Alphabet would take a charge of between $1.9 billion and $2.3 billion mostly in Q1, and expects to incur costs of $500 million related to reduced office space, UBS forecasts its earnings per share of $1.21.
Alphabet is scheduled to announce Q1 earnings results after the market closes on Tuesday, April 25th.
Latest Results
It reported fiscal Q4 total revenue of $76.05 billion, up from $75.3 billion a year ago. Earnings were $13.62 billion, or $1.05 per share, compared with $20.64 billion, or $1.53 per share, last year.
Q1 Guidance
It would take a charge of between $1.9 billion and $2.3 billion, mostly in Q1 2023, related to the layoffs of 12,000 employees it announced in January. It also expects to incur costs of about $500 million related to reduced office space in Q1 and warned that other real-estate charges are possible going forward.
Can Bard and TPU Help It Beat the Competitors in Uphill AI Battle?
Open AI has effectively achieved a "first mover advantage" and has recently launched GPT-4, which is even more advanced and accurate. Meanwhile, Google's Bard model is still at the "waitlist" phase. Open AI has caught the first major wave of this.
On the other hand, its fourth-generation Tensor Processing Unit (TPU) has put pressure on Nvidia, as the TPU boasts a 60% increase in speed and uses 60% less power than its Nvidia counterparts. Predictions indicate the worldwide AI chip sector will be worth $227.48 billion by 2032, and Alphabet is right on track to overthrow Nvidia's supremacy in the industry.
Will Its Ad Revenue Slowdown Be Cyclical And Secular?
The advertising market is cyclical as businesses reduce ad spending when end consumers are less likely to spend which in turn depends on where we are in the cycle (currently on the brinks of a recession). Based on this reasoning year 2023 will most likely be a slow year for advertisers.
Another thing to mention is the competition, the latest news is that Samsung is reportedly considering making Microsoft's search engine default on its devices, potentially ending a 12-year partnership with Google.
While the $3B annual revenue contribution isn't as massive as Apple's estimated $20B it receives from Google annually, it marked a significant development, given Samsung's position as the premium Android leader.
Accordingly, advertising accounted for nearly 80% of Google's FY22 revenue base. In addition, search advertising accounted for more than 72% of its advertising revenue. If Microsoft is able to showcase to advertisers that they get more bang for the buck with this new technology it may disrupt Alphabet's search dominance.
Analyst Opinions
Stifel analyst Mark Kelley offered a $130 price target and a “buy” rating to Alphabet, the company believed that although Microsoft’s efforts to improve its Bing search engine with OpenAI seem to be improving, there probably won’t be a “monumental shift” of consumers or ad dollars to Bing from Google.
Bank of America maintained a $125 price target and a “buy” rating on it. The company discovered that Google’s Web traffic and search download activity were not affected by Microsoft’s incorporation of OpenAI into Bing, Google’s market share has been stable since November.
UBS analyst Lloyd Walmsley reiterated a “buy” rating and raised its price target from $120 to $123. He saw cost risk around the integration of generative AI into Google search results as manageable, expected it to beat earnings estimates in Q1, and forecasted earnings per share of $1.21.