Google Some Shelter
Great Ones, a storm is threatening … Alphabet’s (Nasdaq: GOOG) very life today. If they don’t get some shelter. Yeah, they’re gonna fade away.
War, children? Are we really just a shot away?
When it comes to the online ad business? Yeah, I think so.
But don’t take my word for it. Just look at the tea Alphabet spilled in its latest trip to the earnings confessional:
- Earnings per share: $1.06 versus $1.25 expected.
- Revenue: $69.09 billion versus $70.58 billion expected.
- YouTube ad revenue: $7.07 billion versus $7.42 billion expected.
- Google Cloud revenue: $6.9 billion versus $6.69 billion expected.
I mean, it just keeps getting worse.
Well, Google Cloud revenue looks kinda solid … if you don’t take into account that analysts lowered their expectations on that front significantly during the past two months.
You’re probably wondering what in the wild, wild world of sports is going on here. Google doesn’t have supply chain issues. It shouldn’t be having these troubles.
The answer to that is ad revenue … or rather, the severe lack of ad revenue growth.
Now, I’ve been beating this drum for a while now. I’m not proud or tired. And I’m more than happy to wait until it comes around on the guitar so we can all sing it again … with feelin’.
Get to the point, Arlo.
The point is that ad revenue is drying up faster than potable water in California. With the “threat” of a U.S. recession, soaring inflation and the looming rise of unemployment, ad agencies around the world are scaling back big time on ad spending.
And, as we all know, Alphabet’s real business model revolves around giving you stuff for “free,” while throwing ads in your face left and right. If fewer businesses are throwing ad dollars around, Alphabet makes less money.
It can’t be that bad … honestly.
It can’t, huh? In last night’s fiscal Q3 report, Alphabet said that ad revenue only grew 6% year over year. For the same quarter last year … ad revenue soared 41%.
So, yeah. It’s that bad. And y’all thought it was just Snap and Meta struggling with ad revenue — which is understandable ‘cause nobody really likes either of those two social media companies right now.
But Alphabet is the real deal Holyfield in the ad revenue market. It’s the 800-pound gorilla. And when the 800-pound gorilla gets sick, everyone feels it.
To deal with slowing ad revenue, Alphabet is cutting underperforming divisions, such as its Stadia online gaming service, which died last month.
According to Alphabet CEO Sundar Pichai, the company is “sharpening our focus on a clear set of product and business priorities.” Additionally, CFO Ruth Porat said: “We’re working to realign resources to fuel our highest growth priorities.”
Another part of that alignment is cutting back significantly on hiring. CEO Pichai doesn’t want to cut Alphabet’s headcount because: “Talent is the most precious resource.”
But Pichai also said in September that he wants to make Alphabet about 20% more efficient.
So far, that has meant shuttering services like Stadia … and if things don’t turn around in Q4, I’d bet money that “slow hiring” could quickly become no hiring or even layoffs.
Now, rest assured, Great Ones, Alphabet isn’t going anywhere. GOOG stock isn’t going to collapse. The company isn’t going to fold. Alphabet is one of those companies that you buy and hold for the long term.
If you already own GOOG stock, hang in there. It will come back.
If you don’t already own GOOG stock, this decline could be a buying opportunity. Given the company’s growth potential once all this bear market crap is finally out of the way, GOOG below $100 looks like a steal. I honestly don’t expect the shares to go much lower from here.
Then again … I also think we’re far from fully capitulating to the bear market. So there’s more potential downside in the cards. Ultimately, it all depends on your personal bear market strategy.
Well, that’s clear as mud… Thanks?
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The Good: For Your Mobileyes Only
Great Ones, it is time!
Oh boy, we’re making bubbles with our spit again?
No, no … it’s time for Mobileye to mobilize. You know, the spinoff shebang that Intel (Nasdaq: INTC) investors have been waiting ages for? Yeah, that. It’s time.
Lidar-developer Mobileye started trading today under the ticker MBLY. Just last week, we were wondering at what price Intel would stake the Mobileye offering, with the consensus landing between $18 and $20.
