ii view: Google owner Alphabet results driven by letters A and I
A core search and advertising business complemented by data centre hosting facilities and even developments such as self-driving cars. Buy, sell, or hold?
30th October 2024 11:38
by Keith Bowman from interactive investor
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Third-quarter results to 30 September
- Revenue up 15% to $88.3 billion
- Adjusted earnings per share up 37% to $2.12
- Dividend of $0.20 per share, unchanged from the previous quarter
Chief Executive Sundar Pichai said:
“The momentum across the company is extraordinary. Our commitment to innovation, as
well as our long-term focus and investment in AI, are paying off with consumers and partners benefiting from our AI tools.
“We generated strong revenue growth in the quarter, and our ongoing efforts to improve efficiency helped deliver improved margins. I’m looking forward to driving more advances for consumers, customers and creators globally.”
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ii round-up:
Alphabet Inc Class A (NASDAQ:GOOGL) has reported sales and profits that beat Wall Street forecasts, as the owner of Google continued to benefit from the rollout of artificial intelligence (AI) across its products and services.
Third-quarter sales at its core Google advertising and search business rose 10% to $65.9 billion, driving group-wide sales up 15% year-over-year to $88.3 billion. Analysts had forecast $86.3 billion. Profits for the Cloud business, hosting data for customers such as banks, soared to $1.95 billion from $266 million a year ago. A 37% increase in overall earnings to $2.12 per share surpassed estimates of $1.85.
Alphabet shares climbed 6% in post results US trading having come into this latest news by 22% year-to-date. That’s similar to the Nasdaq 100 index in 2024, while AI computer chipmaker NVIDIA Corp (NASDAQ:NVDA) is up 185% year-to-date.
Alphabet noted that AI features were expanding what people can search for and how they search for it. Within the Cloud business, competing against rival providers such as Microsoft Corp (NASDAQ:MSFT) and Amazon.com Inc (NASDAQ:AMZN), AI solutions were helping to deepen existing customer adoption.
The California headquartered company’s ongoing focus on costs and improved efficiency helped the operating profit margin increase to 32% from 28% a year ago. Around a quarter of all new software being developed by Alphabet is now coming from AI.
Losses at its small Other Bets division, accounting for less than 1% of 2023 revenues and including its self-drive Waymo business, were flat at $1.12 billion year-over-year.
Broker Morgan Stanley reiterated its ‘overweight’ stance on Alphabet shares post the results, increasing its estimated fair value price to $205 from $190 per share previously.
ii view:
Formed via a restructuring of Google in 2015, Alphabet is today the parent holding company of products and services including the iconic Google search and advertising business. Generating annual 2023 sales of just over $307 billion, North America continues to provide its biggest slug of sales at close to half. That’s followed by Europe, the Middle East and Africa (EMEA) at around 30%, Asia-Pacific 17%, and Latin America most of the balance.
For investors, rivals to group businesses are competing hard and include TikTok for YouTube, Apple Inc (NASDAQ:AAPL) for Android software and phones, and Tesla Inc (NASDAQ:TSLA) for Waymo. The uncertain economic outlook and raised geopolitical tensions may be generating some caution among its advertising spending corporate customers. Government concerns regarding industry dominance remain, while fears that AI could encroach on its Search Engine business also deserve thought.
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More favourably, spending on AI developments is ongoing, with overall group-wide capital expenditure expected to average $13 billion per quarter this financial year. Diversity of both business type and geographical coverage exist. The group’s focus on costs includes a previous rejigging of its office portfolio. Ownership of the mobile phone Android operating system leaves it less dependent than say Meta on the metrics set by Apple for advertising privacy, while a focus on shareholder returns recently increased given the introduction of dividend payments alongside share buybacks.
For now, and despite continued risks, this giant of the online advertising world appears to remain worthy of consideration for inclusion in diversified investor portfolios.
Positives
- Alphabet dominates the digital advertising market
- Ongoing investment in products and AI
Negatives
- Uncertain economic outlook
- Technology giants remain under global government scrutiny
The average rating of stock market analysts:
Buy
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