Alphabet is set to release its third-quarter earnings report on Oct. 29 after the market closes.
According to data compiled by Bloomberg, analysts project around $76.08 billion in Q3 revenue and $2 in adjusted EPS, reflecting a 18.8% and 29% YoY increase, respectively.
Bloomberg
Advertising & Cloud Growth Are Crucial to Monitor at Q3 Earnings
As Google Search continues to be the largest contributor to Google's revenues, it's vital to monitor this. With the advent of GenAi, sentiment relating to Google's search moat has been under pressure. However, approximately two years since the launch of ChatGPT, Google continues to defend its "monopoly" position in search.
Google (Alphabet) Revenue Breakdown
In September, according to Statcounter and data presented by BofA, Google's US total search share across desktop, mobile, tablet, and console was up by 6 basis points MoM, while Bing dropped by 6 bps. Although Google's market share declined YoY by 49 bps to 88.0%, the drop can be considered minimal. Most notably, as of September 30th, web visits to Google increased 1% MoM to 2.7 billion. ChatGPT saw a notable rise, up 20% MoM to 115 million visits, while Bing's visits decreased by 3% to 58 million. This data highlights that ChatGPT usage (in terms of visits) is still only a fraction of Google usage, less than 5%.
US Search Engine Market Share
YouTube ads growth could improve sequentially. YouTube's expansion into Shorts and connected TV offerings is helping the platform to develop and have users spend more screen time on the platform. Shorts now average over 70 billion daily views, providing significant opportunities for advertising. Amid the threat of a U.S. ban on TikTok, YouTube Shorts is likely going to be the dominant replacement.
This strength in advertising is somewhat quelled by the recent DOJ antitrust cases against Google, of which one was focused specifically on its advertising monopoly. Behavior remedies tied to the DOJ lawsuits could be a focus on the earnings call.
Additionally, Google Cloud's growth will be important to monitor. Google Cloud has recently grown to approximately a 28% market share among the top 10 cloud providers and 11% of the global cloud market, according to recent data from an HG Insights report. AWS (AMZN) is the obvious outlier in Big Tech cloud services, with now over 2.6 million customers compared to over 960,000 for Google Cloud and over 345,000 for Microsoft Azure.
AWS vs Azure vs Google Cloud Market Share
Google plans to increase its capital expenditures to $52 billion by 2025, focusing heavily on AI infrastructure, including data center and custom silicon efforts. Google CEO Sundar Pichai has mentioned that underinvestment poses a greater risk than overinvestment, and Google Cloud's revenue has been strengthened by demand for generative AI tools. Therefore, while there may be moments of volatility related to margin pressure in the medium-term future, the ROI horizon is very tangible and unlikely to take several years to manifest at scale.
In Q2 2024, the strong demand and growth from cloud services have driven Alphabet’s impressive 14% year-over-year growth. This division saw a remarkable 28% increase in quarterly revenue, surpassing $10 billion for the first time. Due to the current trends in AI adoption, we may see Cloud segment growth in line with these previous quarters in Q3. Investors will be looking for more of this in the Q3 report to show a continued trend toward high ROI from AI.
Alphabet: Q2 2024 Earnings Figures
Google's AI Business
Despite the waning AI frenzy, investors are eager to learn about Alphabet's advancements in AI integration across its platforms and the resulting technical synergies. Beginning in Q2, Alphabet consolidated the teams of Google Research and Google DeepMind to concentrate on developing AI models and accelerating integration efforts. Any positive update from this newly formed AI Plus division is likely to boost investor confidence in Alphabet's outlook for future tech.
Waymo Robotaxi Momentum Builds
Waymo, which boasts around 700 vehicles in its fleet today, operates the only commercial robotaxi service in the U.S., Waymo One. It provides more than 100,000 paid robotaxi rides per week in the U.S. today.
Additionally, Waymo's growth will be important to monitor. Waymo's recent pact with Uber and expansion into more cities suggests a likely inflection in contribution to top-line growth.