Alphabet Declines After Reporting Weak Earnings, Which Analysts Think Could Indicate Unfavorable News For Meta

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Last Updated on October 26, 2022 by Bitfinsider

Alphabet’s stock dropped as much as 8% in the early morning hours of Wednesday, a day after the company reported profits for the third quarter that fell short of expectations on both the top and bottom lines.

Alphabet announced that this past quarter was its slowest growth quarter since 2013 (with the exception of one previous quarter early on in the pandemic). As a result of a continuing decline in online advertising spending, the company’s revenue growth has slowed to 6%, down from 41% in the prior year’s results.

During the reporting period, the firm recorded an overall advertising revenue of $54.48 billion, which is a marginal increase over the previous year. Analysts predicted that YouTube’s ad revenue would rise by approximately 3%, but instead, it fell by approximately 2%, from $7.21 billion the year prior to $7.07 billion today.

Bernstein analysts have maintained their outperform rating on Alphabet stock but noted that the firm has gotten “increasingly uncomfortable” over the past six months as Google’s ad revenues have slowed down.

They stated on Wednesday that “Google is an advertising firm first, and digital advertisements are no longer a safe place to hide.”

Outperform was also the rating that was kept by analysts at Raymond James. They cited forecasts for long-term growth in advertising income as well as progress in Google Cloud. The analysts took note of Alphabet’s ambitions to reduce its rate of employee recruitment and additions, which led them to “express optimism that margins can increase by the later half of 2023.”

For investors who are focused on the digital advertising business, Alphabet’s disclosure is a dismal start to Big Tech earnings week, and analysts at Needham said it is likely terrible news for Meta.

“Google stated that they will be increasing their spending on hardware moving forward. Both GOOGL and META are increasing their capital expenditures and operational expenditures on hardware, which “implies lower than in the past when GOOGL was largely a software and advertising firm,” the analysts noted in a report published on Wednesday.

Earnings are expected to be reported by Meta after the closing bell on Wednesday.

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