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A Look into Alphabet’s Third Quarter Numbers

October 26th, 2022 -

About 5 Mins
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Ticker Symbol: GOOGL

Alphabet shares are down 6% in the morning trading session after the company reported third quarter advertising revenue which missed the consensus estimate from Wall Street, and a miss on total revenue and earnings. Shares are trading down as fears of an economic recession, which could hit advertising revenue-based internet companies hardest, especially after Snap’s results last week. Alphabet shares are down 27.8% for the year, greater than the 19% decline in the benchmark S&P 500.

The company reported Google Ad revenue of $54.48 billion, which was up 2.5% from the previous year, but lower than the expected $56.98 billion. The miss on ad revenue, which is still Alphabet’s primary revenue generator, damaged investor prospects that Google could withstand some of the industry wide slowdown in advertisement better than competitors. YouTube’s ad revenue actually declined on a year over year basis, coming in at $7.07 billion, versus $7.47 billion estimated, and $7.2 billion from 3Q2021.

Total advertising revenue at Alphabet, excluding traffic acquisition costs, was $57.27 billion, lower than the $58.2 billion analysts had been expecting. Ad revenue generally represents 90% of total revenue for Alphabet, dwarfing the company’s Pixel phone, Play Store, and Google Cloud. In a bit of bright news however, Google Cloud revenue beat estimates of $6.59 billion, coming in at $6.87 billion. In total, those parts of Google’s “other revenue” came in ahead of the consensus $6.85 billion by $50 million.

Combined, Google Services revenue grew to $61.38 billion, but widely missed the forecasted $64.01 billion. Other Bets, the segment which comprises the company’s “moon shot” operations such as Waymo, Verily and start up investments, came in at $209 million and ahead of the $204.1 million expected by analysts. In aggregate, the company reported second quarter total revenue of $69.09 billion, shy of the $70.75 billion that investors were expecting.

Growth has slowed considerably at the technology giant, with the top-line climbing by 6.1% year over year, down from the 41% growth it experienced in the third quarter of 2021. Alphabet also reported adjusted earnings per share of $1.06. The figure was lower than the $1.25 per share that was estimated by analysts. Third quarter operating margin of 25% was likewise significantly lower than the 27.9% expected by analysts.

Google’s Cloud business reported operating losses of $699 million, much better than the $814 million loss analysts were projecting. The company said it continues to invest heavily into this division to catch-up with market leaders Amazon Web Services and Microsoft’s Azure. Other Bets and Google Services, however, both missed their consensus operating income forecasts by a combined $3.44 billion.  

Given investors added attention on profits recently, Chief Financial Officer Ruth Porat said that hiring would be slowed at all divisions and across the company to contain costs. Foreign exchange headwinds, brought around by a resurgent U.S. dollar, has crimped Alphabet’s growth in the rest of world from which the company derives roughly 53 percent of its total revenue. Chief Executive Officer Sundar Pichai has also spoken recently about the company needing to become more efficient, as revenue growth slows, to retain profitability.

This content is provided for general information purposes only and is not to be taken as investment advice nor as a recommendation for any security, investment strategy or investment account.

This content is provided for general information purposes only and is not to be taken as investment advice nor as a recommendation for any security, investment strategy or investment account.
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