11 Charts: Earnings this week. Previewing next.
Google and Tesla this week, Meta, Roblox next... Here's view.
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💡 Earnings reviews for Tesla and Google. Earnings previews for next week. And software is starting to fragment winners from losers.
Happy Friday! This week we got earnings from the likes of Google and Tesla, along with ServiceNow. You’ll hear more about one of these names in a week or so. But overall the conclusion was that earnings in software are proving winners and losers in the AI era. Also Google suggested that the economy is healthy while AI spend continues. Tesla was a different story as the stock is now down -14% over the last ~5 years.
At the same time, the macro backdrop is back in flux, not making this easy. Oil ripped ~30% off the recent low. The 10Y sits at the top of a four-year range. But then jobless claims fell to 187K, a new cycle low, and Jensen keeps saying AI creates jobs. So the “AI is job destroying” narrative isn’t quite lining up with the tape yet. That’s the Avory view, and we’ve been leaning into it. Question remaining is when do we actually stop this war so that the rotation we saw can continue.
Meta reports next week and Tesla already gave us the reminder that scale without a working narrative doesn’t buy you much. So let’s see what they share. We breakdown some previews using data, on Roblox, Lemonade, and Duolingo.
Let’s get into it…
Before That: If not already sign up to our podcast Avory Around the Desk: Spotify, Apple, YouTube.
[1] Google delivered. Cloud is the story now.
Google’s quarter checked every box we cared about. Search revenue grew +17% Y/Y, YouTube ads up +13%, and Cloud came in at +82% with an operating margin over 20%. Cloud is the story here. It’s now big enough and profitable enough to matter, and it’s growing faster than any other segment. Impressive. Someone asked is it cheap now? Our view if you assume they get back to $100B in free cash flow by 2030, they are then trading at 37x that out year number. Not exactly cheap. But great asset, one we have owned before, but valuation matters to us.
But we have been in the Google camp for a while now. Regular readers won’t be surprised by this. The AI overhang was overdone, and the earnings continue to settle it.
[2] AI Mode isn’t killing Search. It seems to be boosting it.
More on Google.
Search revenue grew +17% Y/Y in Q2, the fifth straight quarter of teens growth. That doesn’t happen if AI were cannibalizing the core.
If anything, more searches, more queries, more monetization surface. The bear case on Google Search has been that AI would eat it. The data says the opposite so far and don’t forget this is year 4 of AI.
That’s the read from our desk. Off the Q1 high but still very healthy. The story here is durability and that’s good for Google but good for economic views also.
[3] ServiceNow: scaled software thesis in one chart.
Subscription revenue +21% Y/Y.
Free cash flow margin north of 30%.
Current RPO growing +25%.
This is what a scaled software business looks like in an AI world. AI while easy to use, isn’t easy to implement especially at scale. Soooo yes you lean on trusted, innovative, and full spectrum platforms.
NOW is not a story stock anymore. It’s a cash machine that happens to be growing 20%+ and is embedding AI into every workflow it touches.
We’ve been beating this drum for a while, not just for them but broadly in certain software names.
read somewhere this week “what if after all this software is the biggest beneficiary of AI”
my views is yes. But who…
[4] Duolingo: AI power users churn far less.
So we are heading into some earnings this week.
Duolingo being one. Here’s a name we owned in the past. A successful investment, and got out on valuation. Now the name has fallen from graces on AI fears plus some social media issues.
But Apptopia data we track is helping inform us of some interesting trends.
The chart tells the story. Users who engage with AI-powered features churn at roughly half the rate of the rest of the base. Read that again.
That’s a big deal for a subscription business. It means AI isn’t just a feature, it’s a retention mechanism.
This is why we care about which companies can actually operationalize AI inside their product. It’s more of a loop.
If we can see users pick up, and their AI-native products increase retention and avg revenue per sub, then the story gets going again…
[5] Lemonade downloads are reaccelerating.
Now onto Lemonade. A name we have covered in the past, spoke with management several times. General theme here is that insurance will continue to move closer and closer to the end users. Listen to our Prediction Markets Meets Insurance Podcast Episode.
So back to Lemonade.
Monthly downloads using Apptopia data for Lemonade are running well above last year. Y/Y growth turned back positive after a rough stretch, and the reaccelerating is clean. Small sample still, but worth flagging. Insurance is one of those categories where AI-native players get to compound for years before it shows up in the headlines really.
This shows top of funnel for Lemonade is working again. Heading into the quarter, this feels constructive.
[6] Roblox: the 17 to 25 cohort is going deeper.
Now onto Roblox.
