Alphabet Stock Outperformed The Street Expectations In Q2
Alphabet (Google)’s stock (NASDAQ: GOOG) has gained around 49% YTD as compared to the 20% rise in the S&P500 index over the same period. That said, at its current price of $130, the stock is trading 4% below its fair value of $135 – Trefis’ estimate for Google’s valuation. The technology giant surpassed the consensus estimates in the second quarter of 2023, with revenues increasing 7% y-o-y to $74.6 billion. It was mainly due to a 5% growth in Google search, a 28% jump in the Google Cloud segment, and a 24% improvement in the Google other segment. On the cost front, total expenses as a % of revenues decreased in the quarter, leading to an operating margin of 29%. Overall, the net income increased 15% y-o-y to $18.34 billion.
The company’s top line grew 5% y-o-y to $144.4 billion in the first half of FY 2023. It was primarily driven by higher Google advertising, Cloud, and other revenues. Notably, the revenue growth was slow in 2023 due to lower digital advertisement spending by businesses because of tough macroeconomic conditions. That said, operating expenses as a % of revenues witnessed an unfavorable increase from 71.3% to 72.8%. It resulted in a net income of $33.4 billion – up 3% y-o-y.
Moving forward, we expect the growth rate of Google advertising to remain under pressure in Q3 due to economic concerns, However, Google Cloud is likely to maintain its growth momentum. Notably, consensus estimates of Q3 revenues and earnings are $74.7 billion and $1.36 respectively. Overall, Google’s revenues are forecast to touch $300.7 billion in FY2023. Further, its net income margin is likely to see some improvement in the year, leading to a net income of $67.7 billion. This coupled with an annual EPS of $5.30 and a P/E multiple of just above 25x will lead to a valuation of $135.
What if you’re looking for a portfolio that aims for long-term growth? Here’s a value portfolio that’s done much better than the market since 2016.
| Returns | Jul 2023 MTD [1] |
2023 YTD [1] |
2017-23 Total [2] |
| GOOG Return | 9% | 49% | 242% |
| S&P 500 Return | 3% | 20% | 106% |
| Trefis Multi-Strategy Portfolio | 8% | 28% | 311% |
[1] Month-to-date and year-to-date as of 7/27/2023
[2] Cumulative total returns since the end of 2016
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