Google parent Alphabet
reported third-quarter earnings that beat expectations on both revenue and profit, with sales at its cloud division growing strongly.
The company’s shares rose about 5% on Wednesday morning.
Here are the results:
Earnings per share: $2.12 vs. LSEG’s forecast of $1.85
Revenue: $88.27 billion vs. LSEG’s forecast of $86.3 billion
Here are other numbers Wall Street looked at:
YouTube advertising revenue: $8.92 billion vs. $8.89 billion, according to StreetAccount
Google Cloud revenue: $11.35 billion vs. $10.88 billion, according to StreetAccount
Traffic Acquisition Costs (TAC): $13.72 billion vs. $13.53 billion, according to StreetAccount
Alphabet’s revenue grew 15% year over year, outperforming the same quarter a year ago.
The company reported a staggering $11.35 billion in cloud revenue, up nearly 35% from $8.41 billion last year. The company attributes its strong performance in the cloud to its artificial intelligence products, including subscriptions for enterprise customers. Alphabet CEO Sundar Pichai said at the start of a conference call with investors that the company’s “full stack” of AI products is now running at scale and being used by billions of Google users, creating a “virtuous cycle.”
The search company’s strong quarter kicked off an upturn week for tech giants Meta and Microsoft on Wednesday, followed by Apple and Amazon on Thursday.
Alphabet’s net income rose to $26.3 billion, or $2.12 a share, from $19.7 billion, or $1.55 a share, in the year-ago quarter.
Google’s search business generated revenue of $49.4 billion, up 12.3% from a year ago, and search continues to be the company’s largest contributor to revenue growth, Alphabet Chief Financial Officer Anat Ashkenazi said on the call. Further cost savings with AI
Ashkenazi said Alphabet plans to build on existing cost-saving efforts and use AI to optimize workflows and manage the company’s workforce and physical footprint.
“We intend to build on these efforts, but we will also evaluate where we can accelerate our work and where we need to pivot to free up capital for more attractive opportunities,” said Ashkenazi, who retired in June after 23 years at pharmaceutical giant Eli Lilly. The company has entered.
Alphabet reported advertising revenue of $65.85 billion. That’s up from $59.65 billion in the same period last year, signaling that Google’s advertising business continues to grow, albeit more slowly than in the second quarter.
YouTube advertising revenue narrowly beat analyst expectations and showed better growth than the previous quarter. The Google-owned company faces growing pressure from other advertising options such as Netflix, TikTok and Amazon.
Chief Business Officer Philip Schindler said on an investor call that AI is improving YouTube recommendations. The company’s Gemini AI language model allows YouTube to “recommend more relevant, timely and personalized content to viewers.”
Ashkenazi said Google Workspace, the company’s cloud computing and productivity suite, saw strong growth in the third quarter. Google Cloud Platform, the company’s data management and AI suite, saw growth outpacing that of its cloud division in the quarter, Ashkenazi added.
Other Bets, which includes the company’s life sciences division Verily and self-driving car unit Waymo, reported third-quarter sales of $388 million. That’s up from $297 million in the same period a year ago.
Waymo closed a $5.6 billion funding round last week to expand its robotaxi service in cities including Los Angeles, San Francisco and Phoenix.
Pichai said the company’s image recognition product, Google Lens, which uses mobile cameras and photos, is now used for more than 20 billion visual searches per month. It’s one of the fastest-growing search products and is widely used for shopping, he added.
Alphabet’s third quarter was marked by external and internal upheaval, including at senior levels and in its most important business units. Earlier this month, the company replaced Prabhakar Raghavan, who had been the company’s head of search and advertising since 2018, with Nick Fox, a longtime executive known for his role in Google’s Assistant division. In addition, the team working on its Gemini app, which includes the company’s direct-to-consumer artificial intelligence products, will be shifted to Google DeepMind, led by Demis Hassabis.
The company said Tuesday it was evaluating how the restructuring would affect the division’s financial results.
Alphabet (GOOGL) Stock Analysis
It’s certainly been an interesting year for Alphabet, the world’s fifth-largest company with a market capitalization of just over $2 billion.
Let’s look at the positives first: the company reported strong quarterly results and announced some exciting developments.
But on the downside, there were looming financial implications from antitrust issues, lawsuits, and job cuts.
In addition to analyst concerns about how much money is being spent on artificial intelligence, there’s certainly a lot for potential investors to consider. This melting pot of positives and negatives is clearly impacting both Google’s stock price and analysts’ forecasts for Alphabet.
The stock has risen about 32% over the past year and about 22% since early January, reaching $169.74 as of market close on November 5, 2024.
However, a closer look reveals that performance has been more volatile than the headline numbers suggest.
For example, the price rose 47% from $130 in March to an all-time high of $191.18 in July, but then fell more than 20% by early September.
Here’s a closer look at what’s behind GOOGL stock, which has seen lows of $127.90 and highs of over $190 over the past 12 months.
Alphabet Stock Predictions: Analyst Views
Next, let’s look at experts’ predictions for Alphabet stock.
Will Alphabet’s stock price be higher or lower in the future than it is now? Also, how do major stock market analysts predict Alphabet’s stock price?
Morningstar’s Malik Ahmed Khan raised his fair value estimate from $209 to $220 per share, mainly due to the strong quarterly performance.
In his Google stock forecast on October 30, 2024, he noted that the stock price is “moderately undervalued” despite the stock price rise this year.
“Alphabet’s third-quarter revenue increased 15% year over year to $88 billion,” he wrote. “Strong growth in advertising and cloud revenue was the highlight of the company’s earnings.”
Khan believes the results are especially significant given the concerns raised about the deal. He explained:
“There has been growing alarm about Alphabet’s search business, as antitrust concerns mixed with the perception that Alphabet is lagging in AI have investors pessimistic about future growth.”
He noted that search ad revenues increased 12% “despite the perception” that Google search is in disarray.
“From a generative AI perspective, we like the tools YouTube is investing in to help YouTube creators create videos, optimize edits, suggest titles and more,” he added. “From a monetization perspective, increased user engagement is positively correlated with ad sales on digital platforms, allowing YouTube to increase ad sales over time.”
However, Russ Mould, investment director at AJ Bell, believes the results have reignited enthusiasm for the company’s shares after several lackluster months.
However, he noted that the recent results also contain some less positive elements that investors should be aware of. “Search ad growth has slowed from 14% to 12%, which could raise concerns that this fundamental part of the business is under threat from AI chatbots,” he said. “Alphabet hopes that innovations like ‘Circle to Search,’ which lets you search for products by circling an image within a photo, will help keep search relevant next year.”
Mold also mentioned the amount of funding being put into artificial intelligence.
“The company is also investing heavily in AI, with capital expenditures already consistently outpacing 2023 levels this year, with further increases expected in 2025,” he said. “At some point the market will want to see evidence that this spending is generating meaningful benefits.”
Susanna Streeter, head of money markets at Hargreaves Lansdown, believes artificial intelligence poses both big opportunities and big challenges for Alphabet.
She told Techopedia:
“On the one hand, there is a risk that generative AI will weaken the strength of Alphabet’s search capabilities. Meanwhile, we expect demand for Google Cloud services to grow sustainably as companies upgrade their storage to meet the demands of data-intensive AI workloads.”
Alphabet’s latest AI model for major languages, Gemini, is praised for its more intuitive and detailed conversation-oriented sound features compared to ChatGPT.
But Striper thinks it’s unclear how this will play out in the long term.
She added:
“We think there will be some regulatory hurdles to overcome, as competition regulators will need to keep pace with this rapid innovation, which is another risk investors should be aware of.”