Since 2023, with the explosion of ChatGPT, many people are worried that Google's position as the leader in the search engine field will be shaken. Microsoft's Bing search engine, with the addition of ChatGPT, could rapidly erode Google's market share, threatening Google's base plate. And then is the truth really like this? We can find the answer from Google's financial and business data.

Google will release the latest financial report after the U.S. stock market close on April 25. What should Google's financial report look like? What are the main points of concern? Its core may lie in two aspects, including a base plate and a growth point.

1. Basic portfolio: advertising business

Looking at a company's financial statements, you first need to focus on the businesses that account for the highest revenue. In Google's revenue composition, advertising revenue accounts for nearly 80% of total revenue, which is arguably Google's bottom line. For Google's advertising business, there are two main points to pay attention to.

First, focus on the growth of advertising revenue.

The advertising business has a certain cyclical attribute. When the economy is not expected, businesses need to reduce efficiency. The first thing to do is to compress advertising, which puts pressure on the entire advertising industry to grow.

Previously, Google's ad revenue growth slowed from its high point in Q2 2021, especially starting in Q2 2022. As the Fed enters a rate hike pace, the economy is expected to decline, Google ad growth has declined more than a cliff, with two consecutive quarters of negative growth starting in Q4 2022.

However, in Q2 2023, Google's ad revenue showed a better-than-expected drop of about 3.3% year-on-year, and in the latest 2023Q4 report, ad revenue grew 11.0% year-on-year for three consecutive quarters. In future reports, we still need to remain focused on whether its ad revenue growth will continue to rebound.

Second point, follow the change in market share under the ChatGPT impact of Google Search. In Google's advertising business, the vast majority of revenue is contributed by Google Search ads. This is the root of the development of Google Survival.

In Statcounter's statistics, we see that between January 2023 and March 2024, the market share of Bing, under the auspices of ChatGPT, did show a small increase in Microsoft's market share. Google's market share also showed a slight decline, but still remained above 90%, maintaining its monopoly status, its moors and competitiveness may not have suffered a major impact. We can then continue to see if Google's market share remains stable.

2. Growth point: Google Cloud

If advertising is Google's core business, then the cloud business is Google's core growth point. As of Q4 2023, Google Cloud ranked only 10% of overall revenue, but was one of the company's main growth engines. For Google cloud business, there are two points to consider as well.

First, see if Google Cloud can continue to grow at a high rate.

Currently, Google Cloud ranks third in the cloud computing services industry, and while its market size is far behind Amazon and Microsoft, cloud business growth remains ahead of the three. However, Google's cloud business growth has slowed significantly amid a slowdown in overall growth in the cloud services market. Growth in the previous two quarters of 2023 remained steady at around 28%, dropping to less than 23% by fiscal 2023Q3. However, in 2024Q4, Google's cloud business accelerated steadily, rebounding to about 25.7%.

For Google Cloud's revenue growth expectations, we can look forward to a forward-looking indicator, namely the revenue backlog that will be disclosed in the report, primarily the amount of unexecuted customer orders signed by Google Cloud, which can be said to be the payoff of Google's cloud business.

We see contract revenue from Google Cloud at approximately $741 billion in 2023Q3-Q4, growing substantially for two consecutive quarters in 2023Q3-Q4 after experiencing a slight decline for two quarters in 2023Q1-Q2. This is perhaps good news for the expected acceleration of Google's cloud business.

Second, look at Google Cloud's profit margin. The cloud computing industry has a more pronounced scale effect to a certain extent, and only after a certain scale it is possible to be profitable. The more customers that spend the same money on developing products, the higher the profit margins may be. While Google Cloud's revenue growth is far outpacing Amazon and Microsoft, its profitability has also been the strongest due to its minimal revenue size.

For a long time, Google Cloud has been in a state of continuous loss and has been a bottleneck for its overall profitability levels. The good news is that its loss margin tends to narrow overall, until Q1 2023, with Google Cloud's revenue reaching a tipping point, plus cost optimization brought by cutters, Google Cloud finally achieved its first quarterly profit in history and continued to contribute to positive earnings in the subsequent 2023Q2-Q4 fiscal quarters. In fiscal 2023Q4, Google's cloud operating margin was approximately 9.4%, close to double-digit margins.

For the upcoming fiscal quarter, we need to see if Google's cloud revenue growth will continue to rebound and, as a result of scale, drive operating margins to continue to rise. If Google's cloud margin continues to improve momentum, it will also drive Google's overall profitability up a notch.

3. Shareholder return: share repurchase situation

For tech giants like Google, both revenue and profit volumes are already huge, it may be difficult to replicate the miracle of rapid growth in the early stages of growth, and the future norm may be medium-slow growth.

For a stock price movement, its long-term drivers may include two aspects: growth in performance and return to shareholders on the other. If you don't grow enough, you may get shareholder returns. The core of shareholder returns is mainly stock repurchases and dividends. And Google has a larger hand in terms of repurchases.

By repurchasing shares, on the one hand, you can reduce the number of outstanding shares, increase the profit per share, on the other hand, inject additional capital and liquidity into the market, and, finally, reduce the company's net assets and increase the return on net assets, which can have a very positive effect on the share price.

In recent quarters, Google's repurchases have remained at around $150 billion, second only to Apple among all tech giants. Its net asset return has remained high for most of the past few years, at around 20%. For future reports, we can continue to monitor Google's repurchases, which will perhaps inject more confidence into the market if sustained high repurchases.

Finally, to summarize,

The advertising business is Google's core business, with revenue growing again in nearly two quarters, and we need to focus on its continued growth.

Google search is the foundation of the advertising business, and we need to keep an eye on whether its market share remains high.

Google Cloud is a key growth point for Google, and its growth rate remains at the forefront of the giants, and we need to focus on forward indicators of this revenue growth in contract revenue.

Google Cloud has a relatively low operating margin, and we need to watch for improvements in its margin.

Against the backdrop of lower Google growth expectations, its high repurchases have a positive effect on the share price, and we can focus on the persistence of its high repurchases.

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