Alphabet Stock (NASDAQ:GOOG)
As investors evaluated the tech giant’s advertising and AI initiatives, the stock of Alphabet (NASDAQ:GOOG) dropped by 3% on Friday.
Alphabet (NASDAQ:GOOG) announced earnings of $1.05 per share on revenue of $76.05 billion for the quarter ending December 31, while analysts expected $1.20 per share on revenue of $76.5 billion. Alphabet (NASDAQ:GOOG) reported a decline in advertising revenue of $59 billion for the quarter, down from $61.2 billion the year before.
Chief Executive Officer Sunday Pichai acknowledged on a conference call to discuss Alphabet’s (NASDAQ:GOOG) results that the global economic climate has gotten “more difficult,” as seen by the drop in the company’s ad revenue over the last few months.
YouTube ad revenues, in particular, were dismal, falling by 8% from the previous quarter and 21% from the same period a year earlier. With gains in retail and travel advertising matched by lower demand from financial services clients, Alphabet’s (GOOG) fourth-quarter data showed “advertisers pulling back further,” according to Raymond James analyst Aaron Kessler. Kessler has raised his price objective for shares of Alphabet from $116 to $119, maintaining his outperform rating.
Given the importance of advertising to Alphabet’s bottom line, it seems to reason that investors seeking stability from the business would be concerned by a drop in ad revenues.
While acknowledging that AI is “the most-profound technology we are working on today,” Alphabet CEO Sundar Pichai remained optimistic about the company’s prospects in the field, saying that it is in an “excellent position as AI approaches an inflection point.” Pichai emphasized Alphabet’s use of AI to enhance YouTube user experiences and consumer ad campaigns.
Alphabet stock is “positioned to spearhead the next generation of AI technology,” according to analysts like Morgan Stanley’s Brian Nowak. Nowak claims that AI has already affected things like YouTube’s recommendation systems, and “possibly far more intriguing and larger Google AI use cases are likely to come in [the] coming months.”
Nowak increased his price objective for Alphabet stock from $125 to $135 and maintained his overweight rating on the stock.
Analysts were particularly encouraged by the company’s comments about its efforts to reduce expenses, which include eliminating 12,000 jobs and slowing down some of its ambitious recruiting initiatives.
With greater cost reduction, “we anticipate revenue growth to re-accelerate until 2023,” as stated by Youssef Squali, an analyst at Truist Securities. We believe Google is at the forefront of artificial intelligence (AI) development and are excited to see the company roll out numerous new projects soon.
Squali maintained a buy recommendation on Alphabet stock but reduced his price objective from $130 to $120.
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