Alphabet (GOOG) is a current holding within the value component of Rivkin’s US growth portfolio, with shares in the technology giant surging overnight after reporting results that beat analyst estimates.
Alphabet reported an impressive second-quarter financial performance that exceeded expectations, with shares surging by as much as 7.4% in after-hours trading. Driven by robust advertising revenue, particularly from its flagship Google Search, the company showcased its resilience against competitive threats emerging from AI chatbots such as OpenAI’s ChatGPT.
Revenues, excluding Traffic Acquisition Costs (TAC), amounted to US$62.07 billion, surpassing analyst estimates USUS$60.27 billion. Revenue from Google Advertising and YouTube ads outperformed forecasts, reaching US$58.14 billion and US$7.67 billion, respectively.
Second-quarter earnings per share (EPS) came in at US$1.44, significantly exceeding the predicted US$1.32. The company reported a higher operating income of US$21.84 billion, against an estimated US$19.96 billion with operating margin standing at 29%, slightly above the expected 27.6%.
Despite concerns about AI competitors siphoning users from Google search, the search segment remains the key driver of Alphabet’s growth. In addition, Google Cloud posted another profitable quarter, confirming that its first-ever profitable period was not an anomaly. Despite lagging Amazon and Microsoft in the cloud space, the business is one of Alphabet’s most promising growth vectors. YouTube, after weathering several challenging quarters, surpassed analysts’ predictions. This outcome, and stabilizing ad demand, suggest a bright future for the platform.
Analysts maintain an optimistic outlook for the stock, with no active sell recommendations, with 83% of analysts maintaining a buy recommendation with a 12-month consensus price target of US$139 implying 13.2% upside from current prices.
The strong performance in Q2 results underscore the robustness of its core businesses and the growing potential of its emerging ventures. The successful growth of Google’s advertising, Cloud services, and YouTube segments, along with the narrowing losses of its Other Bets category, demonstrates the strength of Alphabet’s diversified business model. Furthermore, the planned leadership transition and capital planning enhancement signals a strategic shift towards even stronger financial management, potentially yielding substantial benefits for shareholders. This growth trajectory, coupled with Alphabet’s ongoing resilience against competitive threats, positions the company favourably.
