Alphabet Earnings Deliver as Google Search Advertising Picks Up With Travel Activity

Internet giant Alphabet, owner of Google reported better than expected in third quarter earnings after the close Tuesday. Google advertising, which includes search and YouTube ads, exhibited accelerating momentum with the the economy and travel returning as did cloud and YouTube revenues.

Internet giant Alphabet, owner of Google reported better than expected in third quarter earnings after the close Tuesday. Google advertising, which includes search and YouTube ads, exhibited accelerating momentum with the the economy and travel returning as did cloud and YouTube revenues.

Alphabet Google Tiles

Alphabet Reported ThirdQuarter Earnings After The Close Tuesday

$27.99 Beat $24.08 EPS Forecast and $65.12B Beat $63.34 Billion Forecast

Conference call: 4:30 p.m.

Q3 Earnings Highlights

  • $18.94 billion, or $27.99 in earnings per share (EPS), from $11.25 billion, or $16.40 EPS, in last year’s third quarter. Results beat analysts expectations of  EPS of $24.08.
  • Revenue rose 41 percent to $65.12 billion, compared to $46.17 billion in the same period last year. Results beat analysts expectations revenue of $63.34 billion
  • Revenue, ex-TAC [minus traffic acquisition costs]was $53.62 billion vs. $52.62 billion expected and $38.01 billion Y/Y
  • Google Cloud revenue jumped 45% to $4.99 billion compared to the same period last year, reflecting significant growth in infrastructure and platform services along with Google Workspace, slightly missed analysts’ consensus expectations for $5.04 billion in revenue for Google Cloud.
  • Search Still by far the biggest contributor to Alphabet’s overall top-line growth, growing 44% to bring in $37.9 billion in revenue, before traffic-acquisition costs.
  • YouTube ad sales grew 43% to top $7.2 billion in revenue in the third quarter.
  • Cloud revenue grew to $4.6 billion.)

“As the digital transformation and shift to hybrid work continue, our Cloud services are helping organizations collaborate and stay secure,” Alphabet CEO Sundar Pichai said in the company’s earnings statement.

Alphabet Inc Class A NASDAQ: $GOOGL

Market Reaction $2,778.40 ▼15.04 (▼0.54%) After Hours

Highlights

alphabet Q3 2021

Google Cloud

Google Cloud has become a key focus given the competitor like Microsoft Azure and Amazon Web Services. Prior to the report Monness, Crespi, Hardt & Co.’s Brian J. White wrote in an Oct. 13 note “Google Cloud offers a uniquevalue proposition for enterprises given its ability to leverage consumer-related innovations (e.g., Google Maps, Google Assistant, Google Play, YouTube, Google Shopping, etc.) with its robust cloud offering,”  White rates Google shares as buy with a price target of $3,500.

Alphabet and Google CEO Sundar Pichai said on Google Cloud Platform “We don‘t view it as a one-size-fits-all,” Pichai said. “We want to meet the customers the way they want to take this journey. We want to be customer-centric here and…go where the market goes.”

“We are definitely seeing continued momentum there — it’s a source of strength,” he said. “Security continues to be an increasing area of focus and a differentiator for us given over two decades of investment we have had. We pioneered zero trust. Multi-cloud continues to be a differentiator. I do think customers are increasingly looking for it, and we’ve embraced it from early on. But, above all, we are very, very focused on industry value propositions – really sharpening our solutions by verticals. That’s really helped us get some of the bigger deals…and we’ll continue doing that.”

Concerns Hanging Over Alphabet Apple’s IOS Changes

Last week Alphabet’s shares sold off in a sector wide move lower in ad-driven technology companies’ stocks after Snap (SNAP) reported current-quarter guidance that fell far short of consensus estimates.

Snap cited changes to Apple’s iOS operating system in it’s privacy policy that makes it harder to target and measure digital advertising as a major headwind to its advertiser base, since the changes impacted how advertisers can track the strength of their ad campaigns. Snap’s executives also cited ongoing global supply-chain challenges as another factor impacting its results, which reduced “short-term appetite to generate additional customer demand through advertising” given already outsized demand.

Alphabet’s advertising business may also be subject to these supply challenges, it will likely not see as notable an impact from Apple’s iOS privacy changes to its advertiser base, a number of analysts said.

  • JPMorgan analyst Doug Anmuth in a note; “GOOGL has significant first party data across its various properties, including strong user intent in Search and to a lesser degree in YouTube. Shortages, of course, could be a factor in 4Q given GOOGL’s heavy e-commerce and overall retail exposure.”
  • Monness, Crespi, Hardt & Co.’s Brian J. White “Given Snap’s size, maturity, and ad technology stack relative to the much larger, more experienced, industry leaders, we believe the company is more susceptible to these challenges. That said, we doubt any company tied to digital ad spending will be immune to these issues, including Facebook, Alphabet, and others.”

Antitrust issues

Google’s earnings also come as the company faces multiple antitrust lawsuits and likely a tougher regulatory environment under Biden appointees like Federal Trade Commission chair Lina Khan, as well as criticism from employees over its sexual-misconduct policies and dismantling of its AI ethics team following the departure of Timnit Gebru.

Google’s antitrust scrutiny both in the U.S. and abroad has led the company to halve its app fees last Thursday to make Google’s digital store more accessible and commission fees less punitive. A bipartisan bill in the U.S. Senate, the Open App Markets Act, would force the companies’ app stores to let developers use other payment systems, potentially helping them opt out of default service fees.

The bill, announced in August, came on the heels of an antitrust lawsuit from attorneys general in 36 states and the District of Columbia that claims Google abused its power over app developers through its Play Store on Android.

“We believe Alphabet is well-positioned for a continued recovery in digital ad spending and further momentum in the cloud; however, we anticipate antitrust investigations will carry on with great fanfare,” Monness Crespi Hardt analyst White cautioned.

Source: Google, TradersCommunity, WSJ

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