Alphabet Inc., the parent company of Google, saw its stock decline sharply in late Tuesday trading, as the resurgence in digital advertising revenue did not meet analysts’ high expectations.
Despite reporting a significant increase in fourth-quarter revenue, primarily from advertising, Alphabet shares, which trade on the Nasdaq under the tickers GOOG (Class C) and GOOGL (Class A) dropped over 5% each in premarket trading on Wednesday.
The company posted total revenue of $86.3 billion, a 13% rise from $76 billion the previous year. Revenue excluding total acquisition costs (TAC) was reported at $72.3 billion, up from $63.1 billion a year earlier.
“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,” Alphabet Chief Executive Sundar Pichai said in a statement announcing the results.
For the fourth quarter, Alphabet announced a net income of $20.7 billion, or $1.64 per share — an increase from $13.6 billion, or $1.05 per share, in the same quarter last year.
Expectations from analysts surveyed by FactSet were for net earnings of $1.59 per share on revenue of $85.3 billion and revenue ex-TAC of $71.2 billion.
Google's total advertising revenue grew by 11% to $65.5 billion from $59 billion the previous year — slightly below the average analyst forecast of $65.8 billion. YouTube's advertising revenue increased by 16% to $9.2 billion, up from $7.96 billion, and Google Cloud's sales rose by 26% to $9.2 billion from $7.3 billion.
Thomas Monteiro, senior analyst at Investing.com, commented on the earnings report in an email to MarketWatch:
“Alphabet’s disappointing ad-revenue numbers suggest that corporations worldwide are still uncertain about the pace of interest-rate cuts from global central banks, thus keeping some powder dry while waiting for more clues before opening up their wallets”.
Alphabet is also enhancing its AI efforts to boost operational efficiency and productivity into 2023 and beyond. The company is integrating AI into its finance and analytics operations, though specific AI revenue figures were not disclosed in the earnings report.
During a call with analysts, CEO Sundar Pichai mentioned that generative AI would be integrated into search functionalities. Google's Chief Business Officer, Philipp Schindler, said that AI tools would be developed to enhance long-term advertising revenue within a "new search experience" — without providing a specific timeline.
CFO Ruth Porat also highlighted during the call that Alphabet has moderated its hiring pace as part of its ongoing efforts to "reengineer its cost base" and stress "organizational efficiency." The company has announced over 1,000 job cuts in recent weeks.
Over the past year, Alphabet shares have seen close to a 51% increase, outpacing the 21% growth of the benchmark S&P 500 index during the same period.
According to 24 analysts surveyed by TipRanks that offered 12-month Alphabet stock price targets, the consensus forecast for GOOGL last stood at $162.77 — a potential 7.47% upside from its last closing price as of January 31, 2024.
The highest listed Netflix share price forecast on TipRanks was $180.00, while the lowest was listed at $140.00. Of the 24 analysts surveyed, 19 offered a Buy rating on GOOGL stock, while 5 had it as a Hold, and none rated it a Sell.
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