Alphabet Inc, the parent company of Google, reported better-than-expected fourth quarter earnings on Monday, sending its stock price surging over 9% in after hours trading. The results provide a positive sign for the tech giant amid a turbulent period for the digital advertising market.
Key Quarterly Figures
- Revenue: $76.05 billion vs $76.53 billion expected
- EPS: $1.05 per share vs $1.18 per share expected
- YouTube ad revenue: $7.96 billion vs $8.25 billion expected
- Google Cloud revenue: $7.32 billion vs $7.43 billion expected
While both earnings per share and YouTube ad revenue fell slightly short of analyst predictions, Alphabet still managed to top revenue expectations in a quarter plagued by economic uncertainty. Google’s advertising business has been impacted by companies paring back their ad spending, but seems to be weathering the storm better than rivals like Meta.
Driving Growth Despite Ad Market Challenges
Alphabet attributed its revenue beat largely to the ongoing strength of its Google Search and Google Cloud businesses.
| Business Segment | Revenue (In Billions) | Year-Over-Year Change |
|---|---|---|
| Google Search & Other | $42.6 | 4% |
| YouTube Ads | $7.96 | 7.5% |
| Google Cloud | $7.32 | 32% |
Google Cloud was a particular highlight, maintaining strong growth even as rivals Microsoft and Amazon saw their cloud businesses slow substantially during the quarter.
Meanwhile, advertising revenues held up reasonably well despite economic headwinds. In the earnings call, Alphabet CEO Sundar Pichai said he expects ad spending to return to growth patterns later this year as macro conditions improve. The company is also focused on improving efficiency of its ad products.
Guidance and Stock Reaction
Alphabet’s stock saw a sharp spike when the earnings release first crossed, jumping over 9% to $105 per share initially. This seems to be a sign of relief from investors that Alphabet’s core businesses appear resilient even with challenging market conditions.
For the upcoming first quarter, Alphabet provided guidance expecting total revenues around $70 billion, showing they anticipate moderate growth compared to $68 billion last year. Their outlook seems cautiously optimistic.
Multiple Wall Street analysts raised their price targets on Alphabet stock following the report:
- JPMorgan to $130 from $115
- Morgan Stanley to $125 from $115
- Wells Fargo to $145 from $130
“We remain encouraged by Alphabet’s ability to drive above-market growth despite the challenging macro backdrop and believe its AI efforts should support further differentiation over the long term,” wrote Morgan Stanley analyst Brian Nowak.
Key Takeaways
Alphabet seems to be navigating the economic downturn better than its big tech peers, with strong growth in its Google Cloud unit and resilience on the advertising side. Concerns about a more drastic advertising pullback appear overblown so far.
While the company did not provide formal guidance for the full year 2024, management commentary indicates Alphabet leadership sees a rebound on the horizon. If macro conditions stabilize and ad spending rebounds as expected later this year, Alphabet looks well-positioned to deliver strong growth over the long run.
Investors are cheering the report, sending the stock to its highest point since last April. While risks certainly remain in the volatile economic environment, Alphabet has affirmed its status as one of the steadier giants among mega cap tech firms.
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