Two of America’s vaunted “tech” septet reported quarterly results after the bell on Tuesday.
Three months on from introducing a first-ever dividend and hiking buybacks, Alphabet said revenue grew 14% YoY (15% ex-currency impact) to $84.74 billion, ahead of estimates. The Street was looking for $84.35 billion.
The company returned to double-digit top-line growth in Q3 of last year after sales growth nearly flat-lined towards the end of 2022.
The ex-TAC print, at $71.36 billion, was likewise a beat.
Going line by line, total ad revenue of $64.62 billion was a beat ($64.52 billion). Zooming in on YouTube ads, $8.66 billion came up short of the $8.94 billion the Street wanted to see. Network sales of $7.44 billion were light too. Search revenue of $48.51 billion was a beat. Subscriptions, platforms and devices brought in $9.31 billion, basically in-line.
Cloud, the company’s most promising growth opportunity outside of AI initiatives, printed $10.35 billion in sales. That was up 29% YoY and better than the $10.09 billion consensus expected. That’s good news, and it was the first time Cloud revenue exceeded $10 billion. Operating income in Cloud was $1.17 billion, well ahead of the $982 million analysts saw.
Capex was higher than expected, and the number of employees at quarter end, 179,582, was fewer than the 183,027 consensus predicted.
The results came on a day when Wiz, a cloud cybersecurity firm, spurned a $23 billion takeout deal which would’ve counted as Alphabet’s largest. Wiz will go public instead, thereby saving itself a regulatory crucifixion.
Sundar Pichai talked up AI. Because that’s every tech CEO’s only job now: Claiming their company has some manner of AI edge. “We are innovating at every layer of the AI stack,” he said. “Our longstanding infrastructure leadership and in-house research teams position us well as technology evolves.”
Ruth Porat focused on Cloud, capex, R&D and efficiency. “As we invest to support our highest growth opportunities, we remain committed to creating investment capacity with our ongoing work to durably re-engineer our cost base,” she told investors.
Meanwhile, Elon Musk rode an autonomous rocket up out of the far-right rabbit hole to spend a few minutes talking about Tesla, a company once known for building cars which humans at least pretended to drive, but which, going forward, is staking its future on robotic taxis and an AI roadmap nobody’s seen.
To briefly recapitulate, this is a transition year for Tesla. They’re “between two growth waves,” as the company put it two quarters ago (they reiterated that characterization on Tuesday). Musk cut jobs and prices in a bid to shore up profitability, and although he managed to talk the shares higher after Q1’s earnings release with vague allusions to a new vehicle, details around a long-rumored “affordable” model remain sparse.
Meanwhile, the company’s pivoting hard to autonomous tech. A report that Tesla plans to delay the robotaxi rollout hit the otherwise high-flying shares earlier this month. The stock, you’re reminded, trundled ever lower through late-April, before Musk managed to turn things around. Following a better-than-expected read on deliveries for Q2, the shares went on a ridiculous tear, at one point rising 11 consecutive sessions, squeezing shorts and prompting derisive “meme stock” barbs from the likes of Bill Gross.
That brings us to the company’s Q2 results, which found Tesla reporting sales of $25.50 billion. That was a record, and it was better than the $24.63 billion consensus expected.
So, Tesla’s sales actually rose YoY. Analysts were expecting a second straight decline. Automotive revenues rose sequentially, but fell 7% from the same period a year ago. Energy generation and storage revenue, by contrast, doubled.
GAAP EPS of 42 cents was a miss and adjusted earnings of 52 cents were a little short too. Q2 was the fourth consecutive quarter during which Tesla’s profit fell short of estimates. Automotive gross margin (ex-credits) was 14.6%, 180bps lower versus Q1.
Free cash flow of $1.34 billion was nowhere near consensus ($1.92 billion), capex was actually a bit lower than expected and the company has nearly $31 billion in cash on hand. Tesla brought in nearly $900 million selling regulatory credits, double last quarter’s haul.
Tesla repeated its cautious volume guidance, and the release contained the same allusions to an H1 2025 start to production of “new vehicles, including more affordable models.” Details were scant, where that means nonexistent.
The deck had some futuristic color on AI, self-driving taxis and droids. “Looking ahead to future autonomous driving and robotaxi service, we continued progress on software and hardware development,” Tesla said, adding that “Optimus is performing its first task handling batteries in one of our facilities.”
