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Alphabet witnessed a decline of more than 6% in its shares during extended trading as the company reported ad revenue that failed to meet analysts’ expectations. Despite a robust quarter for revenue growth, concerns over ad revenue performance and intensified competition led to a market response.
Key Financials:
1. Earnings per Share: $1.64, exceeding the expected $1.59 according to LSEG.
2. Revenue: $86.31 billion, slightly surpassing the estimated $85.33 billion by LSEG.
3. Google Cloud Revenue: $9.19 billion, beating expectations of $8.94 billion.
4. YouTube Ads Revenue: $9.2 billion, slightly below the expected $9.21 billion.
5. Traffic Acquisition Costs: $13.9 billion, lower than the anticipated $14.1 billion.
Financial Performance Highlights:
1. Fastest Revenue Growth Since 2022: Alphabet reported its fastest quarter for revenue growth since early 2022, with sales climbing 13% from a year earlier to $86.31 billion.
2. Ad Revenue Concerns: While overall revenue exceeded estimates, ad revenue of $65.52 billion fell short of analysts’ expectations of $65.94 billion, contributing to the stock decline.
3. Google Cloud Momentum: Google Cloud demonstrated robust performance, experiencing a 26% expansion in the fourth quarter compared to the previous year. The cloud business turned profitable, with an operating income of $864 million, rebounding from a year-ago loss of $186 million.
4. CEO Focus on AI: Sundar Pichai, CEO of Alphabet, continues to emphasize investments in artificial intelligence (AI) and the integration of new generative AI tools across Google’s key products.
5. Gemini AI Model Launch: In December, Google introduced Gemini, its largest and most capable AI model to date, aiming to license it to customers through Google Cloud for use in their applications.
Workforce Changes and Charges:
1. Ongoing Layoffs: Alphabet, under CEO Sundar Pichai’s strategic direction, remains focused on AI investments, requiring cutbacks elsewhere. The company made an additional 12,000 cuts last year, amounting to around 6% of its full-time workforce.
2. Severance and Related Charges: Alphabet recorded severance and related charges of $2.1 billion for 2023, attributed to last year’s workforce reductions.
3. Office Exits: Exiting certain offices resulted in charges of $1.2 billion for the quarter and $1.8 billion for the year.
4. Future Severance-Related Expenses: CFO Ruth Porat indicated that severance-related expenses in the first quarter are expected to be approximately $700 million.
Net Income and Operating Margin:
1. Net Income Increase: Net income surged by 52% in the fourth quarter to $20.7 billion, or $1.64 per share, compared to $13.6 billion, or $1.05 per share, in the previous year.
2. Operating Margin Expansion: Operating margin expanded to 27% from 24%, reflecting improved profitability.
Other Bets Performance:
1. Revenue Growth: Other Bets, which includes Waymo (self-driving cars) and Verily (life sciences), reported revenue of $657 million, up from $226 million the previous year.
2. Loss Narrowing: Loss within the Other Bets category narrowed to $863 million from $1.24 billion.
Market and Industry Trends:
1. Tech Stock Performance: Alphabet shares, despite the after-hours drop, have risen 56% in the past year. The broader tech industry has witnessed a surge in investor interest, with Meta and Microsoft also achieving fresh highs.
2.Upcoming Earnings: Amazon, Apple, and Meta are scheduled to release their financial results later this week, contributing to ongoing market dynamics.
Alphabet’s stock performance and investor sentiment highlight the evolving landscape of tech companies, where ad revenue and competition from platforms like Meta and TikTok play pivotal roles in shaping market reactions.