say was that the company is now quoting here the company is now having conversations we never had with clients who are keen to leverage AI. He made the obvious point that Microsoft are particularly well positioned at the very start of a new cycle. We feel we have a good lead, and we have differentiated offerings up down the stack. That's how he described it. So obviously, I mean, yeah, this is all in the future right all this chat GPT lead they have hasn't touched their, their earnings really at all at this point. I know that open AI are now charging, there is a premium kind of subscription offering so I've got no idea what the kind of numbers are on that in terms of because they've got who knows now but like I know it was 100 million users wasn't it on chat GPT on the obviously free version, but I don't know what the usage numbers are I think that 100 million stat that's at least a month old now so I assume that's continued to rise but I don't know what I think they've been quiet and haven't revealed what proportion of those users have actually flipped to being that's you know premium subscribers but but look you know obviously that's all very positive for the future. But yeah, I mean their numbers then just forget AI we're still pretty impressive and obviously we often look towards the cloud division of actually a lot of these big tech, talking about the big techs here and certainly Microsoft and Amazon comes to cloud computing as you're on the Microsoft side AWS on Amazon side and it's always like the least it always has been the kind of fastest growing part of these two giant businesses so everyone always looks towards the cloud figures first so on the Azure side that division climbed 16% which was better than expected and like there were fears again back to this idea around we're talking earlier about advertising and how that's vulnerable in a downturn when you're talking about Microsoft and Amazon it's like well cloud services are potentially vulnerable in a downturn with companies kind of reducing costs and cloud computing cost being one of those items that companies might go to so this is why these numbers again were evidence that the recession has not as definitely not started and so much better than expected figures and yet but that slow down in spending that were maybe worried about might happen definitely hasn't started yet. Okay well let's, let's go into alphabet and tie some of those concepts up with because Google cloud revenue and so forth and advertising just very much paramount to alphabet when we talk Google, their total ad revenue 54 and a half billion exceeded expectations. YouTube revenues which I think it's taken a bit of a hit recently, they actually beat as well. Their cloud revenue actually did miss ever so slightly though. A couple of other highlights and their numbers at $2.6 billion charge related to layoffs, office space reductions during the quarter that decommissioning cost sunk costs right there. Yeah, and then the board authorised a $70 billion share buyback as well. And I'm sure that's not the first time they've done that to just yeah well yeah well exactly they were I was just looking back they announced a $70 billion share buyback pretty much exactly a year ago today. So yeah they're repeating that that trick. The trick that really, I guess was pioneered by Apple pioneered in the sense of relentlessly buying back hundreds of billions of dollars of your stock. Well I guess not quite hundreds in the case of Google but you know 70 billion a year like bang every year every year bang bang bang buying stock back buying stock back buying stock back which of course means yes one great way of boosting your profit. Because when we talk about profit, we don't just talk about how many dollars profit did you make. It's what was your earnings per share. And if there are less shares, well then your earnings per share goes up. So it's just juicing that that bottom line, an apple of just geniuses at it, and they've got you know obviously you need cash to pull it off. So you obviously got to have a phenomenal business that just you know generates cash like it's going out of fashion and like too much cash and so you've got to spend it somewhere right so yeah Google, you know, and we'll see that again next year, I mean absolutely, you know this time next year look out for the 70 billion being pumped in just quietly. Yeah, so it's a trick these big giant tech firms have been been been deploying for for quite a while but yeah I mean look at that their numbers. I guess Google, of all these ones we're talking about, I would say are the under performers which is, you know, looking back over the last 1215 months under performers in the sense of like their share price. Obviously, you know, they're facing a bit of an existential threat, which I've never ever had in their entire history in the shape of chat GPT. You know, does that genuinely threaten their search business which of course is is the giant revenue generator. So it's quite interesting that Google are in this that they're certainly not used to it right they're in this phase where it's like okay we actually do have a challenger. Perhaps we need to kind of step up so looking at the share prices like of all of the all of these big tech stocks and Google's is the laggard in terms of its rebound. Like this year for example we were talking about Facebook or metal I should say kind of tripling. I mean that's, it's a harsh, it's a harsh sort of comparison because face metal was coming off such a depressed low. I mean like Metastock has tripled in the last six months right whereas Google's has gone from about about 85. The lower in November was 85 bucks, and we're trading up at 107. Which is percentage wise is still good. What's the S&P over this period. It's a good question actually, I'll, I'll compute that in a second but you know it's still outperform the S&P, I would guess, but it's underperformed its peers is my point. And certainly when you're looking back to the highs back in 2021 yeah you know Google's still a fair ways off that so it's just had a, yeah it's just been challenged for the first time in its history. One of the interesting things just outside of their numbers