Google earnings preview: Ad spending is accelerating despite a battle with the federal government
EMBARGOED FOR PUB EARLY FRIDAY, OCT. 23
Google parent Alphabet Inc. may have an antitrust problem with a raft of U.S. Justice Department-led lawsuits, but that hasn’t fazed its profit machine one bit.
Expect more of the same Oct. 24 when the search-engine dynamo
GOOGL,
GOOG,
reports third-quarter results.
“We believe Alphabet is well positioned to capitalize on the digital ad trend,
participate in the cloud’s growth, innovate with AI, benefit from digital transformation, and leverage a leaner cost structure,” Monness Crespi Hardt analyst Brian White said in a mostly positive note Thursday. “However,
regulatory headwinds persist, and we believe the darkest days of this
downturn are ahead of us.”
Advertising spending on Google search “accelerated” about 13% year-over-year in the third quarter because of better pricing and the strength of YouTube, Cowen analyst John Blackledge said in a Oct. 12 note that maintains an outperform rating and bumped Google’s price target to $160 from $150. Blackledge based his conclusion on a survey of an ad agency that runs more than $1 billion in Google Search spending in retail and e-commerce in the U.S.
The dominant search-engine business, the subject of an ongoing federal trial in Washington, D.C., continues to rack up billions of dollars in advertising sales despite an overall downturn in that market, and generative-AI projects are integrated into Google products.
“We expect GOOGL will be an AI winner. Shares have outperformed despite the onset of a DOJ trial and seemingly ramping infrastructure investment,” Piper Sandler analyst Thomas Champion said in a note earlier this month. He added that AI is “driving new opportunities” and core search includes Gen AI searches. Google’s Duet AI assistant is being tested and could further drive new cloud revenue, Champion said.
Alphabet posted its highest close in more than a year on Oct. 11 ($140.55) in the continuation of an October rally.
“We believe GOOGL can grind higher even after a 58% YTD gain, thanks to: slowly accelerating ad rev growth on easing comps, supported by positive checks and notable strength in search; Cloud rev benefiting from putting peak cost optimization behind and AI tailwinds contributing in ’24-’25,” Jefferies analyst Brent Thill wrote in a note to investors Tuesday.
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