$Alphabet(GOOG)$ $Alphabet(GOOGL)$ is set to report its Q3 earnings on October 29 after the market closes. Analysts expect revenues of around $86.2 billion and operating profit of $27.4 billion, marking year-over-year growth of 12% and 14%, respectively. These estimates seem reasonable given the broader positive advertising trends, positioning Google to meet expectations.
Investor concerns about Google losing its search monopoly seem largely exaggerated. In Q3, Google actually gained market share in search, while ChatGPT’s traffic was a mere fraction—less than 5%—of Google Search’s. On valuation, Google’s stock looks cheap, trading at around 17 times its expected EV/EBIT for 2025.
Google's stock has underperformed the broader market this year, up about 17% year-to-date compared to the $.SPX(.SPX)$ ’s 22% gain. Given that around 78% of Google’s revenue comes from advertising, it’s important to note that the overall ad environment has remained stable in Q3, supporting Google’s momentum.
GenAI and Search Moat Pressure
Despite the rise of GenAI, concerns about Google’s search moat weakening have been overstated. Since ChatGPT’s launch nearly two years ago, Google has maintained its dominance in search, with U.S. desktop, mobile, tablet, and console search share increasing by 6 basis points quarter-over-quarter. While Google’s market share dropped 49 basis points year-over-year to 88%, this decline is negligible.
App data also signals that Google’s platform remains strong. According to Sensor Tower and data from Bank of America, Google’s Daily Active Users (DAU) grew about 1% quarter-over-quarter and 6% year-over-year in Q3.
Meanwhile, YouTube’s DAU trend was exceptionally strong, surpassing competitors like Facebook, Instagram, and TikTok. YouTube saw DAU growth of 0%, 0%, and 1% in July, August, and September, respectively, while its rivals experienced negative growth.
Attractive Valuation
Google is currently trading at 17 times its estimated 2025 EV/EBIT, which is notably cheaper compared to other "Magnificent 7" tech stocks like $Meta Platforms, Inc.(META)$ (23x), $Microsoft(MSFT)$ (25x), $Apple(AAPL)$ (28x), $Amazon.com(AMZN)$ (33x), $NVIDIA Corp(NVDA)$ (40x), and $Tesla Motors(TSLA)$ (93x).
Analysts have pegged Google’s fair value around $201 per share, and they still find this estimate reasonable going into Q3.
Concerns about Google losing its search dominance continue to be exaggerated, especially as it actually gained market share in Q3, and ChatGPT still accounts for less than 5% of Google Search traffic. The stock’s valuation remains attractive, making Google a potentially strong play going forward.
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