Last week, the balance sheets of important technology companies in America arrived. Among these, Google made a GAP Down and lost around 6% - 7% value in one day. Google made a similar move in its previous balance sheet. Although it increased from there on. There was a 12% increase in the last 3 months. But when two balance sheets decline so sharply in a row, is there something wrong with my investment thesis on Google? I felt the difficulty of questioning whether I was making a mistake somewhere, and the more I questioned, the more I realized that Google was not doing the right things, especially on the search engine side, and that Google, which started very early in artificial intelligence, started to fall behind its competitors in terms of search engine integration with artificial intelligence, and that new competitors were coming to the market. He showed me that he could get a share from Google.
In this context, what is happening on the search engines side today? Remember, it is still one of Google's biggest sources of income, along with YouTube. There is currently no serious competitor to YouTube. But things get a little complicated on the search engine side. What are the new competitors? Where are things heading technologically? I will share my ideas on this subject. Because remember, I like to invest in companies with the best technology and best products. I think in the long run the best technology and the best product are the winners. If we leave aside short-term stock movements, what is happening at Google in this context? We'll take a look at what's happening in the search engine market.
First, let's take a look at the financial results. When we look at Seeking Alpha, we see that Google actually meets expectations. For example, it brought in $1.64 in profit per share. Google brought in $86.3 billion in revenue this quarter, 4 cents above market expectations. 1 billion above market expectations. Everything seems fine here. Another website, appeconomyinsights.com, also summarized the last quarter of Alphabet, that is, Google, with a nice graphic. When we look at the turnover, there is a 13% increase. There is a 3 basis point increase in gross profit. There is a 4 basis point increase in the main activity decision. There is a 6 basis point increase in net profit. The numbers are truly beyond amazing. Where is the problem? The only problem is advertising revenues. The market was expecting an increase of 12-13% in advertising revenues. However, the increase in total advertising revenue remained at 11%. Moreover, this is despite YouTube's growth beyond expectations.
The problem is that revenues, especially on the search engine side, do not seem to increase as quickly as expected. In fact, when we look at items such as Adsense and Google Ad Manager, there seems to be a decrease from year to year. This is the issue that scared Wall Street. Because when we look at it, the majority of Google's income is still based on advertising revenues. 65.5 of the 86.3 billion dollars comes from advertising. The revenue coming from parties such as Google Play and Google cloud services is much lower. Of course, an interesting note is that they did not like the increase in turnover on the cloud side in the previous quarter. That's why they punished the company.
Everything seems to be fine there this time. There was a 26% increase, but the market was not satisfied with the advertising revenues. It is actually possible to agree with Wall Street analysts on this issue. Because when we look at Meta's balance sheet on Friday, we see a 24% year-on-year advertising growth in Meta's revenue from applications. It reached 38.7 billion dollars. Of course, it's a smaller base number. We were talking about over 80 billion dollars at Google, growth becomes easier when the base is smaller. But still, if Meta grows its advertising revenue by 24% while Google grows it only by 11%, it means there is something to be afraid of here. By the way, Meta's balance sheet is truly extraordinary. The commodity rose around 20% in one day. Thanks to this great balance sheet. Of course, they announced that they would buy back not only the balance sheet but also the shares. On the other hand, they also distribute dividends. So they pretty much gave everything investors wanted that day and Meta flew away.
What's going wrong at Alphabet? What's wrong with Alphabet is advertising revenue. There doesn't seem to be much of a problem on YouTube, but there is obviously a problem with search-based ads and Google Admob. In one of them, the growth is 13% on the admob side. You know, there is a shrinkage in Google ads shown on other websites, the market is afraid of this instead of growth. In my opinion, the main issue behind this is that Google is losing its advantages on the search engine side. Beth Kindig is an account I follow fondly on Twitter, and I recommend it to you too. He shares very good things, especially about technology. He made a quote from Bloomberg and this quote shows the increase in the number of users on Bing, Microsoft's search engine. It almost doubled in 2023, and when we look at the stagnant pace in 2022, it seems to have tripled since then. Its share in total search requests is still only around 3.4%.
