Alphabet, Inc. (NASDAQ:GOOGL) (NASDAQ:GOOG) reported second-quarter earnings and revenue that exceeded expectations but some key metrics trailed, including YouTube ad revenue, came to light. Management comments on the margin trajectory also did not augur well with investors, sending the stock down in after-hours trading.
Munster’s Key Earnings Takeaways: Deepwater Asset Management’s Gene Munster noted that Search business revenue climbed 14% year-over-year, the same rate as in the first quarter, and Cloud revenue growth accelerated slightly from 28% to 29%. YouTube ad revenue climbed 13% but at a slower pace than the 21% growth reported for the first quarter.
He noted that the capex was $13.19 billion, terming it as good news as the company builds out its artificial intelligence future.
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Earnings Call takeaways: Ahead of the earnings, the tech venture capitalist listed the following as key focus areas on the call and here are the key takeaways on each of these:
SGE Traction: Munster sees Search Generative Experience (SGE) expanding the universe of queries, Munster said. “I believe Sundar is correct that SGE will expand the number of queries and ultimately create new monetization opportunities that more than offset the lost traditional search revenue.”
On the call, the CEO said with AI, Search delivered better responses on more types of search queries and introduced new ways to search.
“We are pleased to see the positive trends from our testing continue as we roll out AI Overviews, including increases in Search usage and increased user satisfaction with the results,” Pichai said. He also noted higher engagement from younger users, aged 18-24 years when using Search With AI Overviews.
Following the call, Munster said he expects analysts to bump up CapEx estimates by 50-55%, up from the previous expectations of 45%. “Ultimately, I believe they’ll grow CapEx at +70% because if they don’t, they run the risk of losing their grip on the future,” he added.
The company attributed the 14% growth in Google Search and other advertising revenue to growth in retail followed by the financial services vertical. Ahead of the results, Wedbush’s Daniel Ives modeled 12.8% growth for the business.
Alphabet said, “As we look forward to the third quarter, we will be lapping the increasing strength in advertising revenues in the second half of 2023, in part from APAC-based retailers.”
In premarket trading on Wednesday, the stock fell 3.04% to $176.27, according to Benzinga Pro data.
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