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Alphabet rises 7% in pre-market after strong Q2 results and advertising surge

Autor: Financial Market
Timp de citit: 2 minute

Shares of one of the leading big tech companies, Alphabet (GOOGL.US), are climbing nearly 7% before Wall Street opens today. Second-quarter results were very solid across all business segments, with revenue up from YouTube and the company’s core Google browser advertising and search business.

Investors were also positive about the impact of AI and Google Cloud. Given the prospect of an upturn in the advertising sector, Meta Platforms (META.US, formerly Facebook) also rose today; the company will publish its results after today’s session.

Financial highlights

• Revenue of $74.60 billion vs. $72.77 billion forecast and $68.8 billion in Q1.
• Earnings per share (EPS): $1.44 vs. $1.32 forecast and $1.17 in Q1.
• Advertising revenue: $58.14 billion vs $57.45 billion forecast $54.44 billion in Q1.
• Google Cloud: $8.03 billion vs $7.83 billion forecasts and $7.45 billion in Q1.
• Operating margin of 29%, vs. 27.6% of forecasts and 25.35% in Q1.
• YouTube advertising revenue: $7.67 billion vs. $7.41 billion forecast and $6.69 billion in Q1.
• Other income: $8.14 billion vs. $7.17 billion forecasts
• Operating income $21.84 billion, vs. $19.96 billion forecasts
• Investments: $6.89 billion vs. $8.01 billion forecasts

The report definitely exceeded expectations, which the market perceived as a reflection of Google’s incredible resilience and dominance as the leading search engine and, at the same time, no significant loss of market share to Microsoft Bing.

The factor feared by investors had thus disappeared, at least temporarily. YouTube ad revenue (4.4% year-over-year growth) increased, with better momentum from Google Cloud (28% year-over-year growth, momentum over 26% year-over-year from Microsoft Azure) and positive results from other segments (GooglePlay, YouTube subscriptions).

At the same time, it is noteworthy that Google’s business segments outside search represent an increasing percentage of total revenues, which is also perceived by the market as a positive sign of business diversification.

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Ruth Porat with the new CIO role

Truist Securities analysts highlighted continued momentum in Google Cloud and Search, as well as positive operating leverage supported by lower costs.

The company also announced plans to optimize office space costs, which could bring additional valuation costs, as well as a change in chief investment officer – the positions will be held by former CFO Ruth Porat.

Investors have recently questioned the company’s ability to keep up with growing competition in the AI industry, as evidenced by the recent rise of Alphabet stock below the Nasdaq average. Investors are pinning their hopes on the actions of Porat, considered one of Silicon Valley’s top executives.

Is it time for AI?

The results show that the company is maintaining its hegemonic position in the search and advertising markets. A boost in the advertising sector could help the company increase spending on generative AI models and further improvements to Google’s search capabilities.

Servers and AI models accounted for the bulk of Alphabet’s investment in the second quarter. The company is testing how and where to place search ads in a search engine that increasingly relies on artificial intelligence.

According to business director Schindler, up to 80% of advertisers use at least one AI search product. Google plans to integrate generative AI into Gmail and Android. Analysts also expect Google’s cloud computing business growth to accelerate in late 2023 (with a low point in June) as macroeconomic uncertainty eases and corporate spending increases.