Huwebes Feb 1 2024 07:15
4 min
Alphabet’s fourth-quarter earnings could spell good news for Amazon and Meta Platforms, which are set to announce their own quarterly results later today, according to Wedbush analyst Dan Ives.
Both Meta and Amazon are scheduled to release their fourth-quarter financials after the stock market closes on Thursday.
In a note made available to MarketWatch, Ives wrote:
“We see positive readthroughs for AMZN/META following Google’s results. We are encouraged by performance across Google Search and YouTube, which we think indicates a healthy digital advertising backdrop, in line with our expectations heading into results”.
Alphabet's Google Search revenue saw a 12.7% year-over-year increase for the quarter, closely matching Wedbush's projection of a 12.5% rise.
Revenue from YouTube advertisements outperformed, registering a 15.5% growth from the previous year, surpassing Wedbush's forecast by 1 percentage point. Wedbush maintained an Outperform rating on Alphabet shares with a $160 price target, despite the company’s stock sliding by over 6% in early trading on Wednesday.
Amazon shares declined by 1.6%, while Meta shares fell by 2.3%.
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“In terms of lateral implications for AMZN & META … the share price reaction will likely make investors more cautious on crowding in these names,” J.P. Morgan analyst Doug Anmuth wrote in a note released Wednesday.
However, the analyst saw Alphabet’s Google Cloud results as good news for Amazon Web Services: “Google Cloud having mostly worked through optimizations and starting to see Gen AI revenue contributions should be positive for AWS”.
Anmuth, however, is less convinced about a positive digital advertising impact for Meta.
“GOOG/L will likely curb some of the META advertising enthusiasm, but we’d still expect META to have above guidance revenue in 4Q,” he wrote.
The revenue from Google Cloud also experienced a notable increase of 25.7% compared to the same quarter last year.
Melius Research analyst Ben Reitzes, however, pointed out that the growth was overshadowed by the company's profit margins — especially in comparison to its competitor, Microsoft.
“While the rebound in Google Cloud (GCP) was a welcome sight, it may take some time for Google’s commitment to efficiency to pay off,” he wrote, noting that overall operating margins of 27.5% were below consensus of 27.9% and down 30bps from last quarter. He added:
“These margins are 16 whole percentage points below those of Microsoft’s and MSFT is growing faster than Google on the top line”.
Reitzes noted that Microsoft was able to beat margins while also beating cloud and AI at the same time when it reported fiscal second-quarter results Tuesday.
“Our checks had detected upside in GCP, but it is clear to us that Google really needs to prove it cares a lot more about margins if it is going to take market cap from Microsoft, Meta, Amazon and even Apple,” he wrote. “While 3 of these Magnificent’s are yet to report 4Q, they all have shown more recent upside for various reasons due in part to margin upside.”
Over the past year, Alphabet shares have surged by 50.8%, while Amazon and Meta have seen gains of 51.2% and 161.3%, respectively.
Microsoft stock outpaced the three firms with a 61.7% rise, while Apple shares grew by 29.3%, against the backdrop of the S&P 500 index's 19.6% rise.
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Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.
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