Analysts expect Alphabet’s revenue will rise 10.3% to 63.174 billion, adjusted net income will rise 46.9% to 19.776 billion, or $1.577 per share.
Alphabet is scheduled to announce Q3 earnings results after the market closes on Tuesday, October 24th.
Latest Results
Q2 revenue rose 7% to $74.6 billion from $69.7 billion in the year-earlier period.
Net income rose to $18.37 billion, or $1.44 per share, from $16 billion, or $1.21 per share, during the second quarter of 2022.
Q3 Guidance
Analysts expect its revenue will rise 10.3% to 63.174 billion, adjusted net income will rise 46.9% to 19.776 billion, or $1.577 per share, according to Bloomberg.
Ad Spending Is Expected to Rebound in Sight
For Q3, advertising will still be the core moneymaker obviously, the conservative prediction is that it expects a similar 3% to 4% growth YoY, bringing Q3 2023's advertising revenue between $56.1 billion and $56.7 billion. That's still more than 75% of the total revenue expected at $75 billion and likely why the company finally moved aggressively on its AI efforts.
Meanwhile, ad spending is expected to rebound by 8.2% Y/Y in 2024, pushing the total ad spend over $1T for the first time, according to WARC's global ad spend outlook for 2023/24. Google is expected at the heart of the rebound and to see financial outperformance towards 2H24.
Cloud Growth May Be Cautious but Reacceleration Is Not Far Away
When talking about Google Cloud growth, it pushed into new heights in Q2, climbing 28% Y/Y, while Microsoft's Azure saw a sequential slowdown to 26% growth. We see momentum only expanding from here for the Google Cloud segment. We've been cautious about cloud growth in 2023 due to macro headwinds weighing on consumption growth as customers optimize spending in 2H23. Google Cloud achieved a higher growth rate in 2022 than AWS and Microsoft, according to Gartner data, and we expect to see a reacceleration in growth to higher double digits in 2024.
Total Expenses May Not Turn Down Soon
The last thing to mention is total expenses. Though CEO Sundar Pichai focused on the company's headcount and reprioritization in the Q2 report, the company still reported a 4.50% YoY jump in total employees in Q2 2023 and a 5% jump in total expenses YoY. So the costs and expenses section will be closely monitored when the Q3 report comes out.
Analyst Opinions
Bloomberg analyst Mandeep Singh said Alphabet could see Cloud sales growth pick up sequentially in Q3 as generative AI-training workloads provide a tailwind, and a positive inflection in ad pricing would be key to double-digit gains in 2024, especially for its YouTube ad segment. Moreover, the recent launch of its new Pixel phone suggests integration of its foundational LLM with its Android operating system, which could aid share in the smartphone market.
KeyBanc’s Justin Patterson maintained an Overweight rating for Alphabet and raised the price target from $145 to $155. He estimates search revenue of $43.5 billion, 0.4% above Street estimates and models 13% year-over-year overall revenue growth for Q4, thanks to search strength and improving YouTube performance.
Wells Fargo analyst Ken Gawrelski offered an equal-weight rating and a $126 price target. The company believes it will experience steady near-term trends, but face more turbulence in 2024, and expects its EPS will be $5.75 and $6.98 in 2023 and 2024.