Well, Mr. Market thought he could do one better: How about $21 for some brand-spanking new Mobileye shares? Sold!
MBLY shares were up over $27 by midday, which sounds all fine and dandy for the company’s first public foray… I mean, I wouldn’t turn down an extra few hundred million more than previously estimated. But there’s just one pesky little detail that Intel (and Intel investors) are probably kicking themselves over.
Sure, the actual IPO was priced at $21 a share, which would value Mobileye at $16.7 billion … but that valuation is still waaaaay off from Intel’s initial $50 billion valuation for Mobileye. And I’m sure many folks over at Intel HQ are dreaming of the billions that could’ve been.
Ironic. Mobileye’s lidar sight could save others … but not itself.
The Bad: Microsoft’s Outlook Crashed
What’s a Big Tech earnings extravaganza without good ol’ Mr. Softy?
Mmm. I could go for a classic vanilla cone right now.
Umm, unless Microsoft (Nasdaq: MSFT) suddenly switched to the soft-server business … I think you’re gonna have to make a sundae for yourself. Anyway…
I wouldn’t blame MSFT investors from stress-eating away the pain today after the company followed Alphabet’s lead with a dog$!&# report of its own.
But whereas Alphabet is blaming dropping ad revenue for its earnings miss, Microsoft is pointing the finger at broader consumer trends. You know … the trend of most people being broke … and not in the market for new electronic devices?
Just like we saw above, Azure cloud revenue was Microsoft’s brightest spot in the report, up 20% on the quarter. That still didn’t meet analysts’ expectations … but it’s better than no growth at all, am I right?
And on that front … we turn to guidance. When it comes to expectations for the fiscal second quarter, Microsoft’s guidance was, well, micro-soft: The company only expects about 2% growth in revenue, which also missed Wall Street’s estimates by a wide margin.
I’ve got an idea for Windows … Windex.
The Ugly: Take The Good With The … Boeing
Woohoo! Boeing earnings day, my favorite! What … what’s with the long face, Great Stuff?
Well, Great Ones, where do we begin? On one hand (wing?), Boeing (NYSE: BA) saw commercial revenue shoot up 40%, delivering 112 planes to airlines during the quarter.
That’s up from 85 deliveries a year ago … almost as if Great Stuff had predicted that airlines would need to bulk up their fleets to meet post-pandemic travel demand.
Don’t break your arm patting yourself on the back, now.
Quiet, you. While Boeing’s commercial revenue was taking off, on the other hand … defense revenue dropped like a stone.
All told, Boeing saw a $2.8 billion loss in its defense division, specifically from its KC-46 tanker and Air Force One programs. Boeing had previously warned about over $1 billion in losses due to modifying two 747s to serve as Air Force One … but that $2.8 billion figure still stings, warning or no warning.
CEO David Calhoun was rather tight-lipped in his assurances concerning the losses:
We’re squarely focused on maturing these programs, mitigating risks and delivering for our customers and their important missions.
As you’d expect … Boeing’s financials were squarely focused on flying off a cliff.
Revenue totaled $15.96 billion, versus the Street’s target for $17.76 billion. But due to those losses, Boeing posted a $6.18 loss per share, whereas analysts expected a profit of $0.07 share.
That’s not just a bad miss, that’s like … burning down the earnings confessional. Like flipping over the card table and ripping the Monopoly board in half.
C+ on the metaphor game today, Great Stuff.
For its part, Boeing still expects to end the year with positive cash flow, which is an admirable glimmer of hope within this mess. Boeing stock being Boeing stock, it pulled a Top Gun and flew inverted on the news … before falling 7%.
What do you think, Great Ones?
Will Boeing stock take its broken wings and learn to fly again? I mean, commercial revenue is off the hook this quarter, which has to count for something…
Are any of you invested in Big Tech amid the digital ad-pocalypse? Anyone looking to buy some Mobileye? Let me know your thoughts on today’s Great Stuff in the inbox below.
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Regards,
Joseph Hargett
Editor, Great Stuff