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The earnings report, due after the close of trading on Tuesday, should provide fresh evidence on the current state of the digital advertising environment, as well as important data on the strength of the cloud computing business. Analysts are optimistic on both fronts.
For the September quarter, the Street expects the parent company of Google and YouTube to post sales of $76 billion, up 10 percent from a year earlier, with earnings of $1.46 per share, up from $1.06. Advertising revenue is projected at $59.2 billion. That includes Google search and other advertising worth $43.3 billion and YouTube advertising worth $7.8 billion. Google Cloud revenue is projected at $8.6 billion, up 26 percent.
Alphabet (ticker: GOOGL) does not provide official guidance.
Key to Alphabet’s results will be the performance of its advertising business. In a research note previewing the quarter, Evercore ISI analyst Mark Mahaney wrote that a survey of ad channels showed a relatively improving ad spending environment, with his forecast for ad revenue of $60.1 billion, nearly $1 billion ahead of It is consensus.
Likewise, Wedbush analyst Scott DeWitt wrote in a recent research note that the setup for digital ad streaming is positive for the second half, with growth rates continuing to increase. He also attributes the potential for operating margin leverage from cost reductions to recent staff cuts.
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The Street will also be looking closely at Google’s cloud business. Mahaney writes that surveys of the cloud channel point to an unlocking of cloud spending, driven in part by increased demand for artificial intelligence. He sees further acceleration of cloud spending in 2024. Analysts see Google’s strong position in generative artificial intelligence software as a competitive strength for the cloud business.
Another focus for investors is how YouTubes will be received by consumers this season from its NFL Sunday Ticket football package, and whether it will increase adoption of the YouTube TV subscription service. And, of course, there will be many questions on the call about how productive artificial intelligence like Bard’s chatbotare affects costs and revenue. Last quarter, the company said that growth in AI demand will drive infrastructure spending in both the second half of 2023 and 2024.
Last quarter, Alphabet announced that CFO Ruth Porat was moving from her position as president and chief investment officer of Alphabet and Google to a role overseeing a portfolio of other companies. This change took effect on September 1. Alphabet has yet to announce a replacement for Porat. There are also likely to be questions in the post-report earnings call about whether Porats’ appointment to the new role will result in a divestment or sale of non-core company stocks, such as Waymo’s self-driving car business and its Verily healthcare unit.
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For the December quarter, consensus estimates, tracked by FactSet, called for sales of $84.9 billion on earnings of $1.63 per share.
Alphabet shares are up about 55% year to date, having moved 12% since the last earnings report.
Write to Eric J. Savitz at eric.savitz@barrons.com
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