By Blake Anderson, CFA, Sr. Analyst, Investment
Investors this week parsed results from some of the world’s most familiar companies including Alphabet, Tesla, Visa and Spotify. Each of these companies aim to tell investors a similar story about product innovation and revenue growth as a result. In a growing economy that continuously produces new products, these companies are at the forefront of innovation.
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Investors have rewarded Alphabet’s progress in AI-powered search by pushing its shares 30% higher in 2024 leading up to this quarter’s results. Although shares dropped roughly 5% the day after the report, the results largely confirmed that Google still maintains a strong hold on consumer internet traffic. Search revenue grew 14% year-over-year, slightly exceeding estimates. Additionally, company filings revealed that Paid Clicks, a measure of user traffic, increased 6% since last year, accelerating from 5% growth last quarter. AI may indeed be boosting overall internet usage!
Another standout in Google’s results was YouTube advertising, with revenue in this segment growing 13% to reach a new record. This highlights that disruptors in streaming continue to gain market share. According to Nielsen data, both YouTube and Netflix (which my colleague Jake Bleicher wrote about last week) are increasing their share of viewership time. Over the last two years, YouTube’s time share has grown from 6.7% to 9.9%, a nearly 50% increase, reflecting changing content consumption preferences. Google’s leading market share in both Search and YouTube underscores the strength of its underlying business.
Tesla shares faced pressure following the company’s results, dropping roughly 12% the day after the report. However, it’s important to note that shares had previously rallied 39% between the day Elon Musk’s eleven-figure pay package was reinstated up to the close of trading before this report. The approximately $246 billion added to Tesla’s market cap since this shareholder approval reflects positive investor sentiment that Elon Musk will continue his track record of disruptive innovation with Tesla.
The company’s earnings report left investors skeptical, however. Tesla reported a 15% increase in vehicle deliveries in the second quarter compared to the first quarter, which initially signaled strong demand and a potential improvement in margins and earnings. The full earnings report revealed that vehicle gross margins were largely flat, a disappointment to investors as it implies lower pricing.
The most forward-looking comments from this earning’s report were about Tesla’s Full Self-Driving (“FSD”) offering. This technology has been highly debated, but recent advancements in AI-focused computing have enabled these systems to reach more functional levels. During the earnings call, Tesla management noted that “attach rates for FSD materially grew after our pricing adjustments,” meaning more drivers are opting for this technology. The graph below, courtesy of Tesla, shows that miles driven with FSD continue to rise. What was once aspirational technology may now be generating substantial revenue.
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