Alphabet's search revenue grew, but YouTube ad revenue dropped; Google Cloud expected to grow

From Morningstar: 2024-08-01 11:22:00

Google search revenue grew by 14% year over year to nearly $49 billion, with paid clicks up 6% and revenue per click up 7%. Despite this growth, YouTube ad revenue dropped 13% year over year. Alphabet plans to invest $50 billion in infrastructure by 2024 and is adamant about finding uses for its capacity, even if AI growth disappoints.

Alphabet’s fair value estimate is $182 per share, with a 3-star rating. Advertising revenue is expected to remain over 70% of total revenue, with ad revenue growth projected at 6.5% in 2024. Google Cloud is forecasted to experience over 20% annual revenue growth through 2028.

Alphabet holds a wide economic moat due to competitive advantages from intangible assets and network effects. The firm’s search algorithms, AI technology, and valuable data for advertisers contribute to its competitive edge. The balance sheet is strong, with $111 billion in cash versus $13 billion in debt.

Uncertainty surrounds Alphabet due to potential revenue impact from a downturn in online ad spending or positive returns on cloud investments. While the firm’s strong position in search is defended by intangible assets, the risk of data privacy and user trust remains. Online user growth and digital ad spending could benefit Google despite these risks.

Bulls believe Google’s dominance in online search and mobile, along with its cash generation capabilities for innovation, will drive long-term growth. Bears argue for revenue diversification and less high-risk capital allocation. Regulatory and competitive pressures suggest Google’s dominant position may not be sustainable.



Read more at Morningstar: After Earnings, is Alphabet Stock a Buy, Sell, or Hold?