by Google’s Q3 Profits: A Synopsis
Alphabet’s new CFO, Anat Ashkenazi, made his debut in the earnings report on July 31. The company reported a 37% increase in profit and a 15% increase in sales for the quarter ended September 30, with earnings per share of $2.12.
Alphabet’s advertising revenue of $65.85 billion surpassed expectations, surpassing analysts’ predictions of $65.5 billion. The company’s cloud division, which surpassed forecasts by 35% YoY to $11.4 billion, contributed to this expansion. CEO Sundar Pichai highlighted that the company’s AI portfolio promotes the cloud segment by attracting new clients and facilitating larger transactions.
Price of Google Stock: Forecasts by Analysts
Analysts predict a 19% increase in earnings per share to $1.84 in Q3 2021 and a 13% increase in revenue to $86.4 billion, with YouTube expected to demand greater financial openness. Institutional ownership of Google shares has declined.
The cloud computing segment of Google is expected to develop rapidly, with revenues expected to increase by 29% to $10.87 billion. But according to other analysts, like Scott Devitt of Wedbush, Alphabet shares are still appealing because of their very cheap price-to-earnings ratio when compared to the overall market, even though Q3 earnings may not be a significant catalyst for the stock.
Pressures from the Law and Competition Affect Google’s Stock Performance
Google is facing challenges from government investigations amid antitrust issues. A U.S. District Court has ordered Google to ensure equal access to all apps and allow third-party app shops on the Google Play platform. This legal setback coincides with a larger Department of Justice antitrust action that may require adjustments to Google’s business operations. The loss of Google’s $20 billion search agreement with Apple, which sets Google as the default search engine on iPhones, is another concern. A decision could impact Google’s search market dominance.
Notwithstanding these obstacles, Waymo, Google’s autonomous driving subsidiary, is still growing and just closed a $5.6 billion fundraising round.
With the introduction of a new large language model (LLM) and a notable increase in investor interest, OpenAI is becoming a more formidable rival in the AI market. Google has been aggressively incorporating its Gemini AI tools into its main products, such as internet search, in an effort to combat this. Additionally, the business has made its AI Overview function, which offers conversational summaries in addition to search results, available worldwide.
Google’s AI Investments and Financial Prospects
Investors are mostly interested in Google’s investments in cloud computing and artificial intelligence. Due to the company’s significant investments in AI infrastructure, Google’s capital spending increased by 91% to $13.18 billion in Q2. “The risk of underinvesting is dramatically greater than the risk of overinvesting,” CEO Sundar Pichai said, underscoring the significance of AI initiatives.
Even while Google’s Performance Max advertising platform has improved results for advertisers, the corporation is up against more and more competition in the AI-driven ad market, especially from rivals like Amazon and Microsoft.
Although it still ranks third in terms of cloud service providers, Google is behind Microsoft Azure and Amazon Web Services. Google’s cloud business is being keenly watched by analysts since it is anticipated to be a significant growth engine for the corporation, especially with the integration of cybersecurity company Mandiant, which Google purchased for $5.4 billion in 2022.
Is It Time to Buy Google Stock Following Q3 Earnings?
Speaking to MarketWatch, a number of analysts have voiced their confidence in Alphabet’s AI trajectory, particularly in light of the company’s recent earnings report’s impressive success across several areas. Brent Thill, an analyst at Jefferies, called the quarter an “all-around winner,” pointing out that AI is increasing ad effectiveness, drawing in new Google Cloud clients, and fostering internal business improvements. Citing AI as a crucial tailwind for future growth, Thill increased his price target for the stock to $235 while keeping his buy rating.
Mark Shmulik of Bernstein praised Alphabet’s ability to grow across various markets despite facing competitive and regulatory challenges. Alphabet’s success extends beyond advertising, with notable sales of Pixel devices, YouTube subscriptions, and Google Cloud. Despite raising the price objective, Shmulik maintained a market-perform rating on the stock, stating that regulatory and competition risks remain unresolved. Analysts believe Alphabet is well-positioned for sustained success in the digital sector due to its focus on generative AI and cloud services.
