Alphabet stock drops due to Google’s ad revenue falling short of expectations.

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Written By Vikas Jangid

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Alphabet stock dropped over 6% in after-hours trading on Tuesday following the company's report of lower-than-expected ad revenue. Here are the key figures:

Earnings per stock: $1.64, falling short of the $1.59 expected by LSEG (formerly Refinitiv).
Revenue: $86.31 billion, missing the $85.33 billion anticipated by LSEG.
Google Cloud: $9.19 billion, surpassing the $8.94 billion estimate from StreetAccount.
YouTube ads: $9.2 billion, slightly below the $9.21 billion expected by StreetAccount.
Traffic acquisition costs: $13.9 billion, coming in under the $14.1 billion forecast by StreetAccount.

Why Alphabet Stock Drop?

Alphabet announced its highest quarterly revenue growth since early 2022, revealing a 13% increase in sales compared to $76.05 billion the previous year, as stated by the company. Despite this positive trend, the ad revenue of $65.52 billion fell short of analysts' expectations of $65.94 billion, according to StreetAccount.

Alphabet Stock Drop, Reported

The results, although generally higher than expected, failed to satisfy investors who had recently driven the stock to new highs. Facebook's advertising business is expanding at a quicker rate, and TikTok remains a constant competitive threat as younger users flock to the platform to create short viral videos.

Google Cloud continues to be a major growth driver, experiencing a 26% expansion in the fourth quarter compared to the previous year. The company is now turning a profit from its cloud business, which had been incurring losses for years while trying to compete with Amazon Web Services and Microsoft Azure. In the fourth quarter, the operating income was $864 million, a significant improvement from the $186 million loss a year ago.

Throughout Alphabet, CEO Sundar Pichai remains focused on investing in artificial intelligence and integrating new AI tools into more of Google's key products. Pichai has emphasized the need to make strategic cuts in other areas, including additional layoffs on top of last year's reduction of 12,000 jobs, representing about 6% of the full-time workforce.

Pichai stated in Tuesday's press release, "We are pleased with the ongoing strength in Search and the growing contribution from YouTube and Cloud. Each of these is already benefiting from our AI investments and innovation."

Alphabet quarterly revenue

Alphabet stock Drops 6% Due to Google's ad Revenue Falling
Source: Company Reports

In December, Google introduced its large language model, Gemini, considered its most extensive AI model yet. The plan is to license Gemini to customers via Google Cloud for their applications.

Due to last year's workforce reductions, Alphabet recorded severance and related charges of $2.1 billion for 2023. Google's office exits led to charges of $1.2 billion for the quarter and $1.8 billion for the year. CFO Ruth Porat stated severance-related expenses in Q1 will be around $700 million.

Q4 net income surged 52% to $20.7 billion, or $1.64 per Alphabet stock, from $13.6 billion, or $1.05 per Alphabet stock, a year ago. Operating margin expanded to 27% from 24%.

Other Bets, including Waymo and Verily, reported revenue of $657 million, up from $226 million the prior year, with a narrowed loss of $863 million from $1.24 billion.

Alphabet stock rose 56% in the past year, excluding the after-hours drop. Meta and Microsoft also hit new highs as investors continue to invest in tech stocks.

Microsoft reported strong financials on Tuesday, but its stock price fell post-announcement. Amazon, Apple, and Meta are set to release results Thursday.

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