Alphabet (GOOGL.US) is scheduled to report its Q4 2023 earnings tomorrow after close of the Wall Street session (Tuesday, January 30, 2024). Company will be one of the first major US tech companies to report fourth quarter financials, along with Microsoft and AMD which will also report this Tuesday. Let's take a quick look at expectations ahead of Alphabet's earnings and what to focus on in the release.
What are analysts' expectations?
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Create account Try a demo Download mobile app Download mobile app- Revenue: $85.3 billion (+12.1% YoY)
- Cloud revenue: $8.9 billion (+22.1% YoY)
- Ad revenue: $65.9 billion (+11.6% YoY)
- Other Bets: 298.7 million (+32.1% YoY)
- Others, including YouTube: $10.2 billion (+15.7% YoY)
- Traffic acquisition cost: $14.1 billion (+9% YoY)
- Operating income: $23.8 billion
- Google Services: $25.75 billion (+22% YoY)
- Google Cloud: $427.4 million (-$480 million a year ago)
- Other Bets: -$1.26 billion (-$1.63 billion a year ago)
- Operating margin: 27.7%
- Capital expenditures: $9.82 billion
- EPS: $1.59 (+51.4% YoY)
Analysts' expectations for Alphabet's Q4 adjusted EPS and sales are around 1.0-1.5% lower than they were at the beginning of the quarter. Source: Bloomberg Finance LP, XTB Research
What to focus on?
Alphabet is expected to report another quarter of solid revenue growth, driven by strong performance of cloud unit. Performance of the cloud business will be one of the factors to watch in today's earnings release. The other will be AI developments. AI hype has been a key driver of 2023 rally on US mega-cap tech stocks like Alphabet or Microsoft.
Expectations of AI being a new moneymaker for US tech companies led to elevated valuations, and now these companies will now need to prove that those expectations were correct. While it may still be too early to show a meaningful boost to sales and earnings from AI, investors will look at a clear guidance of the AI impact on 2024 and 2025 results. Failure to provide such a guidance may be seen as a disappointment, and suggest that whether AI will be game changer or not in case of earnings impact is still uncertain. Nevertheless, UBS Group forecasts AI revenue to climb to $420 billion by 2027, up from just $28 billion in 2022.
AI-hype has driven Alphabet and Microsoft shares over 70% since the beginning of 2023. Source: Bloomberg Finance LP, XTB
A vast majority of analyst recommendation for Alphabet tracked by Bloomberg are positive on the stock. 55 out of 65 analysts who made a recommendation on the stock has a 'buy' recommendation, while the 10 remaining analysts have a 'hold' recommendation. Not a single one is recommending selling Alphabet shares. An average 12-month ahead price target for Alphabet is $159.81, or around 4-5% above current market price.
Average price change of Alphabet's stock during the post-earnings session over the past 40 quarters is 1.21%, while average absolute value of those reactions is 4.64%. Options market is currently implying a 4.0-4.1% post-earnings price move.
Taking a look at Alphabet chart (GOOGL.US) at D1 interval, we can see that the stock has recently broken above the previous all-time highs in the $151 area and is now trading at record levels. However, whether this rally will be maintained may depend on Alphabet providing AI guidance or not. Source: xStation5
Financial dashboard for Alphabet. Source: Bloomberg Finance LP, XTB
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