Wall Street’s reaction to Alphabet’s recent third-quarter earnings was nothing short of a movie. A little drama, some tension, and, of course, sports analogies. Let’s dive in!
Despite Alphabet seeing a revenue and profit surge, notably from its ever-dominant Google and YouTube advertising branches, the company’s stock took a bit of a tumble, slipping by 10%. Why, you ask? The spotlight is on Alphabet’s Cloud business. Clocking in a revenue growth of 22.5% to $8.41 billion, it unfortunately didn’t match up to the forecasted $8.62 billion. And if that wasn’t enough of a dampener, this also marked a dip from the 28% growth reported in Q2.
In the blue corner, we’ve got Microsoft, whose quarterly reports boasted a renewed pep in its Azure cloud unit’s step. This has naturally left everyone wondering: Why the slowdown, Alphabet?
Wedbush’s Take
The sports analogy masterclass. Analyst Scott Devitt likens the excessive emphasis on Alphabet’s Cloud venture, which forms about 11% of revenue, to cheering on basketball legend Michael Jordan to play baseball. Devitt’s rationale? With Alphabet’s core advertising segment constituting a whopping 78% of revenue and set to escalate in Q4, the cloud’s slower growth is just a drop in the ocean. Devitt remains optimistic, tagging Alphabet with an “Outperform” rating.
Monness Crespi Hardt’s Perspective
Brian White pulls no punches. He signals that although Alphabet’s long-term horizon seems solid, there are storm clouds on the horizon. White found the company’s earnings call rather “murky”, implying that in an age demanding robust AI investments, Alphabet’s discourse seemed a tad elusive. He believes challenging times are in the offing. Consequently, Alphabet’s rating was downgraded to “Neutral”.
Bank of America’s Two Cents
They candidly acknowledge that on a night when Microsoft celebrated its cloud triumphs, Alphabet’s cloud stumble wasn’t the best look. However, analyst Justin Post points out that Google indicated some stabilization, and let’s not forget that the Cloud segment makes up a mere 2% of total profits. The silver lining? Alphabet’s search and YouTube growth metrics indicate a resilient ad recovery. Bank of America remains bullish, adjusting its price target slightly higher.
In a nutshell, Alphabet’s Q3 scorecard has evoked a mixed bag of sentiments, from unabashed optimism to cautious apprehension. As the Cloud landscape continues to evolve and competition thickens, the tech titan’s moves will be one to watch!