Alphabet Inc. (NASDAQ: GOOGL), the parent company of Google, posted a disappointing quarter, missing the Street’s expectations on both revenue and earnings fronts in the first quarter of 2022. Slow spending in advertising, along with the impact on both Google and YouTube revenue due to the war in Ukraine acted as headwinds.
Disappointingly, Alphabet SVP and CFO Ruth Porat said, “The war did have an outsized impact on YouTube ads relative to the rest of Google. And that was both from suspending the vast majority of our commercial activities in Russia, as well as, as I noted earlier, the related reduction in spend primarily by brand advertisers in Europe.”
Following the company’s update, shares of the company lost 2.55% in the extended trading session on Tuesday, after declining 3.59% at the close.
Results in Detail
Alphabet reported earnings per share of $24.62 in the first quarter, falling short of analysts’ expectations of $25.96 per share. The company recorded earnings of $26.29 per share in the same quarter last year.
Revenue grew 23% to $68.01 billion but missed the Street’s estimate of $68.1 billion.
Google advertising revenue rose 22.4% year-over-year to $54.7 billion in Q1, including a 15% jump in revenues from YouTube ads to $6.87 billion. Yet, YouTube ads revenues fell short of consensus estimates of over $500 million.
Also, Google Cloud reported 45% growth and came in at $5.8 billion, reflecting continued strong performance across the Google Cloud Platform and Workspace.
Meanwhile, Traffic Acquisition Costs (TAC) stood at $12 billion, up 23.7% year-over-year. These costs relate to funds, which are paid by Google to publishers and phone makers like Apple (AAPL).
Recently, Alphabet has been authorized by the Board of Directors to repurchase up to an additional $70 billion of its Class A and Class C shares.
Official Comments
Encouragingly, the CEO of Google and Alphabet, Sundar Pichai, said, “Q1 saw strong growth in Search and Cloud, in particular, which are both helping people and businesses as the digital transformation continues. We’ll keep investing in great products and services, and creating opportunities for partners and local communities around the world.”
Looking forward, CFO Ruth Porat said that in the second quarter of 2022, the company will experience tough comparisons, along with the impact of suspended commercial activities in Russia and foreign exchange movements.
“We continue to make considered investments in Capex, R&D and talent to support long-term value creation for all stakeholders,” Porat added.
Wall Street’s Take
Following the Alphabet earnings report, Stifel Nicolaus analyst Scott Devitt maintained a Buy rating on Alphabet but decreased the price target to $3,100 (30.64% upside potential) from $3,500.
Devitt said, “We are lowering near-term estimates to reflect management’s commentary and revised growth trajectories implied by 1Q results.”
“We recommend GOOGL shares given supportive valuation on EPS and confidence in the company’s long-term growth opportunity,” the analyst added.
Shares of Alphabet have increased 3.6% over the past year. Overall, the stock has a Strong Buy consensus rating based on 31 unanimous Buys. That’s alongside an average Alphabet price target of $3,485.87, which implies 46.9% upside potential to current levels.
Website Traffic
TipRanks’ Website Traffic Tool, which uses data from SEMrush Holdings (SEMR), offered insight into Alphabet’s performance in the March quarter, ahead of earnings.
Supporting the disappointing March quarter results, the website traffic tool showed a downtrend in the website traffic. According to the tool, youtube.com recorded a 4.43% sequential decrease in global estimated visits in Q1 2022.
The predictions that were based on TipRanks’ website visits data turned out to be correct, with Alphabet reporting disappointing YouTube revenues in the quarter.
Bottom-Line
Despite recent price performance, cloud strength, and high analyst ratings, investors remain skeptical about the stock, given macroeconomic issues, competitive pressure, bleak results, and a gloomy outlook. Nevertheless, vigilance on website trends reflected on TipRanks’ Website Traffic Tool could guide in taking prudent decisions.
Learn more about the Website Traffic tool in this video by Youtube sensation Tom Nash.
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