KEY POINTS TO CONSIDER
- Alphabet’s revenue and profit for the fourth quarter,2023 beat the estimate.
- Google earnings for the quarter ending December 31 jumped 56% to $1.64 per diluted share.
- Alphabet’s revenue grew 13% to $86.3 billion as cloud segment revenue jumped 25%.
- Google share price slipped 6% as Google’s Ad revenue narrowly fell short of Wall Street projections.
- Because of workforce reduction last year, Alphabet recorded severance and related charges of $2.1 billion for 2023.
Alphabet, Tech-giant Google’s parent company, reported on Tuesday their fastest Q4 earnings and revenue growth since early 2022 with sales rising 13% from $76.05 billion a year earlier. However, their Ad revenue of $65.52 billion trailed analyst’s estimate of $65.73 billion as per StreetAccount which resulted in the sharp 6% fall in company’s share price in extended trading hours.
Google earnings under generally accepted accounting principles, also known as GAAP, was reported to jump 56% compared to its previous year’s earnings to $1.64 per diluted share. Company’s revenue was up 13% to $86.3 billion. Company’s Ad revenue includes $48 billion of Google search revenue and about $9.2 billion of YouTube ad revenue. It was also reported that Google’s cloud revenue was up 25% year-over-year and came in at $9.19 billion while its cloud-computing business posted 22% growth in the September quarter. YouTube ad revenue, however, rose 15% to $9.2 billion, in-line with estimates.
In the scenario of a mixed U.S. economy, Alphabet’s two strong revenue-generating units Google and YouTube are facing tough competition for ad budgets from other online platforms including Facebook, instagram, TikTok, and Amazon.com. Facebook’s ad business is growing faster while TikTok poses an ongoing competitive threat as it has become popular among youngsters to make short viral videos.
“Alphabet’s disappointing ad revenue numbers suggest that corporations worldwide are still uncertain about the pace of interest rate cuts from global central banks,” said Thomas Monteiro, an analyst at Investing.com.
Google cloud, however, remains a growth engine, with a rise of 25% year-on-year revenue. Google is drawing profit now from its cloud business which was losing money in the past as it tried to keep up with Amazon Web Services and Microsoft Azure. Its operating income in the Q4 this year was $864 million against the previous year’s loss of $186 million.
Google CEO Mr. Sundar Pichai continues to emphasize on investments in the artificial intelligence field and embedding new generative AI tools into more of Google’s key products. Pichai has also added that they need to make cuts elsewhere in order to get there, signaling more layoffs in addition to last year’s 12000 cuts. This alone amounted to almost 6% of their total workforce. Alphabet CFO Ruth Porat said that severance-related expenses in the first quarter would be about $700 million.
“We are pleased with the ongoing strength in Search and the growing contribution from YouTube and Cloud. Each of these is already benefiting from our AI investments and innovation. As we enter the Gemini era, the best is yet to come,” said Google CEO Sundar Pichai. Gemini is Google’s new AI model which was launched last month. It is expected to be a strong contender for OpenAI’s ChatGPT in near future. Google CEO also said that expenditure on items such as servers to power artificial intelligence would increase significantly this year.
Google repurchased $15.78 billion and $16.2 billion of its own stocks in September and December quarters respectively (Buyback).
Google’s Q4 traffic acquisition expenses rose 8% to $13.98 billion. Google’s internet search-related payments to Apple are a key issue in the Department of Justice’s antitrust lawsuit against Alphabet.
Google stock rebounded from a sell-off after it posted the September quarter result in 2023. Google stock price dropped 13% on October 25, the first trading day after the Q3 report was published. Despite hitting a low of 121.46 on October 27, the stock price went on to rally 26% over the next three months before the Q4 Google earnings report posted on Tuesday.
Google stock, meanwhile, is extended and trades above a buy zone.