Google (Minutes): It's too early to call the second quarter performance

Below is the earnings call minutes for $Alphabet(GOOGL.US) $Alphabet - C(GOOG.US) FY25 Q1. For earnings analysis, please refer to《Google: Can the Ad King Stay Steady Amid Tariff Wars?》

I. Key Earnings Highlights

1. Overall Performance:

a. Revenue: Consolidated revenue reached $90.2B, up 12% YoY (14% in constant currency). Search ads, YouTube ads, subscriptions/platforms/devices, and Google Cloud all delivered double-digit growth.

b. Costs: Total cost of revenue was $36.4B (+8% YoY). Traffic acquisition costs rose 6% to $13.7B; other revenue costs grew 9% to $22.6B, mainly due to higher YouTube content acquisition costs and increased depreciation.

c. Expenses: Total operating expenses grew 9% to $23.3B. R&D increased 14% (driven by compensation & depreciation), while sales & marketing fell 4% (lower compensation), and G&A rose 17% (legal matters).

d. Profits: Operating income jumped 20% to $31B (margin: 33.9%); net income surged 46% to $34.5B with EPS up 49% to $2.81.

e. Cash Flow: Q1 free cash flow was $19B ($74.9B LTM); cash + marketable securities totaled $95B at quarter-end.

2. Segment Breakdown:

a. Google Services:

- Revenue: +10% to $77.3B, driven by Search ads, YouTube ads, and subscriptions. Search & other ads revenue grew 10% to $50.7B, led by financial services (insurance) and retail; YouTube ads rose 10% to $8.9B (direct response ads outperformed); Network ads fell 2% to $7.3B; subscriptions/platforms/devices grew 19% to $10.4B (YouTube subs + Google One).

- Profits: Operating income +17% to $32.7B (margin: 42.3%).

b. Google Cloud:

- Revenue: +28% to $12.3B, fueled by GCP core + AI products; Workspace growth came from higher ARPU.

- Profits: Operating income hit $2.2B (margin: 17.8%). Scaling efficiency offsets cost growth (especially depreciation).

c. Other Bets: Revenue fell to $450M with $1.2B operating loss (no milestone payment vs. Q1 2024).

3. CapEx: Q1 capital expenditures were $17.2B (mainly servers + data centers) to support Google Services, Cloud, and DeepMind.

4. Shareholder Returns: $15.1B stock buybacks + $2.4B dividends. Board approved 5% dividend hike and $70B buyback authorization.

5. Q2 2025 Outlook:

a. Revenue: Google Services ads face tough comps in financial services; Cloud growth depends on capacity deployment (significant expansion expected by late 2025).

b. Investments: Full-year CapEx ~$75B with quarterly volatility. Rising depreciation from prior investments will accelerate in 2025; headcount growth in key areas; Q1 stock comps atypically low.

II. Earnings Call Details

2.1 Management Highlights

1. Overall: Search delivered double-digit growth with AI Overviews reaching 1.5B MAUs; Subscriptions surpassed 270M (YouTube + Google One); Cloud showcased AI leadership at Next ’25 (Gemini 2.5 hailed as industry-leading).

2. AI Infrastructure: Google’s 2M+ fiber miles + 33 subsea cables underpin its TPU/GPU-rich network. 7th-gen Ironwood TPUs deliver 10x compute vs. DPUs at 2x efficiency. Partnered with NVIDIA for B200/Blackwell GPUs + upcoming Vera Rubin.

3. Models: Gemini 2.5 Pro tops benchmarks; AI Studio users +200% YTD. Imagen 3/Veo 2 boost creativity; open-weight Gema 3 downloaded 140M+ times. Gemini robots + AlphaFold serve 2.5M researchers.

4. Segment Spotlights:

a. Search: AI Overviews now in 140 countries (15+ languages). Multimodal searches (Circle to Search) grew 40% QoQ.

b. Ads: AI-powered PMAX drove 2.7x conversions for Royal Canin (-70% CAC).

c. YouTube: 20th anniversary; Shorts views +20% QoQ; Premium subs hit 125M globally.

d. Waymo: Weekly rides +5x YoY to 250K; expanding to Austin/Atlanta.

2.2 Q&A

Q: Ad verticals showing weakness?

A: Financials led Q1 strength; APAC retail faces slight headwinds from duty-free policy changes.

Q: Commercial query growth drivers?

A: AI Overviews’ record expansion boosted satisfaction; more products coming.

Q: AI Overviews monetization?

A: Ads below Overviews maintain stable RPMs.

Q: Cost restructuring levers?

A: Depreciation pressure rising (+31% YoY), but AI-driven efficiency gains continue.

Q: Gemini differentiation?

A: Search integration (2x query length) + Project Astra momentum.

Q: Flexible vs. fixed investments?

A: $75B CapEx locked in; Cloud demand outstrips supply.

Q: YouTube brand ads?

A: Coachella/March Madness drove growth; financials/retail outperformed.

Q: Internal AI adoption?

A: 30%+ code submissions use AI;客服 teams lead deployment.

Q: AI mode user behavior?

A: Longer, multi-turn queries (e.g., trip planning).

Q: Margin sustainability?

A: Depreciation headwinds mounting but offset by mix shift (higher-margin Search).

Q: Waymo model?

A: Uber partnership scaling; exploring OEM deals.

Q: Multiple AI search UIs?

A: Gemini for coding; Overviews for mass market.

Q: Gross margin drivers?

A: Favorable revenue mix (less Network ads).

Q: YouTube direct ads?

A: AI tools + Shorts monetization gap closing.

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Disclosures: Dolphin Research Disclaimer