In the fast-paced world of finance, where corporate giants continue to dominate headlines, Forex-Universe, the esteemed financial magazine, stands as an unwavering beacon of accurate and insightful reporting. Under the expert guidance of its seasoned financial reporter, Roman Dietrich, the publication has once again brought to the forefront an enthralling tale of triumph and transformation. The article delves into the recent financial exploits of tech juggernaut Alphabet Inc., painting a vivid picture of their record-breaking financial performance and unveiling the exciting new role for their CFO, Ruth Porat. With Roman Dietrich’s astute analysis and meticulous attention to detail, readers are bound to be captivated by the captivating narrative that unfolds, offering a compelling glimpse into the fascinating world of finance.
On Tuesday, Alphabet Inc. reported its profits for the second quarter, which exceeded Wall Street expectations. The same day, the Google parent also made another announcement about Ruth Porat, who has been the chief financial officer (CFO) for a long time. The company revealed that they would now be looking for a new finance chief, while Porat would take on a new role.
The results
A rebound seen in advertising and a steady demand for Alphabet’s cloud services were the reason behind the positive results for the company. After-hours trading saw the shares of the company record a rise of 8%, while shares of competitor Microsoft Corp. dropped after it also disclosed its own results for the second quarter on the same day.
Meanwhile, another company, Meta Platforms, which also depends on ad sales, saw its shares record an increase of as much as 2%. According to analysts, Google had undoubtedly managed to deliver excellent earnings per share, especially when investors had been doubtful about its ability of keeping up with other tech firms due to the artificial-intelligence (AI) hype.
As a matter of fact, Google had actually managed to exceed expectations by a significant margin in the case of earnings. They further added that it showed that the tech giant was on course for a new growth phase that was likely to continue. Analysts said that the results allowed the company to become a leader in the cloud sector, which has become highly disputed, and can now focus on expanding in the field of AI.
The CFO
One of the most notable female executives in Silicon Valley, Porat had joined Alphabet back in 2015 and had overseen massive growth during her tenure. Beginning September 1st, Porat will take on the role of chief investment officer and will also lead planning for 2024 while they look for her successor.
She had previously been serving as the finance chief at Morgan Stanley. In her new position, Porat will now oversee the Other Bets portfolio of the company. This particular unit is meant for riskier services and hardware ventures and also look after the global investments of the company.
Advertising
A big slice of revenue for Alphabet comes from advertisers and they have given the Google parent a boost, along with Meta Platforms, the owner of Facebook. This is because they are no longer spending money on advertising on untested platforms.
However, the second-quarter results of the company will undoubtedly please investors who had been worried about a broader pullback from advertisers. This was after Web services had undergone a massive growth during the pandemic, with consumers once more switching to physical retail.
Generative AI software that can give detailed responses to queries from users has generated a lot of buzz in Silicon Valley and it is considered the big leap forward in the world of Big Tech. Back in May at its annual I/O developer conference, Alphabet launched its AI products and it also added generative AI to enhance its search engine.
Artificial Intelligence
Speaking at the conference call, Porat admitted that there was a cost associated with the new AI technology. The biggest slice of Alphabet’s spending in the second quarter had been for servers in AI computing and a considerable investment in it.
Sundar Pichai, the chief executive, told analysts that the revamped search had been drawing advertisers. He also added that they were testing the effectiveness of formats and the placement of ads within their AI-driven search.
Phillip Schindler, the Chief Business Officer, revealed that at least one AI-powered search product was currently in the use of at least 80% advertisers. Alphabet is planning on integrating artificial intelligence into some of its other products, which include Google Photos, Gmail and its Android mobile operating system as well. Generative AI has the capability of creating images, text and video similar to what people are capable of producing.
Revenue
The second-quarter results that Alphabet released on Tuesday showed that ad sales are still at the top. Ad sales for social media firm Snap turned out to be a disappointment for the second quarter. There was a 28% increase in the revenue for Google Cloud, which is considered one of the biggest cloud service providers, as it climbed to $8.1 billion.