Bottom line: Alphabet’s report was as-expected. Tesla’s was too, in that it was very difficult to discern exactly what’s going on where and when. The company initially gave no date for the robotaxi debut. Later, on the call, Musk said it’ll be unveiled on October 10.
Tesla is in between a growth wave and a CEO that made a fortune off of greenies and government subsidies, and then decided it’s time to go full nut job, and turned on both.
My wife bought a Model Y, just before Musk went down the rabbit hole. It’s the last Tesla we will ever buy. I doubt we’re alone in that sentiment, so that might be something Wall Street keeps an eye on. I doubt the ‘drill baby, drill, roll’n coal” crowd is going to make up the difference.
Now if you’ll excuse me, the MAGA mobile needs another cover thrown over it. SHAME!
Honestly, I wouldn’t let his politics stop me from buying a Tesla except for the fact that it’s collecting data about my whereabouts, and so on, and he’s (allegedly, according to The New Yorker) been on the phone with the Kremlin at least once since the war started without telling the State Department about it first. If true, that’s the kind of thing (random chats with the Kremlin) that seems bizarre to me, and it’s why I worry about him having NASA contracts, and giving people brain implants and so on. But hey, I bought the stock in April. I’m perfectly willing to invest in Musk’s genius and his companies. I just wish he’d reconsider whether, perhaps, he’s gone a little too far with the red pill stuff.
Fair enough and good points.
I’m done with Musk’s marketing ploys though, and minimally, if I owned shares, I’d be concerned that Musk is putting his interests ahead of the investor’s. Sounds like an Orange Man I know that puts his interests ahead of everybody’s.
Never have owned TSLA nor a Tesla. Former is too volatile…hard to get my brain around fundamentals; latter, like any BEV, isn’t practical given most of my miles come in chunks of 300 or so in the wide open spaces of CO & NM. We are, however, enthusiastic about small bites of SpaceX and xAI shares we’ve been able to take.
I detest Elon’s turn to the dark side (yes, Darth Vader jokes are so Cheney, early 21st century! ) but if his genius is to turn truly evil at least some profits from it may fund my expatriation.
Never-Tesla buyer here.
It has seemed to me that 2H24 is when the big cloud/online names will start reporting slowing YOY growth, as comps get harder and the 2022 cost actions are anniversaried. Looking at GOOG, I think unless AI or some other growth driver steps in to offset the harder comps, consensus for 2H revenue looks somewhat too high. With the big capex now throwing off higher D&A and operating costs, margins expectations also seem not as beatable as before. I know, GOOG says AI has generated “billions” of dollars in revenue YTD. But on an $80BN base, and considering the $50BN/yr capex runrate, that seems a bit vague. “Tens of billions” would be reassuring. But “billions” could be $1.1BN or $2BN.
As for TSLA, beyond declining volume, price, and margins, the CEO’s support for anti-EV politicians, and continued pushouts of Model 2, Robotaxi, FSD, and basically everything, it is pretty obvious that the company and its shareholders are merely Musk’s piggy bank for his other interests. Note the -10% drop today coincides with his release of a “poll” purporting to show support for TSLA investing $5BN into xAI.
As a TSLA shareholder, how much do you like the idea of the next 3+ years of FCF being invested in Musk’s privately owned AI venture? TSLA will probably also pay xAI to run the compute behind FSD, Robotaxi, etc.
Reminds me of Softbank for some years. Or, dare I say it, Warren Buffet?
We are a fifth of the way through earnings now, although only a seventh of the way though Mag 7 reports, so time to start tracking.
21% by name / 20% by cap of the S&P 500 has reported. 63% by name / 70% by cpa have beaten cons rev, 34% by name / 42% by cap have seen 3Q cons rev go up. 84% by name / 88% by cap have beaten cons EPS, 36% by name / 46% by cap have seen 3Q cons EPS go up. Average price reaction to report has been -0.6% by name, +1.4% by cap.
Best sectors so far Health Care, Tech; worst sectors Comm Srvc, Cons Disc.
That’s by my reckoning, anyway. Reading some think Financials has been the best sector so far.
L1M sector performance led by Real Estate, Health Care, Financials – just using sector ETFs as proxy. Comm and Tech worst. Cons Disc was good but dumping now.
So based on beat, raise, reaction, and L1M, maybe ST want to be in RE HC Fin.