Meta, Snap Shares Dip After Google’s Ad Revenue Disappoints
Alphabet (NASDAQ: GOOG) exceeded Wall Street’s estimates on top and bottom lines in Q4, but the stock fell in after-hours and premarket trading, likely because Google’s ad revenue fell short of expectations. This shortfall impacted other advertising-dependent tech firms as well in the premarket, leading to declines in the share prices of Snap (NYSE: SNAP), Pinterest (NYSE: PINS), and Meta Platforms (NASDAQ: META).
Alphabet’s Q4 EPS and Revenue Top Estimates But Ad Sales in Focus
Shares of Google owner Alphabet tumbled more than 5% in premarket trading Wednesday after the company’s fiscal fourth-quarter ad revenue fell short of Wall Street’s estimates.
Like the previous report, the tech giant beat expectations on top and bottom lines. Earnings per share (EPS) in the quarter stood at $1.64, above the $1.59 projected by LSEG.
Revenue came in at $86.31 billion, compared to the estimated $85.33 billion. This quarter marked the fastest revenue growth for the Google owner since early 2022, with sales rising 13% from a year earlier.
Still, investors reacted negatively to the report, primarily because, according to StreetAccount, Alphabet’s ad revenue of $65.52 billion trailed consensus projections of $65.94 billion. YouTube ads generated $9.2 billion, just below the $9.21 billion anticipated by Wall Street.
The market wanted to see more from Alphabet in the online advertising market, especially since its main competitor, Facebook, is growing rapidly and TikTok poses an increasing threat.
Nevertheless, the lower-than-expected ad revenue had a knock-on effect on other ad-reliant stocks. Meta Platforms, Pinterest, and Snap all traded lower in the premarket, falling 2.6%, 1.7%, and 2%, respectively.
Meanwhile, Google Cloud’s revenue during Q4 was $9.19 billion, up 26% year over year and ahead of the estimated $8.94 billion. Operating income for the three months rose to $864 million, compared to a $186 million loss reported in the year-ago quarter.
Alphabet, Microsoft Warn of Higher Capital Expenditure Amid Rising AI Costs
Though Google Cloud’s revenue surpassed Wall Street expectations, benefiting from AI-driven growth, Microsoft’s Azure showed faster expansion during the same period.
Alphabet’s heavy investments in AI, including servers and data centers, led to a 45% increase in capital expenditures, reaching $11 billion. Remarkably, CFO Ruth Porat anticipates even higher spending in 2024. Similarly, Microsoft’s CFO Amy Hood said the company expected capital spending to “increase materially”
To manage costs, Alphabet is scaling back non-essential projects and reducing its workforce, expecting $700 million in severance costs. Enhancing its AI capabilities, Google introduced the Gemini suite for its ChatGPT competitor Bard and invested up to $2 billion in AI startup Anthropic, challenging larger cloud rivals Microsoft and Amazon.
Alphabet’s shares rose more than 58% in 2023. Do you think the tech giant can stage similar double-digit gains this year? Let us know in the comments below.
Disclaimer: The author does not hold or have a position in any securities discussed in the article.
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