Alphabet Gains Despite Mixed Results, Analyst Warns Bounce is Likely Short-lived

Shares of Alphabet (NASDAQ: GOOGL) are trading almost 4% higher in premarket trading despite the tech giant reporting Q2 earnings and revenue that missed analysts’ expectations.

Google owner Alphabet reported EPS of $1.21 in the second quarter, missing the consensus estimates of $1.28 per share. Revenue came in at $69.69 billion, just above the analyst consensus of $69.9 billion. Revenue growth was down at 13% year-over-year, compared to 62% in the same period last year.

The company generated $6.28 billion in Google Cloud revenue, short of the consensus estimates of $6.41 billion. Alphabet reported traffic acquisition costs (TAC) of $12.21 billion, while analysts were looking for $12.41 billion.

Advertising revenue rose 12% to $56.3 billion, a significant slowdown as marketers eased spending amid record-high inflation. The worst performing division was YouTube, where sales grew just 5%, compared to 84% growth in the year-ago quarter.

Google Search and Other revenue stood at $40.69 billion, up from $35.85 billion in the same period last year. The segment’s performance was driven by travel and retail queries, according to chief business officer Philipp Schindler. Google Cloud unit also missed revenue expectations, reporting an $858 million loss in the quarter.

Alphabet said headcount grew 21% to 174,014 full-time employees from 144,056 last year. The company plans to slow hiring and investments next year. The tech giant did not provide a forecast for future quarters and expects current economic headwinds to persist through the end of the year.

Barclays analyst Ross Sandler cut the price target to $150 and told investors that “the next few quarters could be tough for all of digital advertising” businesses. Still, Sandler remains optimistic about GOOGL as it offers “one of the best long term risk/reward in tech, in our view.”

Jefferies analyst Brent Thill also cut the price target, going from $155 to $130 and warned that the relief rally could be “short-lived” given strong macro headwinds.

“There were numerous indications of emerging macro pressures, from pullback in spend by some advertisers to some longer Cloud sales cycles. Meanwhile, doubledigit headcount growth is impacting op margins. While we expect GOOGL to fare better than others, a recession could still hurt. Valuation reflects much of this fear,” Thill told clients in a note.

By Senad Karaahmetovic

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