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Alphabet Posts Strong Q4 and FY 2023 Revenue and Earnings

Alphabet Posts Strong Q4 and FY 2023 Revenue and Earnings

The News: Alphabet, the parent company of Google, announced fourth quarter (Q4) and fiscal year (FY) 2023 earnings on January 30, highlighted by year-over-year (YoY) increases in overall revenue and profit with strong growth from its Google Cloud and Services businesses. Investors were not impressed, with the stock taking a roughly 5% hit in after-hours trading, as the company missed analysts’ expectations for advertising revenue, which is still the company’s core business. The full earnings press release is available on the Alphabet website.

By the numbers:

  • Q4 2023 Adjusted Earnings: $1.64 per share, diluted, beating the $1.59 per share estimate by LSEG
  • Q4 2023 Revenue: $86.31 billion, beating the $85.33 billion estimate by LSEG
  • FY 2023 Adjusted Earnings: $5.80 per share, diluted, up from $4.56 YoY
  • FY 2023 Revenue: $307.4 billion, up 9% YoY, and up 10% in constant currency
  • Google Ads: $65.52 billion versus $65.94 billion expected, according to StreetAccount
  • Google Cloud: $9.19 billion versus $8.94 billion expected, according to StreetAccount
  • YouTube ads: $9.2 billion versus $9.21 billion expected, according to StreetAccount

Alphabet’s Strong Q4 Earnings Driven by Growth

Analyst Take: Alphabet, the parent company of Google, posted strong Q4 and FY 2023 earnings this week, besting analysts’ estimates for Q4 overall revenue and earnings, as well as posting FY 2024 increases in total revenue, operating income, services, and cloud. Despite the solid quarter, investors sent the company’s stock price tumbling in after-hours trading by about 5%, largely because the company failed to meet analysts’ expectations around advertising revenue, which is still a core component of the company’s business.

Google Search, Advertising, and YouTube

Google’s overall services business generated $76.31 billion in revenue during the quarter, up from $67.84 billion a year ago, driven by strong revenue growth across its search, YouTube ads, and subscription businesses. Indeed, Search and other revenue grew 13% YoY, powered by strong growth in the retail vertical, particularly in APAC, a trend that the company noted began in the second quarter (Q2) of 2023 and continued through the end of the year.

While Google’s advertising business generated quarterly revenue of $65.52 billion, up from $59.04 billion in the prior year, the figure missed analysts’ consensus estimates of $65.94 billion, according to StreetAccount. This miss could be a harbinger of a continued challenging market for Google, which still heavily relies on advertising revenue.

However, the performance of YouTube ads reflected a growing source of strength within the company, as the segment posted Q4 revenue of $9.2 billion, a YoY increase of about 15.5%. This increase was driven by growth in YouTube Shorts, which now has 2 billion-plus logged-in users every month and averages 70 billion in daily views, according to comments made on the earnings call by Google’s Senior VP & Chief Business Officer, Philipp Schindler.

Google’s Subscription Products

Another source of strength is Google’s subscription products, which posted Q4 2023 revenue of $10.79 billion, up from $8.8 billion YoY. The segment is driven by strength in YouTube Music, YouTube Premium, and YouTube TV, according to comments made on the earnings call by Alphabet CEO Sundar Pichai. In addition, Pichai highlighted the strong user growth with Google One, which is set to soon cross the 100-million subscriber mark.

Google Cloud and AI

AI has become a catalyst for the incorporation of new features and capabilities across a wide range of products and services for Google. Google Cloud is incorporating many generative AI capabilities, which has helped the company win and expand relationships with leading brands including Hugging Face, McDonald’s, Motorola Mobility, and Verizon. As such, Google Cloud revenue for Q4 beat expectations at $9.19 billion versus the $8.94 billion expected, according to StreetAccount. Google Cloud also bested the $7.32 billion revenue figure posted in Q4 2022.

We expect that as the company continues to invest in its generative AI offerings across its entire portfolio, additional cloud spending will follow. According to Pichai, Google has invested strongly in its AI solutions in 2023, launching Gemini, a series of AI models that are able to understand and combine text, images, audio, video, and code in a natively multimodal way and can run on everything from mobile devices to data centers. Google is getting traction with its existing services, including Vertex AI and Duet AI, which are gaining traction in the market among organizations seeking to deploy generative AI across the enterprise, in both customer-facing applications and behind the scenes to improve operational efficiencies.

Looking Ahead

Alphabet’s Q4 and FY 2023 strong earnings results were clearly overshadowed by the company’s miss on advertising revenue, which is a core component and drive of the company’s success. However, the company posted strong results across many of its other business segments, particularly in cloud, which can be expected to grow over the next several quarters and years due to the company’s focus on integrating and enabling AI with Cloud as a foundation.

Furthermore, as the technology market continues to evolve, Alphabet has taken steps to advance its business to address the market in a more targeted fashion. Alphabet’s strong performance in its YouTube segment and subscription businesses indicate that the strategy is working; subscription revenue is now a $15 billion business annually and has grown since 2019. We remain bullish on Alphabet and believe there will be a significant tailwind from the continued expansion of generative AI-powered workflows across its portfolio.

Daniel Newman provides insights into the latest Alphabet earnings on X:

Disclosure: The Futurum Group is a research and advisory firm that engages or has engaged in research, analysis, and advisory services with many technology companies, including those mentioned in this article. The author does not hold any equity positions with any company mentioned in this article.

Analysis and opinions expressed herein are specific to the analyst individually and data and other information that might have been provided for validation, not those of The Futurum Group as a whole.

Other Insights from The Futurum Group:

Google Announces New AI Powered Tech for Retailers

Google Cloud Announces Hugging Face Partnership

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Author Information

Daniel is the CEO of The Futurum Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise.

From the leading edge of AI to global technology policy, Daniel makes the connections between business, people and tech that are required for companies to benefit most from their technology investments. Daniel is a top 5 globally ranked industry analyst and his ideas are regularly cited or shared in television appearances by CNBC, Bloomberg, Wall Street Journal and hundreds of other sites around the world.

A 7x Best-Selling Author including his most recent book “Human/Machine.” Daniel is also a Forbes and MarketWatch (Dow Jones) contributor.

An MBA and Former Graduate Adjunct Faculty, Daniel is an Austin Texas transplant after 40 years in Chicago. His speaking takes him around the world each year as he shares his vision of the role technology will play in our future.

Keith has over 25 years of experience in research, marketing, and consulting-based fields.

He has authored in-depth reports and market forecast studies covering artificial intelligence, biometrics, data analytics, robotics, high performance computing, and quantum computing, with a specific focus on the use of these technologies within large enterprise organizations and SMBs. He has also established strong working relationships with the international technology vendor community and is a frequent speaker at industry conferences and events.

In his career as a financial and technology journalist he has written for national and trade publications, including BusinessWeek, CNBC.com, Investment Dealers’ Digest, The Red Herring, The Communications of the ACM, and Mobile Computing & Communications, among others.

He is a member of the Association of Independent Information Professionals (AIIP).

Keith holds dual Bachelor of Arts degrees in Magazine Journalism and Sociology from Syracuse University.

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