So Google is still the undisputed king here. But it is obviously a disturbing development, especially if we consider that Google's most important source of income is advertising and that most of the ads are displayed on the search engine. It is clear that Google is in trouble here and Bing is not the only competitor. There are other significant competitors, and the search engine experience they offer seems to be slightly superior to Google's. Comparing between search engines is not very difficult. Because we use it ourselves. What a difference it makes in a user experience. It is necessary to look after him. And also the quality of the search results. I do not currently have a data set to benchmark the quality of search results. But when we look at it from a user experience perspective, things are really interesting.
For example, let's go to Google and ask how Amazon's results were in the last quarter of 2023. It presents a brief data above. It had a turnover of around 170 billion dollars. It has a net profit of $10 billion. The CEO said things are going well. Prime video will grow. There is such a short summary. At the bottom there is a section called top stories. In other words, he recommends things we should definitely read about this. Then he says people also ask these questions. So, if you want the Google search experience that we have been accustomed to for years, you can find news about it, you can find books, you can find shopping. I find the purchases linked here quite ridiculous. You find images, images, maps, you can access them all. Experience we have known for years.
Well, now let's take this same search topic and move it to Bing. What's going on there? Bing's first screen is even hotter. He says ask me whatever you want. We say call and see what happens. First of all, the first topic that caught my attention was 396000 results. On Google, this number of results was 10400000. Which one is better in my opinion, if it is filtered correctly, of course bing is better. Additionally, on this first screen, when we do research on a company's balance sheet, the first websites we consult are the way they present the news. I liked this very much, and if you want directly here, you can expand your search by clicking look for more news. On the right side there is general information about Amazon and when we go down it also offers us some other American brands etc.
Bing's experience is a little different like this. But the Bing experience doesn't end there. We also have a copilot here. When we click on Copilot, that is, when we go to the artificial intelligence environment that Microsoft runs with chat gpt, the image suddenly starts to change a lot. Now the AI summarizes Amazon's results to me. It provides summaries by country and geographical segments. It states the operating profit as a separate line. In other words, you can inform me in a much stronger way, and if you wish, you can enter into a chat here, just like in chat gpt, and get more detailed information on the subject you want. Of course, this is a much better result than Google's search result. This probably seems to have an impact on the increase in Bing's performance.
But there are also newer players in the market. For example, one of them is perplexity. Perplexity has also received investments from important investors such as Amazon founder Jeff Bezos. We are uploading the same question here now. Let's go see what happens. First of all, this gets support from the copilot and an image appears on the first screen. It gives a quick summary. However, it was a short paragraph on the Google screen. Here we can see the basic information we are looking for much more clearly. There is an option here called rewrite. And that rewrite can be done either with copilot, with GPT 4, with Cloud 2.1 or with Gemini Pro. Here's the interesting thing: Gemini Pro is Google's big language model. So, you can repeat this search on any major language model you want, these are included in this paid service. There is a monthly fee of 20 dollars. I was stingy for now, but I plan to use it later. In this way, you can easily access the opinions of different artificial intelligence language models on the subject. He also mentions the sources, and I saw that aspect as very strong. It provides relevant questions, and for example, when we look at the relevant questions here, it has a better performance than Google.
When we look at Perplexity, there are more practical questions and the best part is that there is an option to ask a follow-up question. For example, if we say compare Q3 to Q4 operating margin, he shares with me the results of a research comparing Amazon's third quarter and fourth quarter operating profit margins. Also, when we look at experience and practicality, images and videos are right next to each other. As you know, on Google, you have to go to separate screens for that, and if you use professional mode, there is also something called generate image. In other words, you can also create a visual for yourself on this subject. For this, you need to use the professional version. We have an experience that benefits much more from the world of artificial intelligence.
Can you do this job in chat gpt? Not really. Because, as you know, up-to-date information is not available in chat gpt. Therefore, the answer to the question is no, I could not find up-to-date information. What's interesting is what happens when we look at Bard, Google's own big language model, which is the rival of chat gpt. Let's ask the same question there. First of all, it's been a long process and we're waiting a lot. I don't know why we are waiting. It lists very good results and even has some comments called key points. So why isn't Google search integrated with this? Understanding this is frankly beyond me.
What is even more interesting is that when we look at young people, we see that many young people can directly use TikTok as a search engine. Let's upload directly to TikTok here. When I uploaded it with the same question, comments can be accessed via vertical short videos on a video basis. We see that many people prefer these. So Google is no longer alone in search engines. There are many solutions that offer better quality results.
