Thursday, July 26, 2018

Ahead of Amazon's Earnings: I've Looked at Clouds From Both Sides Now (AMZN; GOOG)

One quick note on Facebook's horrendous guidance.
I know it whacks the stock and thus the indices of which it is a part, S&P 500, Nasdaq and Nasdaq 100; throwing a bit of delay in the march higher but I can put up with a slight change of schedule in the Climateer plan for world domination. Here's the weighting of the top 9 stocks in the S&P (10 symbols), number 3 reports today:


And because Amazon's cloud business, AWS, is the profit generator that AMZN uses as the starting point when deciding how much profit to show each quarter
(it's not as bad as GE's "beat by a penny" accounting in the '90's but still something to behold)
we'll took at what Google had to say recently.
Bows and flows of angel hair
And ice cream castles in the air...
First up, Business Insider
Sundar Pichai strayed from Google's typical rhetoric as he touted the growth of Google Cloud
  • Google has touted the growth of Google Cloud Platform for years, but on Monday CEO Sundar Pichai acknowledged that rivals are also faring well.
  • That didn't stop him from taking a veiled shot at competitors by saying that companies considering cloud adoption face a real danger of getting "on the wrong platform."
  • Analyst Dan Ives said Google has little chance of "knocking off" Amazon or Microsoft but the cloud represents a growth area for the company.
For years, Google managers have talked up the growth of the company's cloud services and tried to undermine the quality level of their rivals' offerings.
Nearly every time Diane Greene, Google Cloud Platform's CEO, speaks publicly she trash talks Amazon and Microsoft's clouds. But on Monday, CEO Sundar Pichai sounded a very different note — if only briefly.

Alphabet Inc., Google's parent company, issued the company's second-quarter earnings report on Monday and afterwards, Pichai took questions on a conference call with analysts.
Mark Mahaney, managing director at RBC Capital noted that while Google Cloud Platform (GCP) appears to be growing, so does Amazon's AWS and Microsoft's Azure. He wanted to know how Pichai explained that.

Speaking on the night before the start of "Next 2018, " GCP's annual showcase for cloud services and products, Pichai conceded that all the players in the segment are faring well — not just Google.
"That's why it feels far from a zero-sum game," Pichai said. "All the major players are definitely seeing traction."

That's not Google's typical narrative on the subject and the reason is obvious. The statement raises awkward questions. Are GCP's business gains the result of its superior expertise and technology as managers have suggested, or are all the players benefitting from a deluge of money flowing into the sector as cloud adoption in the business world expands?

Cloud computing is supposed to be one of the next hot growth areas for Google and management continues to devote more resource to developing the business. The company doesn't break out GCP's financial numbers but rolls them into its "other" category, which generated $4.425 billion in the second quarter, slightly above analyst expectations of $4.4 billion. So, the stakes are high .

Back on the offensive
Maybe that's why it didn't take long for Picahi to go back on the offensive. In his response to Mahaney, he cautioned that though much of the sector is growing, there's still a real danger for cloud customers to get "on the wrong platform." The CEO also said he believes more businesses will begin to trust their information to multiple platforms....MORE
From The Register:

Google answers 'Why Google Cloud?' with services and spectacle
Cloud Services Platform debuts, mixing containers, monitoring, AI, management, etc
...Diane Greene, CEO of Google's cloud business, was delivered to the stage via a rotating booth, rather more theatricality than the usual executive walk-on.

Her mission was to answer the question, "Why Google Cloud?"

For those in the audience who looked over their shoulders, Greene's remarks were easy to anticipate, thanks to visible teleprompter screens suspended from the middle of the hall. Consider it a step toward transparency.

Why Google Cloud? Greene brought Target CIO Mike McNamara on stage to answer that question. The retail giant has become a Google Cloud Platform (GCP) customer....MORE
From GeekWire, something the commenters will be tearing into for Amazon (and the source of that earnings recognition magic):

Google nearly doubles spending on capital projects as it continues major cloud investment
Google parent Alphabet spent a whopping $5.5 billion on capital expenditures in the most recent quarter, nearly doubling that output from a year ago as the company continues to expand its cloud business.

That figure is way down from last quarter when Google spent $7.67 billion, a number that was juiced by the $2.4 billion purchase of the Chelsea Market building in New York. The jump from $2.8 billion in capital expenditures a year ago to $5.5 billion this quarter comes from increased spending on data center construction, facilities and production equipment to support the Google Cloud business, add capacity to handle more YouTube subscribers and investments in machine learning, CFO Ruth Porat said during a call with investors.

The rise in spending on capital projects didn’t stop the tech giant from posting huge numbers for the quarter, beating analyst expectations and sending its stock soaring in after-hours trading. However, the massive $5 billion fine (€4.3 billion Euro) levied by the European Union for forcing manufacturers to pre-install Google Search and other apps on Android devices was a major drag on the company’s bottom line in the second quarter....MORE
Finally, also from GeekWire (July 10), something that may not get as much play but which NVIDIA is keeping track of

Amazon Web Services’ Peter DeSantis sheds more light on the cloud giant’s custom chip strategy
Evolving cloud workloads are going to require evolving hardware strategies to anticipate those future demands, and Amazon Web Services continues to lean on its 2015 acquisition of Annapurna Labs to create custom chips that will give customers a wide range of performance options.

AWS vice president of infrastructure and customer support Peter DeSantis closed out the 2018 GeekWire Cloud Tech Summit with a discussion of the custom chips that AWS is developing that deliver the specific type of horsepower needed to address challenging workloads that are moving onto the cloud, such as drug discovery, oil and gas exploration, and artificial intelligence.
“This ability to go all the way — to putting your infrastructure into custom design — has truly allowed us to take a bunch of customer requirements that excite us and invest in really large efforts to deliver this value,” DeSantis said.

During the early days of cloud computing, customers were content to have familiar standard-issue hardware at their fingertips through cloud providers like AWS and Microsoft Azure. In essence, they were building software the same way they always had; they were just running it on general-purpose Intel processors and virtual machines on servers managed by someone else, rather than setting up racks and racks of their own equipment....MORE
We'll be back with more after the numbers come out this afternoon.
The consensus EPS guess is $2.48, up from 40 cents last year.