AI powers another quarter as Google, Snap and Reddit report Q3 results

Revenue from Google’s core “search ads and others” category totaled $49.4 billion for a 12% increase over the third quarter of 2023. YouTube ad revenue also grew by 12% to $8.92 billion from $7.95 billion. Overall, ads in verticals like financial services and retail were especially strong, said Google chief business officer Phillip Schindler, who told analysts election-related ads provided a “slight tailwind,” especially for YouTube ads.

The company also touted increased growth in its many AI products and services for users, advertisers, and enterprise customers. More than 1 billion people are now using AI search around the world while its Google visual search tool is receiving nearly 20 billion queries per month, Google CEO Sundar Pichai said on the investor call.

He added that AI visual search is also helping with areas like shopping while ads in AI Overviews is helping people connect with businesses faster. The company also recently introduced mobile ads for AI Overviews, which follows their debut above and below AI Overviews on desktop. “We can do a lot more for our users, but at the same time underpin it on the foundational bedrock of quality and trust and user experience which we’ve always done,” Pichai said.

Executives also mentioned a few advertisers using AI for ad creation and media buying. One example given was Audi, which is using the Gemini model to generate ad creative for text, image and video assets based on existing long-form videos. Another, DoorDash, has been testing AI-generated video and image assets.

During the investor call, one analyst inquired about Google’s approach to balancing its Gemini AI chatbot with its AI-powered search, which still incorporates traditional links. In response, Pichai pointed out the industry’s use of buzzwords like “answer engines” and noted Google introduced answers in search years ago with its Snippets tool. He added that evolving user expectations is also why Google has built in multi-modal search features with integrations for image and video.

“I view this as a moment in which there are new-use cases we will be able to do, which we couldn’t have done before,” Pichai said. “Having the flexibility, [and] having product surfaces where we can move very, very fast I think is actually helpful. And so we are embracing it and going to lean into this moment like we’ve done in the past year.”

In a research note Tuesday night, William Blair analysts noted Google has “transformed the user experience” through features like AI Overviews, Circle to Search and Google Lens. Other highlights analysts mentioned were YouTube’s advertising and subscription growth, advertiser utilization of Gemini and AI-driven adoption of Google Cloud.

“Due to Google’s continued product innovations and successful leveraging of AI technologies to improve its offering across all key operating segments, we maintain our Outperform rating,” William Blair’s analysts Ralph Schackart and Mary Donaldson wrote. “Risks to our thesis include privacy and regulation concerns, a worsening macro environment that impacts advertising spend, AI’s potential impact on search, and growing competition from [Meta, Microsoft and Amazon.]”

The AI race has continued to place pressure on Google from giants like Microsoft and Meta and from startups like ChatGPT and Perplexity. Although it’s remained dominant in search so far, others still think there could be a major shift in how users and advertisers approach AI-based platforms. 

Google has yet to even feel the impact of AI search, said James Cadwallader, co-founder of the AI search optimization startup Profound, which helps brands with AI search optimization. He thinks it’s dangerous for anyone to just assume Google will remain on top.

“There’s going to be a rug pull moment,” Cadwallader said. “I think there’s a false sense of security right now because [platforms like Perplexity and ChatGPT] aren’t yet focused on keeping people in their ecosystem.”

The ongoing Google antitrust trials only came up once when an analyst asked how the outcomes could impact the company’s search usage if courts block internet service agreements with companies like Apple and Samsung. In recent months, many marketing and tech experts have said search and adtech cases could affect Google’s AI ambitions and the ways it will compete in the overall sector.

While Pichai said he wouldn’t speculate since the trials are ongoing. However, he said Google plans to “vigorously defend” itself in the cases and described some of the Justice Department’s remedy proposals as “far-reaching.”

“We’ve reached a position of success because we’ve deeply innovated and we are continuing to do so,” said Pichai. “We have a long track record of working hard to make sure our products are as easily available to users as possible across all platforms. That approach and all the learnings over the years I think will give us a strong foundation.”

Snap and Reddit also report third quarter results

Google wasn’t the only ad-funded platform to report Q3 earnings on Tuesday. Reddit reported a 47% year-over-year increase in daily active uniques (DAUq), reaching 97.2 million, while the user growth helped increase ad revenue by 68% to $348.4 million. Snap also reported Q3 earnings on Tuesday, citing a total revenue increase of 15% year-over-year to $1.37 billion — with ad revenue increasing 10% year over year to $1.25 billion.

(Meta and Microsoft are also scheduled to report quarterly earnings today after the closing bell.)

On Reddit’s earnings call with investors, COO Jennifer Wong mentioned the company’s use of generative AI for generating “Reddity headlines” and the acquisition of Memorable AI, which helps understand how creative drives performance and optimize ads.

“We want to take that and integrate into our ad stack,” she said. “And the next step would be having those insights tied to a gen AI capability to actually do the work based on those insights.  It’s early in that we just acquired them, and we’re integrating them into our asset, but we do see a very fulsome and exciting road map related to ad creative in terms of gen AI.”

Meantime, Snap’s daily active users (DAUs) increased 9% year-over-year to 443 million, with North America user growth declining 1% but increasing 16% in the “rest of the world” category. According to Snap, total active advertisers doubled year-over-year, driven by improved outreach of small and medium businesses and new changes for products and operational changes. However, brand-oriented ad revenue fell 1% over Q3 in 2023 due to less demand from some verticals like tech, entertainment and retail.

The company also attributed growth to the introduction of more AI-related features such as Snapchat Memories for sharing AI-generated collages and video mashups. Other AI-related highlights included quarter-over-quarter engagement with Snap’s My AI chatbot, tests for AI-generated video features. It also has new generative AI augmented reality features for users, developers and brands.

“We are also rolling out a slate of new GenAI suite features in Lens Studio, including new animation tools that automatically blend different animations together to easily generate full 3D characters,” Snap CEO and co-founder Evan Spiegel told analysts in prepared remarks. “The response to our new tools and Lens Studio has been inspiring and reinforces our belief that long-term success in AR requires a vibrant developer and creator ecosystem.”