Alphabet Earnings Are Coming. Expect Strength in Ads and Cloud Computing.

Alphabet (ticker: GOOGL) doesn’t provide formal guidance.

The key to Alphabet’s results will be the performance of its ad business. Evercore ISI analyst Mark Mahaney wrote in a research note previewing the quarter that advertising channel checks find “a modestly improving ad spending environment,” and his own forecast is for ad revenue of $60.1 billion, nearly $1 billion ahead of consensus. 

Likewise, Wedbush analyst Scott Devitt wrote in a recent research note that the setup for digital advertising plays remains positive for the second half, with growth rates continuing to accelerate. He also sees potential for operating margin leverage from cost cuts tied to recent staff reductions.

The Street also will be looking closely at the Google cloud business. Mahaney writes that cloud channel checks “point to an unlock in cloud spending,” driven in part by heightened AI demand. He sees further acceleration of cloud spending in 2024. Google’s strong position in generative AI software is viewed by analysts as a competitive strength for the cloud business.

Another focus for investors will be how YouTube’s debut this season of its NFL Sunday Ticket football package is being received by consumers—and whether it is boosting uptake for the YouTube TV subscription service. And of course there will be multiple questions on the call about how generative artificial intelligence—like the company’s Bard chatbot—are impacting both costs and revenue. Last quarter, the company said that AI demand growth will drive increasing infrastructure costs both in the 2023 second half and into 2024.

Last quarter, Alphabet announced that Chief Financial Officer Ruth Porat is shifting to a new role as president and chief investment officer for Alphabet and Google, overseeing the company’s Other Bets portfolio. The change was effective Sept. 1. Alphabet has yet to name a replacement for Porat. There will also likely be questions on the post-report earnings call on whether Porat’s appointment to the new role will lead to the spinout or sale of the company’s non-core holdings, like its Waymo autonomous vehicle business and its Verily healthcare unit.

For the December quarter, consensus estimates as tracked by
FactSet
calls for sales of $84.9 billion, with profits of $1.63 a share.

Alphabet shares are up about 55% for the year to date, including a 12% move since the last earnings report.

Write to Eric J. Savitz at [email protected]