Meanwhile, expectations had placed at somewhere around $7.75 billion, as experts believed it would continue with the same rate of growth seen in the previous quarter. There was also a 26% rise in revenue for Azure of Microsoft, which was higher than the growth estimate. According to industry experts and analysts, growth in cloud business is expected to increase by the year end.
As a matter of fact, the second quarter is said to be the end of the trough, as the uncertainty will start to clear up. Investors believe it would take just a year for AI to start driving major growth in the cloud business, with Azure expected to take the lead and Amazon’s AWS and Google Cloud to follow. There was a 4.4% increase in the ad sales for the YouTube video service unit of Google, which reached $7.67 billion.
According to estimates, the net profit per share for Alphabet had been predicted at $1.34, but the reported net profit per share had turned out to be $1.44. Data further showed that estimated revenue for the quarter had been $72.82 billion, but the actual revenue turned out to be $74.6 billion.
Shares rise
On Wednesday, there was an almost 7% increase in the shares of Alphabet because of signs that its business of Google Search was doing better in an advertising market that has become uncertain. In fact, it managed to remain almost unscathed, despite facing tough competition from Microsoft Bing, which is now using AI.
Taking the premarket movements into account, the market capitalization of the fourth most valuable company in the world was expected to rise by almost $100 billion. Due to the buzz and hype generated by artificial intelligence, Alphabet has already seen its share record a price rally of around 39% so far this year.
According to analysts on Wall Street, the better-than-expected second quarter earnings of the company show that Google Search continues to dominate the market. It also indicates that Google is well positioned to go up against Microsoft where AI is concerned and that the cloud business of the company has also enjoyed strong and steady growth.
The analysts
Analysts at Jeffries also said that it should not be called a comeback for AI because for seven years, Google has always given priority to artificial intelligence. There were a total of 22 brokerages, including Jeffries, which had hiked their price targets. In fact, a number of them asserted that Google’s cloud revenue had gotten a boost due to AI.
They added that AI was the reason that there had been growth of 28% in the quarter, which had seen results that went beyond expectations.
Microsoft
This year has seen Alphabet launch a number of AI products and it has also used the same technology for revamping search engine. It is primarily because it has found itself in a competition with Microsoft for making a mark in this nascent industry.
On Tuesday, the Windows maker also published its own results for the second quarter, which saw it exceed expectations. For Microsoft, it was its cloud unit named Azure that drove growth, as this particular unit is best positioned for leveraging the increasing interest in the field of AI.
Alphabet Inc.’s median price target has recorded a rise of 13% from the last close of the stock and is at $138. The industry median price-to-earnings ratio for 12-months forward is around 15.29, while that of Alphabet was around 20.51 and 31.11 for Microsoft.
Alphabet’s resilience
Earlier this year, there had been a dark cloud looming over Google in the form of OpenAI’s ChatGPT because it was threatening the core advertising business of the search engine giant at risk. Back in April, the risk had seemed dire, but it does not seem to have materialized as yet. In fact, things are actually looking up for Alphabet Inc.’s Google.
Now, analysts are of the opinion that while startup OpenAI may have had a major influence initially, thanks to its prominent investor Microsoft, Google remains well-positioned in the world of digital advertising. Analysts have said that as Google continues to incorporate more machine-learning and artificial intelligence tools, there is no such evidence that market share is shifting to Microsoft’s Bing.
As a matter of fact, data shows that ad budgets are once more shifting to Google Search, Bing had seen ad spending decline after the initial bump back in April. The brightened advertising outlook for Google also applies to rivals like Pinterest, Meta Platforms and Yelp, with ad agencies starting the year cautiously due to economic uncertainties and then gradually increasing spending. Despite the threat of Bing, analysts believe that Google search will continue being resilient and YouTube growth is also expected to pick up.
