Alphabet dips 6.0% in pre-market trading after quarterly results 📣

Alphabet Inc. (GOOGL.US) experienced a decline in its share price, dropping 6.0% in premarket trading, following its third-quarter earnings report which revealed a slowdown in its cloud business growth. Despite overall revenue exceeding analysts' expectations, Alphabet's cloud computing unit reported an operating income of $266 million, falling short of the estimated $434 million. This shortfall raised concerns about Alphabet's competitive position in the crucial cloud market, where it already lags behind Amazon and Microsoft. The cloud unit, which turned a profit for the first time earlier this year, has been gaining traction with AI startups, but its recent performance didn't meet expectations, leading to worries about an increasing gap with its competitors.

• Alphabet’s profit was pressured by multiple one-time costs and slower cloud growth
• Cloud growth decelerated and management indicates that “optimizations remain ongoing”
• Alphabet’s cloud unit missed estimates and that is tied to IT spending

Key metrics: 

• Total Revenue: $76.69 billion, surpassing the estimate of $75.54 billion

  • Google Advertising Revenue: $59.65 billion, higher than the estimate of $58.94 billion
  • YouTube Ads Revenue: $7.95 billion, exceeding the estimate of $7.8 billion
  • Google Other Revenue: $8.34 billion, above the estimate of $7.94 billion
  • Google Services Revenue: $67.99 billion, higher than the estimate of $66.89 billion
  • Google Cloud Revenue: $8.41 billion, below the estimate of $8.6 billion
  • Other Bets Revenue: $297 million, surpassing the estimate of $258.8 million

• Earnings Per Share (EPS): $1.55, higher than the estimate of $1.45

• Operating Income: $21.34 billion, slightly below the estimate of $21.44 billion

  • Google Services: $23.94 billion, exceeding the estimate of $22.89 billion
  • Google Cloud: $266 million, significantly below the estimate of $433.6 million
  • Other Bets: loss of $1.19 billion, slightly better than the estimated loss of $1.2 billion

• Operating Margin: 28%, marginally below the estimate of 28.1%

Financially, Alphabet reported third-quarter sales and net income slightly better than forecasted. However, the company is facing new challenges in the search market due to the rise of generative AI chatbots, like those backed by Microsoft's Open AI Inc.’s ChatGPT. Alphabet CEO Sundar Pichai and Porat emphasized their commitment to operating more efficiently, including maintaining a slower pace of headcount growth, to maximize investment in areas like AI. Despite these efforts, Alphabet's ongoing legal challenges and the performance of its other startups investments continue to influence investor sentiment.

The stock lost about 6.0% in pre-session trading after the quarterly results and is currently trading at about $130. However, the results were not significantly worse, and in most sectors were even better than analysts' expectations. Therefore, the intitial panic may prove to be temporary, and the beginning of the cash session will bring a rebound in the price. Source: xStation 5