It is also useful to look at the searches on the shopping side. Let's say you're looking for a good gaming monitor for yourself. When you search on Google, offers from advertising companies come to the fore. Similarly, when we look at Bing, we see that the information about the companies that advertise here, that is, the companies from which you will directly purchase the monitor, comes to the fore. But when we go to copilot, things change. It starts to provide incredibly detailed information. When we look at different criteria, we decide which one is the best. It offers different information such as which one is the best, which one has the best update and refresh rate, depending on the computer specifications you use personally. Here you can also choose your speaking style. It's much stronger, more creative, more balanced, more sensitive, and it can nourish you and deepen the conversation by asking new questions from there.
When we ask Perplexity, it comes up with another comment. It shows us what is best according to which criteria. There are very reasonable questions below. You can also ask follow-up questions or follow-up questions if you wish. We already know from experience in Chat gpt and Bard. When we ask the same question to Tiktok, you get much more colorful live information such as direct video suggestions, how they come out of the packages, what the famous influencers here think. So in this case, would Google be my number one search engine?
Maybe out of habit, but actually I don't search for many things on Google anymore, I search for some things on YouTube. I'm looking for some on TikTok. Some of them, for example, I can go directly and search on Amazon. Because when we do a research on what is the best gaming monitor, Amazon's advantage is that there are also customers' opinions. Ranking accordingly gives me much more confidence.
Does all this mean that Google is done? Of course not, but I think the reason why Google, which is the first in artificial intelligence, still seems so primitive on the search engine side, is not technology. The issue behind it is fear of disrupting the business model. Bing doesn't matter to Microsoft. They do not have a serious income from there. For others, search engines are still not their main source of income. Perplexity also makes money through its membership model, not from advertisements here. He also introduces a brand new model. However, Google makes money from the advertising revenue provided by the companies that appear first in our search results. He just can't give up on this. Since he cannot give up on this, we see a huge blank screen.
Therefore, when we look at perplexity, we are faced with a screen that nourishes, educates and develops us much more. All this does not mean that people from Google will suddenly flock here. Habits do not change easily, but Google has started to experience small losses every quarter on the search engine side and cannot make the necessary move due to this problem in its traditional business model. Apart from this, I also think that Google has had a management problem for a long time.
When I told him what the CEO says about the last balance sheet, he annoyed me again. For example, they said, "What do you think about the impact of artificial intelligence on search engines?" I am waiting for a concrete answer on this issue. He gave a round answer like this. Artificial intelligence is of course very important, we will integrate it into our search engine technology. They screwed up all of the presentations they made about artificial intelligence before. In one of them, the artificial intelligence gave wrong answers on the screen. We later learned that the video shown in the other one was seriously edited and that things were not at all as shown on that screen.
In this context, there is also bad management at Google. In the context of all this, am I giving up on Google investment? No, I'm not giving up yet. Because don't forget that Google's data source is the world's largest search engine, the world's largest e-mail application and the world's largest video application, YouTube. It's all in Google's hands. All of them are in the hands of Alphabet. In fact, they have made early investments in artificial intelligence technology. They set off long ago. There are tremendously powerful data centers. Google can do this job. But I have serious doubts about whether he can manage with this CEO. Because Google needs to make a bold move, and unless it makes that bold move, that is, unless an alternative to the current monetization model is developed, it seems that it will be left behind in this race, not technologically, but in terms of the experience it provides to the consumer.
This is called the innovators dilemma. In fact, it is said that the new technology puts a lot of pressure on the old players, not because the old player cannot make similar technology, but because the old player cannot give up the old money-making model. Innovators are such a topic in my agenda. Google is not a bad company. He has incredible money. He has incredible power. In this context, I still trust Google, but I really think they are far behind in this game.
The information, comments and recommendations contained herein are not within the scope of investment consultancy. Investment consultancy services are provided within the framework of the investment consultancy agreement to be signed between brokerage firms, portfolio management companies, banks that do not accept deposits and customers. The comments in this article are only my personal comments and these comments may not be appropriate for your financial situation and risk return. For this reason, investments should not be made based on the information and comments in my articles.
