Alphabet's growth pillars are very popular in the third quarter. But we are not ready to act

ByVanessa

Oct 30, 2024 #Advertising, #Alphabet Inc, #Amazon.com Inc, #Breaking News: Markets, #Breaking News: Technology, #Business News, #Club Revenue, #Investment Strategy, #Jim Cramer, #Markets, #Meta Platforms Inc, #Microsoft Corp, #NVIDIA Corp, #Technology

Alphabet's growth pillars are very popular in the third quarter. But we are not ready to act

Alphabet shares rose sharply during after-hours trading on Tuesday after the Google parent company reported better-than-expected quarterly sales and profits on strength in cloud and advertising. Total revenue for the three months ended Sept. 30 rose 15%, or 16% on a constant currency basis, to $88.27 billion, beating estimates of $86.3 billion, according to LSEG. Adjusted earnings per share (EPS) rose 37% year-over-year to $2.12, beating Wall Street's consensus estimate of $1.85 per share. GOOGL YTD Mountain Alphabet YTD With shares close to the stock market announcement and up about 5.7% at close, we maintain our Waiting for a Pullback 2 rating. Given the volatility we are likely to see leading up to the US presidential election, especially if the winner is not announced relatively quickly, there simply is no point in chasing such rallies. We reiterate our price target of $210 per share. It's also worth noting that cash flow was somewhat weak in the third quarter, due in part to a $3 billion hit related to a fine imposed by the European Commission in 2017. However, it is the Justice Department's ongoing antitrust litigation in the US that represents a major overhang on the stock. Jim Cramer has been frustrated with Alphabet stock's year-to-date performance compared to Big Tech rivals and clubmates Meta Platforms and Nvidia. However, on Mad Money after the release, Jim said Alphabet delivered a “clearly great quarter.” Conclusion: As I listened to the earnings call, one thing became abundantly clear: artificial intelligence is integrated into every aspect of this business and, in turn, drives greater engagement with both consumers and enterprise customers. AI not only increases sales but also helps the company become more efficient than ever. In fact, CEO Sundar Pichai said on the call: “Today, more than a quarter of all new code at Google is generated by AI, then reviewed and accepted by engineers. This helps our engineers do more and move faster.” Alphabet Why we own it: Alphabet's Google Search is an invaluable tool for advertisers. Its YouTube platform continues to gain screen time among viewers and is expected to grow even further as the company looks to acquire Major League sports rights. Although it got off to a rocky start, we believe Alphabet is a leader in artificial intelligence research and see progress in the growth of cloud computing over time. Competitors: Amazon, Microsoft and Meta Platforms Weight in Portfolio: 2.73% Last Purchased: March 4, 2022 Initiated: July 22, 2014 A strong quarterly operating margin along with management commentary increased our confidence that Alphabet was not losing sight of efficiency has to keep ball while balancing growth-oriented aspirations such as artificial intelligence and cost discipline. Given the advances in generative AI, we're not too worried about capital spending. It costs money to make money, and that money is spent on technical infrastructure – the largest of which is servers, followed by data centers and network equipment. These latest results have not only increased confidence in management's ability to develop cutting-edge AI tools and monetize them, but should also motivate investors given the growing competition for search queries from large language models such as Microsoft-backed OpenAI's ChatGPT and many others calm . Comment In addition to AI, advertising on Alphabet's properties was strong in the third quarter. Revenue for Google search, YouTube ads and Google network line items totaled $65.85 billion. That was more than 10% more than in the same quarter last year, although the growth rate was slower than in the second quarter. In other key revenue metrics, Google's subscriptions, platforms and devices increased 27.8% to $10.66 billion; the aforementioned Google Cloud was strong, up 35% to $11.35 billion; and Other Bets rose 30.6% to $388 million. All were better than expected. On the operating revenue side, Google Services, which includes everything mentioned above except Cloud and Other Bets, rose nearly 29% to $30.86 billion. Google Cloud also hit with a whopping 632% increase to $1.95 billion. Other Bets was the laggard, posting a smaller but larger-than-expected loss of $1.12 billion. Here's a closer look at the quarter's highlights and thoughts on future business. Other Bets' big story is Waymo – it now serves over 150,000 paying customers and logs over 1 million fully autonomous miles per week. Last week, Waymo closed a $5.6 billion funding round to expand its robotaxi service. Also at Other Bets, CFO Anat Ashkenazi said on the call: “Wing, our drone delivery company, recently marked the one-year anniversary of expanding its partnership with Walmart in the Dallas Fort Worth area. Now it operates in 11 stores and serves 26 different cities and towns. Total advertising and subscription revenue generated by YouTube over the past 12 months exceeded $50 billion for the first time in the platform's history. Google Cloud's growth was driven by “Google Cloud Platform (GCP)'s accelerated growth in AI infrastructure, generative AI solutions and core GCP products,” with Pichai adding in the press release that “our AI solutions in The cloud will help drive deeper product adoption with existing customers, attract new customers and win larger deals. In the data center, the team is working diligently to reduce the cost per query, which, as we know, will come with adoption generative AI have increased significantly. In fact, Pichai found that the cost of AI queries has fallen by over 90% in the last 18 months. This despite the fact that the Gemini model has doubled in size. Helping to allay concerns about Alphabet's ability to fend off search rivals, Pichai noted on the call that AI Overviews in Search launched in over 100 new countries this week and is now rolling out over 1 month Reach billion users. As a result, Pichai highlighted increased user engagement “which increases overall search usage and user satisfaction. People ask longer, more complex questions and explore a wider range of sites. What's particularly exciting is that this growth actually increases over time as people learn that Google can answer more of their questions. Capital Gains Alphabet returned $15.79 billion to investors through share buybacks in the third quarter, even though the company paid out $5.74 billion in stock-based compensation. Additionally, the team generated an additional $2.5 billion through dividends during the quarter. The company ended the quarter with $93.23 billion of cash, cash equivalents and marketable securities on its balance sheet. (Jim Cramer's Charitable Trust is long GOOGL, MSFT. A full list of stocks can be found here.) As a subscriber to CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable foundation's portfolio. If Jim discussed a stock on CNBC television, he waits 72 hours after the trade alert is issued before executing the trade. THE INVESTING CLUB INFORMATION SET FORTH ABOVE IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, ALONG WITH OUR DISCLAIMER. 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A sign is posted outside a Google office in Mountain View, California, on January 30, 2024.

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alphabet Shares rose sharply during after-hours trading on Tuesday after the Google parent company posted better-than-expected quarterly sales and profits on strength in cloud and advertising.