Alphabet stock (NYSE: GOOG) is trading sharply higher in US premarket price action today after it reported better-than-expected earnings for the second quarter of 2023. Here are the key takeaways from the earnings report and Wall Street’s reaction.
Alphabet’s revenues rose 7% YoY to $74.6 billion which was ahead of the $72.82 billion that analysts expected. Its adjusted EPS came in at $1.44 which was higher than the $1.34 that analysts predicted.
Alphabet posted better-than-expected earnings
Looking at the business segments, its ad revenue increased 3.3% to $58.14 billion. Google search revenues rose from $40.69 billion to $42.63 billion while YouTube revenues rose from $7.34 billion to $7.66 billion over the period. However, Google Network revenues fell $8.26 billion to $7.85 billion.
The rise in advertising revenues looks encouraging as both YouTube and Google search revenues fell in the first quarter – YouTube revenues incidentally fell for three straight quarters before the rebound in the second quarter.
Commenting on the earnings, Alphabet CEO Sundar Pichai said, “There’s exciting momentum across our products and the company, which drove strong results this quarter. Our continued leadership in AI and our excellence in engineering and innovation are driving the next evolution of Search, and improving all our services.”
Meanwhile, the key driver of Alphabet’s growth was its cloud business whose revenues rose 28% YoY to $8.03 billion.
Porat to transition to the role of President
Ruth Porat, Alphabet CFO said, “Our financial results reflect continued resilience in Search, with an acceleration of revenue growth in both Search and YouTube, as well as momentum in Cloud. We continue investing for growth, while prioritizing our efforts to durably reengineer our cost base company-wide and create capacity to deliver sustainable value for the long term.”
Alphabet also announced that Porat would transition to the role of President and the company has begun the hunt for a new CFO. She would continue to report to Pichai and among others look after the “Other Bets” investments. The segment includes lossmaking but high-growth businesses like Wayno which is Alphabet’s self-driving segment.
Wall Street analysts rate their target price for Alphabet
Meanwhile, after the earnings release, multiple Wall Street analysts raised their target price for Alphabet stock. Morgan Stanley reiterated its overweight rating on the stock while raising its target price to $155 per share.
“The extent to which Google Cloud (and GCP) can grow structurally faster from the likely AI-driven adoption acceleration of public cloud would likely lift the multiple investors are willing to pay for GOOGL,” said Morgan Stanley analyst Brian Nowak in his note.
Bank of America analyst Justin Post also reiterated his buy rating on Alphabet stock and said, “In our view, the quarter helped address relative revenue growth concerns vs peers with accelerating Search and YouTube growth, and had ad results/commentary supporting our thesis that Alphabet will be a net beneficiary of AI.”
Goldman Sachs analyst Eric Sheridan also reaffirmed his buy rating on GOOG while assigning a target price of $152. “While questions will remain about AI’s impact on core products (e.g., if such a shift can be disruptive over the short-term) or costs structure (e.g. if computing costs per search will rise), we see Alphabet as the leader in compounded AI investment in the past 5-6 years and well positioned to capitalize on this trend in the coming decade,” said Sheridan in his note.
Snap stock crashed after its Q2 earnings
Citi analyst Ronald Josey also maintained his buy rating on Alphabet and said, “As revenue growth reaccelerates on an improving online advertising environment and management’s greater focus on operating efficiencies, we look for margins to expand going forward as revenue growth consistently outpaces opex growth.”
While Alphabet stock has soared after reporting an impressive set of numbers, Snap is trading sharply lower after it reported a second consecutive quarter of falling revenues. The stock has now fallen sharply after the earnings release for six straight quarters.
Meta Platforms would release its Q2 earnings today after the close of markets which would offer more insights into the digital ad market. So far, we have mixed signals with Alphabet posting better than expected earnings while Snap yet again disappointing markets with its financial performance.
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