and stuff was the move. I think it was this week or maybe it was last week now. Clearly they've been surprised. Chat GPT and obviously therefore Microsoft have really pulled a fast one here, and they've come out of the gate as I said the gun has been fired and Microsoft out of the gate miles ahead. So, they've made a bit of a move here. So Google used to have it's such a behemoth of a business. And whilst they're spending a lot of cash on buybacks they're also spending a huge amount of cash on lots of kind of moonshot kind of projects and ideas. And DeepMind is one of these right DeepMind is the AI business that they bought for $400 million back in 2014. So the guy who, the founder of DeepMind, Demis Hassibis, so they're London based business. And when Google bought them it was very much the deal that, you know, the only Hassibis only did the deal on the premise that they were kind of largely left alone. Like yes you can buy us but we are going to continue to develop software that's as intelligent as a human being. So we're going to do it in our way we're going to do it without a remit of having to build certain products and monetize those products and generate, you know, dirty stuff like revenue and profit he was like that's not me. We are going to, you know, do this, you know he was almost like a non non profit type mindset this guy right and largely they've been left alone because of that. So they've had these two divisions running pretty much separately, you know, in parallel what's happened last week is they've merged them. This is a really big deal. Because as I said, there's been quite a lot of rivalry in the last couple of years. So they've had these two divisions running pretty much separately, you know, in parallel what's happened last week is they've merged them. It's a big deal. Because as I said, there's been quite a lot of rivalry internally between these two departments. And they've gone you know what Microsoft is so far ahead enough. We need to stop pandering to your internal politics, we're going to make a move here and they've mashed these two together with hasabis being the head of both. They've definitely ruffled a lot of feathers on the Google brain side, but they're calling this now Google DeepMind. Okay, the merged departments, it's going to be headquartered out of London, which is a pretty, we've been London bashing on this podcast for quite a long time but actually this is a bit of a coup. It puts London back on the map in terms of you know being up right at the kind of cutting edge of the AI kind of evolution but I thought it's just an interesting move and and the deal here hasabis has said right I will head up these two departments but Larry Page has said basically the only way this is going to work is you're going to have to give up some of this sort of nonprofit type mindset. This department is now having a commercial commercially minded direction. And so they are to build a general AI systems that are going to make money for Google and they need to compete with Microsoft and they're behind and so this is Google's first kind of major move I would say to start to kind of get back in the race. I don't know what the timeline though is for that type of development but I guess if the two haven't been working in unison. Perhaps there's a media crossover advantages that would happen as a synergy to create, you know fast track that process but yeah definitely interesting to watch wasn't aware of that to Amazon to finish their shares jumped about 12%. It's funny because I actually put a post out and you know the name of the game is get it out quick. The door it went. And then I looked. I was like ping my phone went off like half an hour later because the conference call generally is a bit later. And someone left a comment on my post like going you bozo look at the shares now. And I was like oh no what's happened. You just bozo. Yeah they just got crushed in the conference call they went up from 12 that then down negative then they kind of flattened out pretty much. So yeah talking about, let's talk about the positives first and then we'll talk about the negative so from a numbers perspective earnings per share beat their AWS division beat and advertising probably saw the biggest margin of clearance over Wall Street estimates. A couple of comments there. So this is the CEO and the Jassy he said our advertising business continues to deliver robust growth largely due to our ongoing machine learning investments that help customers see relevant information when they engage with us, which in turn delivers unusually strong results for brands. So again jumping on the the AI bandwagon and in fact, mentioning the phrase AI. Six times in the earnings release and the full phrase of artificial intelligence twice to eight. So, in order to play a bit of that catch up. As opposed to some of the other names like Microsoft these guys are just absolutely trying to scream and shout about as much as possible. It's all anybody cares about. Literally investors they're so. I don't know, single minded or the other just have a complete inability to focus on more than one thing at once basically and basically they don't care about any like meta go briefly back to mecca methods earnings. Absolutely AI chat was amazing and great. Excellent slide in the cut the spend on meta versus gone up. Like 12 months ago that's what sent the stock down 25% in like a heartbeat right so the kind of same kind of message but no one cares. But yeah, I mean, AI what was interesting for me in Amazon's report, because as you said, stock up 12% thing, and that's because their numbers were great right nine percent their numbers are quite incredible as out of all of them, Amazon make the most money in terms of revenue. Okay, so 127.4 billion in the quarter. So that was up 9%. I mean that's quite remarkable. Let's just stand back and applaud. When your revenues above 100 billion in a quarter and you can still grow it nearly double digits it's good it's quite. It's quite remarkable but anyway, half of that roughly well less than actually it's from their online stores so that is something to note their online stores which is what you know Amazon as right in terms of a