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Alphabet Sinks after Q3 Miss, Analysts See Additional Downside Risks by Investing.com


© Stocksak. Alphabet (GOOGL), Sinks after Q3 Miss, Analyst Sees Additional Downside Risks

By Senad Karaahmetovic

After Alphabet’s Q3 results, shares of Alphabet (NASDAQ) fell more than 6% in premarket Wednesday trading.

Google’s parent company had an EPS (1.06) on revenue of $69.09 Billion. This was a miss since analysts expected an EPS (1.28) on revenue $71.34 billion. Google Cloud generated $6.87 million in Q3 revenue, while Google Services, the core business of the company, generated $61.38 billion.

“Our third quarter revenue was $69.1 billion, which is 6% more than last year and 11% more on a constant currency basis. While foreign exchange was an impact on the financial results, they reflect strong fundamental growth in Search and momentum within Cloud. We’re working to realign resources to fuel our highest growth priorities,” said Ruth Porat, CFO of Alphabet and Google.

Google Cloud revenue was $6.87 billion and Google Services revenue $61.38 billion. Analysts expected $6.69 billion and $63.75 trillion, respectively. YouTube ads revenue for the quarter was $7.07B, which is lower than the consensus of $7.44B.

Google stated that its total headcount has increased to 186.779, compared to 150.028 in Q3 2021. Google added more 10,000 employees in Q3. Porat, Google’s CFO, said that new hires will be “lower than half” of the number added in Q3. The company is focusing on “hiring for critical positions”, with a special focus on top-level engineering talent.

Sundar Pichai (CEO of Alphabet, Google) stated that “We are focused both on investing responsibly for long-term and being responsive to economic environment.”

Goldman Sachs analysts reduced the price target from $146 to $135 to reflect weaker-than expected results.

“We believe that a mix of investments towards long-term growth opportunities, shareholder return (via buybacks), and increasing operating efficiency will be the key driver for share price performance over the next years. In particular, the trajectory for Google Services operating margins in 2023 & beyond (driven by the inputs laid out by management) will likely be critical to understand the compounded returns for GOOGL shares,” the analysts said in a client note.

Mizuho analysts also decreased the price target to $140, from $150, to reflect macro- and FX headwinds. Analysts see Google having to reduce costs in 2023 in order to offset slower growth.

“We see margin risks in near-term. However, we see downside risk for cloud revenue growth and advertising for FY23. We remain Buy-rated and constructive about Google for the longer-term, but we expect some volatility in the near-term until the company lays down its opex plan to mitigate headwinds,” analysts wrote to clients.

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