Alphabet earnings look-ahead: Watching the ad slowdown, layoffs - and AI
Leon Neal
Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) is set to help kick off the season in key big-tech earnings with its first-quarter report Tuesday, and while the magnitude of an advertising slowdown will of course be front and center for watchers, they'll also be seeking information about Google's approach to the hot topic of chatbots and how they'll change online search.
Wall Street analysts expect Alphabet to post earnings per share of $1.07 on $68.8B in revenues, which would mark a meager 1.2% growth similar to last quarter.
Alphabet's (GOOG) has seen significant cuts to its estimates in the past few months: Earnings per share forecasts have been revised downward 25 times, compared to just eight upward revisions, while revenue estimates have been revised down 33 times vs. just two upward moves.
And on the revenue side, while there's been a broad slowdown in the Internet advertising space, Alphabet observers are keeping their eye on a particular recent thorn in the company's side: YouTube ads. YouTube advertising fell nearly 8% year-over-year in the fourth quarter, while Google Network ads fell even more, by 9%, while core Google search actually held up well, declining just 1.6%.
Analysts are seeing a sharp sequential decline in advertising revenues overall, to $53.75B from last quarter's $59B, with YouTube ads in particular dropping to $6.6B. Google Cloud is still a bright spot on the top line, consistently managing year-over-year growth of around 33%.
Moving on from revenues, the plan to cut 12,000 workers will land on results as Alphabet expects to take charges of $1.9B to $2.3B, with most of that centering on the first quarter.
Meanwhile, outside the numbers investors will be seeking any color to be gained on Alphabet's plans to counter competitive threats in the realm of artificial intelligence -- which, so far, sound like a strategy to embed generative AI into its core products, notably its revenue-crucial main search engine, in order to face off against Microsoft and OpenAI.
Seeking Alpha analyst Manuel Paul Dipold suggested several factors are coming together that could make the quarterly results worse than expected, and thinks a "multi-percent" post-earnings dip in the share price is more likely than a gain. Valuation is low, he says, but Alphabet has been underperforming expectations in the past few quarters, and downward revisions aren't looking so good.
Fellow Seeking Alpha analyst Vlad Deshkovich notes the company is set for "significant" one-off cash adjustments due to laying off 12,000 workers, along with pivoting accounting for Google Cloud, and pointing to some "short-term pain for long-term gain."
While Seeking Alpha analysts at large consider GOOGL a Buy, Wall Street believes it's a Strong Buy. And Seeking Alpha's Quant Ratings call the stock a Strong Buy as well.