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Alphabet (GOOGL) Q4 Earnings Miss Estimates, Revenues Rise Y/Y

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Alphabet’s (GOOGL - Free Report) fourth-quarter 2022 earnings of $1.05 per share missed the Zacks Consensus Estimate by 7.9%. The figure declined 31.4% year over year.

Revenues of $76.05 billion increased 1% year over year (7% at constant currency).

Net revenues, excluding total traffic acquisition costs or TAC (TAC is the portion of revenues shared with Google’s partners and amounts paid to distribution partners and others who direct traffic to the Google website), were $63.12 billion, which lagged the consensus mark of $63.15 billion. The figure rose 2% from the year-ago quarter.

TAC of $12.9 billion was down 3.7% year over year.

Top-line growth was driven by the solid momentum in GOOGL’s cloud business. The strong performance of Other Bets contributed well.

However, softness in Google Search was a negative. Further, Alphabet witnessed sluggishness in YouTube ads and Google Network due to slowdown in digital advertisement. This was a major concern.

Shares of Alphabet plunged 3.6% in the pre-market trading due to GOOGL’s weaker-than-expected third-quarter results and declining advertisement revenues.

Notably, Alphabet has lost 27.2% over a year compared with the industry’s decline of 31.4%.

Nevertheless, Alphabet’s solid momentum across Google Cloud, YouTube subscriptions and Pixel devices is promising. Its growing investments in AI, strong efforts to boost Search business and the expanding cloud services portfolio, which are expected to yield huge returns in the days ahead, are major positives. This, in turn, is expected to instill investor optimism in the stock in the days ahead.

Alphabet Inc. Price, Consensus and EPS Surprise


Alphabet Inc. Price, Consensus and EPS Surprise

Alphabet Inc. price-consensus-eps-surprise-chart | Alphabet Inc. Quote

Segments in Detail

Alphabet reports revenues under Google Services, Google Cloud and Other Bets.

Google Services:

Revenues from the Google services business decreased 2.2% year over year to $67.84 billion, accounting for 89.2% of the total revenues.

Under this business, search revenues from Google-owned sites decreased 1.6% year over year to $42.6 billion.

YouTube’s advertising revenues declined 7.8% year over year to $7.9 billion, while Network advertising revenues decreased 8.9% to $8.5 billion.

Total Google advertising revenues fell 3.6% year over year to $59.04 billion and accounted for 77.6% of the total revenues.

Google’s Other revenues, consisting of Google Play and YouTube non-advertising revenues, were $8.8 billion for the fourth quarter, up 7.8% year over year.

Google Cloud:

Google Cloud revenues rose 32% year over year to $7.3 billion, accounting for 9.6% of the quarter’s total revenues.

Other Bets:

Other Bets’ revenues were $226 million, up 24.9% year over year and accounted for 0.3% of the total third-quarter revenues.

Regional Details

EMEA (28.6% of total revenues): GOOGL generated $21.8 billion of revenues from the region, falling 6% year over year.

APAC (15.7% of total revenues): The region generated $11.98 billion of revenues, down 6% from the year-ago quarter.

Other Americas (6.1% of total revenues): The region generated $4.66 billion of revenues, up 5% on a year-over-year basis.

United States (48.6% of total revenues): Alphabet generated $36.98 billion of revenues from the region, which increased 6% from the prior-year quarter.

Operating Details

Costs and operating expenses were $57.9 billion, up 8.3% year over year. As a percentage of revenues, the figure expanded 520 basis points (bps) from the year-ago quarter.

The operating margin was 23.9%, which contracted 850 bps year over year. Segment-wise, Google Services’ operating margin of 31.1% contracted 630 bps from the prior-year quarter.

Google Cloud reported a loss of $480 million compared with a loss of $890 million in the year-ago quarter.

Other Bets reported a loss of $1.63 billion compared with a loss of $1.45 billion in the prior-year quarter.

Balance Sheet

As of Dec 31, 2022, cash and cash equivalents, and marketable securities were $113.8 billion, down from $116.3 billion as of Sep 30, 2022.

Long-term debt was $14.7 billion at the end of the reported quarter compared with $14.6 billion at the end of the previous quarter.

Alphabet generated $23.6 billion of cash from operations in fourth-quarter 2022 compared with $23.3 billion in third-quarter 2022.

GOOGL spent $7.6 billion on capex, netting a free cash flow of $16.02 billion in the reported quarter.

Zacks Rank & Stocks to Consider

Currently, Alphabet carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader Zacks Computer & Technology sector are Agilent Technologies (A - Free Report) , Arista Networks (ANET - Free Report) and Impinj (PI - Free Report) , all of which carry a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Agilent has gained 10.2% in the past year. A’s long-term earnings growth rate is projected at 10%.

Arista Networks has gained 9.1% in the past year. The long-term earnings growth rate for ANET is projected at 17.5%.

Impinj has gained 73.3% in the past year. The long-term earnings growth rate for PI is projected at 25%.

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