user. Mostly you're on Amazon buying stuff or maybe you're you know on Amazon Prime or whatever. But that was 51.1 billion for the quarter, which was flat that didn't grow. Okay, but that's now, yeah quite a bit less than half of the revenue, which is just showing how Amazon's diversification, you know away from just that online store has now got to the point it's now less than half their revenue and it's the obviously the lowest profit margin by by a long way. That's the other stuff they're doing like AWS is their big profit generator very high profit margins, AWS generated 21.4 billion. So yeah makes up well very roughly about 20% of their of their total revenues now but you know obviously so their numbers are great right stock up 12% but Amazon said something that kind of contradicts what we were hearing from the others, because their share price then dropped all the way back to almost flat and basically they said in terms of their guidance going forwards customers continue to evaluate ways to optimize their cloud spending in response to these tough economic conditions. And we're seeing these optimizations continue into the second quarter with April revenue growth growth rates about 500 basis points lower than what we saw in quarter one. So the only ones that from their guidance and outlook for quarter two have indicated that maybe this recession is beginning we're beginning to see signs of it it's just odd that none of the others really mentioned this and their guidance was quite positive so I don't know whether Amazon are the only ones being honest or actually Amazon's business is underperforming because Microsoft direct comparison Microsoft as your right that Microsoft weren't guiding the quarter two is looking weaker, but they didn't guide that. Amazon did so I don't know. I don't know who to believe, because both of their cloud businesses, their revenues increased weirdly the same amount. So they were both up 16% in quarter one. Amazon guided negatively for next quarter Microsoft didn't. So, maybe a big anomaly. And chat GPT's been out for a while now. Yeah. And so maybe then the association of that technology overall is created a degree of marginal shift. Yeah, from one cloud provider to another. These things aren't easy but because I know that Amazon brought out is it bedrock. I think is there. The AI department or the team that they've put together I think that's the product, but they are they are last in that race. And so, perhaps it's just some of that people the early birds jumping ship. Yeah, but Amazon. So, I mean, look, you can this whole AI thing right you can. You can play it in so many different ways I think what Amazon was saying on their call is you know we're perhaps not in the race. Like the coal face like chat GPT type thing but they're developing microchips, they think they're going to be in the race on the chip side obviously this AI revolution is going to require. You know, several of all orders of magnitude greater computing power right and you need chips to be able to pull that off and Amazon have got that they're kind of chip development, it looks like they're on course to take advantage of that. So while you were talking this this really goes to show this whole conversation. So I quickly jumped on Google. So I jumped on Google right search for the Amazon press release about bedrock and then slung it in to Microsoft open AI to summarize what is a five thousand word document. So I've gone from Google to Amazon's page, then over to open AI Microsoft to figure this out. So yeah, they're talking so they've got a number of things going on actually Amazon Sage maker feature store jumpstart studio. These are tools designed to make it easier for developers to build train and deploy generative AI models. The blog post also highlights benefits of using these tools faster development cycles lower cost improve accuracy. Overall focusing on the violence advancements made by AWS to enable developers to build their own powerful journey generative AI applications. Yeah, but yeah. And actually an insight another insight. I just remembered because we use AWS right as a business. We use Amazon's cloud. Now we've been using that for years right and something happened this quarter. I think I can't remember exactly when it was like back in January or maybe it was February now I can't remember. Something happened that's never happened before and it happened. I was like wow that's, that's kind of amazing. I wonder why and what happened was Amazon basically called us got in touch and said we would like to provide you with a service of seeing how you can reduce your AWS costs. We got called by AWS to help us reduce how much money we give them. And it was like wow what okay that that to me was a clear indication that they are really worried about what you've just said which is people jumping to Azure because Microsoft have got got a head in this this kind of AI race. Yeah, so they're actively wanting wanting to engage with customers that we got your back. Let's help you reduce your spend. You know, well you know when I see when I see Bezos rolling out his. What is it half a billion dollar New York coming out of the port like yeah. Cool. All right well let's wrap it up there. Thanks very much for your time is ever thanks everyone for listening and also don't forget to check out the career series the final episode of that. The third installment comes out on Wednesday next week. So just giving you the date that will be the third of May from when we're recording this and yeah that really great episode to wrap it up probably my favorite of the three. I'm speaking to John Normand who's a super experienced guy who works at UBS the World Bank he was an MD at JP for 25 years. The final ones a good one if you're a student looking to get into finance you cannot miss that one so make sure that you subscribe to the channel follow hit the bell icon and you'll get a notification as soon as it goes live on on the third of May but yeah have a great weekend if you're have a great weekend enjoy the long weekend if you're a student studying don't stress out too much you're going to nail it so don't worry but yeah take care thanks Pierce have a good weekend.