Alphabet’s Q3 2023 Earnings: Strong Performance Marred by Cloud Slowdown

Alphabet’s Q3 2023 Earnings: Strong Performance Marred by Cloud Slowdown

Alphabet Inc. (NASDAQ: GOOG) recently reported its Q3 2023 earnings, showcasing impressive financial results. However, the stock faced a nearly 10% drop following the earnings release, mainly due to concerns over Google Cloud Platform’s (GCP) slower growth rate compared to the previous quarter.

Despite the setback in its cloud business, Alphabet demonstrated robust performance in other segments.

1. Impressive Earnings: Alphabet reported a Q3 2023 earnings per share (EPS) beat of 9 cents, with an 11% year-over-year (YoY) revenue growth to reach $76.69 billion.

2. Cloud Business Deceleration: GCP revenues grew by 22%, although this marked a deceleration from the 28% YoY growth reported in Q2 2023. This slowdown in cloud growth led to a 10% drop in Alphabet’s stock.

3. YouTube Ad Revenues: YouTube Ad revenues saw an increase of 11.3%, reaching $7.9 billion. The growth was driven by YouTube Shorts, which now garners 70 billion daily views.

4. Double-Digit Revenue Growth: After experiencing four quarters of single-digit growth, Alphabet returned to double-digit revenue growth. Total revenues grew by 11% in Q3 2023, surpassing consensus estimates.

5. Advertising Revenues Rebound: Google’s digital advertising business showed signs of recovery. Total Google Advertising revenues grew 9.4% YoY to $59.6 billion.

6. AI and Cloud: Although GCP faced deceleration as customers optimized their spending, there is strong interest in artificial intelligence (AI). The Vertex AI platform witnessed a significant uptick in AI projects.

7. Google Gemini: Google is developing “Gemini,” a suite of large language models designed to perform diverse tasks, including generating text, images, code, and audio content. It aims to offer these capabilities across Google’s products and services.

8. CEO’s Outlook: Google CEO Sundar Pichai highlighted the continued growth of Google Cloud and emphasized that more than 60% of the world’s largest companies are Google Cloud customers. He also noted the success of generative AI startups using Google Cloud services.

Market Analysis:

Alphabet’s stock chart indicates a cup and handle pattern. The company returned to double-digit revenue growth, and while the cloud business showed some deceleration, strong AI demand could stabilize it. Despite the cloud concerns, Alphabet’s overall performance has been promising.

It’s essential to consider that top-rated analysts have identified other stocks that may offer better opportunities, as Alphabet currently maintains a “Moderate Buy” rating among analysts.

In summary, Alphabet’s Q3 2023 earnings revealed a strong financial performance marred by concerns over the growth of its cloud business. Nevertheless, the company demonstrated solid results in other segments and highlighted its potential in the AI space.