The eagerly awaited earnings report from Alphabet is set to provide valuable insights into two key areas: the current state of the digital advertising environment and the strength of their cloud computing business. Analysts are quite optimistic about what lies ahead.
Projections for the September Quarter
According to industry experts, Alphabet, the parent company of Google and YouTube, is expected to report sales of $76 billion for the September quarter. This would mark a 10% increase from the previous year. Profit per share is also anticipated to rise from $1.06 to $1.46. Specifically, advertising revenue is projected to reach $59.2 billion, which includes Google Search and other ads totaling $43.3 billion and YouTube ads amounting to $7.8 billion. Moreover, Google Cloud revenue is estimated to reach $8.6 billion, reflecting a significant 26% increase.
The Role of Advertising Business
The performance of Alphabet’s advertising business will be crucial in determining their overall results. Analyst Mark Mahaney from Evercore ISI conducted a thorough analysis and concluded that there has been a modest improvement in ad spending environment. His forecast suggests that ad revenue could reach $60.1 billion, nearly $1 billion higher than the market consensus.
Positive Outlook for Digital Advertising Plays
Wedbush analyst Scott Devitt is also optimistic about the future of digital advertising. In a recent research note, he expressed that growth rates are expected to continue accelerating in the second half of the year. He also believes that there is considerable potential for operating margin leverage due to cost-cutting measures tied to recent staff reductions.
Overall, Alphabet’s upcoming earnings report holds promising implications for both the digital advertising landscape and their thriving cloud computing business.
Google Cloud Business Shows Promise
Analysts are closely watching the growth of Google’s cloud business, as recent channel checks suggest a surge in cloud spending, driven by the increasing demand for artificial intelligence (AI) services. It is anticipated that Google’s strong position in generative AI software will give them a competitive advantage in the cloud market. To further boost their revenue, Google’s debut of its NFL Sunday Ticket football package on YouTube is being closely monitored, evaluating its impact on the subscription service, YouTube TV.
Generative AI and Its Impact on Costs and Revenue
During the earnings call, there will undoubtedly be inquiries regarding the advancements in generative AI technology, like Google’s Bard chatbot, and its implications on costs and revenue. In the previous quarter, the company already highlighted that the growing demand for AI will lead to increased infrastructure costs in the second half of 2023 and throughout 2024.
Leadership Changes and Potential Spinouts
Alphabet recently announced CFO Ruth Porat’s transition to a new role as the president and chief investment officer for Alphabet and Google. Porat’s move went into effect on September 1, leaving Alphabet with the task of finding a suitable replacement. Additionally, analysts speculate whether Porat’s new position will result in the spinout or sale of Alphabet’s non-core holdings, such as Waymo (autonomous vehicle business) and Verily (healthcare unit).
December Quarter Expectations
For the upcoming December quarter, analysts are estimating sales of $84.9 billion, with forecasted profits of $1.63 per share according to FactSet consensus estimates.
Alphabet’s stock has shown impressive growth this year, with a 55% increase year-to-date, including a 12% rise since the last earnings report.