They have been treated like a kid’s game for years. Every earnings we want to know when and will they move up market.
The data keeps saying yes here.
Weekly active penetration in the 17 to 25 age group is climbing steadily, and it’s now well past where the 9 to 12 cohort was a few years back. The platform is aging up, not aging out. This should support future ads monetization and also assist and create larger market for more developed game formats.
This is one we own, yes, newer position this year.
Nothing new from us here, we’ve said it before, but the data keeps supporting the thesis of aging up, cleaning up the legacy issues around child safety, new game formats, AI allowing for more creation not less, ads monetization, and new platforms.
This quarter may not be an inflection point as they work through their verification process which impacts engagement, but that will ultimately prove to allow a safer more monetizable platform to exist.
[7] Tesla holders are down 14% over five years.
Crazy but if you bought TSLA 5 years ago, you are down 14%. Also every EV maker is down 95% or more. So reminder, cool ideas does not equal nice returns. Stay disciplined when hot stocks or hot ideas pop up.
They reported this week and the company continues to look more like traditional automotive than anything else. With gross margins around 16%, street was at 18%, this peaked at high 20’s%.
The multiple is still well above traditional automotive tho so the robotaxi story has to actually show up in the numbers eventually, or holders keep grinding. We shared last week how Amazons Zoox is not in the autonomous game and taking download share. Waymo we know exists and doing well, plus some others are coming to market soon. Optimus is cool idea, will come to market at some point. We will probably see SpaceX combo with Tesla here soon enough.
Actually, and I just wrote about this. There’s a weird incentive for Tesla shares to go lower so that SpaceX can merge or acquire Tesla, which will then provide them with in-house AI and compute to help assist in the robotics side, along with their energy business. Musk wins either way tho…
Time will tell.
[8] Meta preview: capex, AICAAS, and user growth all matter.
Meta reports 7/30. Four things we’re watching:
Capex. The Street is at ~$33B for Q2, more than double last year. That’s a huge step-up and the market wants to see the payoff cadence.
Daily Actives growth. We want to see stabilization or reacceleration, not further deceleration.
ARPP. Consensus is $16.70, which would be +22% Y/Y. This is where AI-driven ad monetization has to show up. Another move higher says AI working.
Revenue and capex Y/Y. The gap between top-line growth and capex growth is interesting. Consensus has revenue at +27% and capex at +100%. That’s fine for one quarter. It’s not fine forever. But in 2 quarters from now the Q/Q increase in CAPEX will be surpassed by the Q/Q increase in revenue, an important cross over.
This one has our attention.
[9] Oil ripped ~30%, and the market shrugged.
WTI bottomed near $54 in December and touched $119 in March on the Iran spike. Today we’re back around $90. That’s a ~30% move off the low, and equities moved lower especially in macro and consumer areas. But not as bad as back in Feb / March. That’s welcomed news.
We’re watching this one, but not repositioning around it as we think all this subsides at some-point here as incentives are for both to have oil flow. One wants oil to flow for profits, other wants it for consumers and politics.
Let’s see but we saw what happens when yields and oil and inflation expectations fall, consumer and macro names rip.
[10] The 10Y is sitting at the top of a four-year range.
Continued from last chart. The 10Y is at ~4.8%, right at the top of the range it’s been carving for four years now. Not a breakout, not a breakdown. Just sitting up there. This is the level where the equity market gets nervous historically, but so far the tape is holding.
Bottom line: rates are elevated, but they’ve been elevated. Nothing new here. Same story, different week. All tied to oil and inflation concerns. Plus some deficit talks due to war $.
watching closely.
[11] Claims fell to 187K. Jensen says AI creates jobs.
All of the prior was market moves. But jobs, ie macro, are looking good. Something we called for heading into 2026, was a pick up in jobs activity. Its showing.
Initial jobless claims fell to 187K, a new cycle low. Not what you’d expect if AI were destroying jobs at scale. Jensen said it again this week: AI is creating jobs, not killing them, and the data isn’t disagreeing with him yet. He said “ai will add millions of jobs”. All these AI-native companies, do we think humans don’t work there?
We’ve been in that camp for a while. The doomer narrative on labor doesn’t square with the facts on the ground, again we are in year 4 of AI. Something to keep watching, but for now the ground truth is what it is.
Net Net
Scaled software is starting to separate itself, and this week made it obvious. Google and ServiceNow showed what happens when AI shows up in the numbers. Meta gets its turn next week and Tesla already showed the counterexample. On the macro side, oil is higher and rates are elevated, but claims at a cycle low keep the labor market off the table as a bear case for now.
That’s all for this week!
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