Alphabet (Google) Expected to Report Earnings Slide

Focus on GOOGL Google Cloud revenue

Key Takeaways

  • Analysts estimate EPS of $1.25 vs. $1.40 in Q3 FY 2021.
  • Google Cloud revenue is expected to rise year over year but at the slowest pace in at least four years.
  • Revenue is expected to rise but at a slower pace compared to recent quarters.

Alphabet (Google) Inc. (GOOGL), the third-largest tech company by market capitalization, will probably report a third straight quarter of earnings declines and slowing revenue growth for the third quarter of 2022 amid a challenging ad revenue environment and increasing competition from TikTok.

Alphabet will likely say that earnings per share (EPS) declined by more than 10% to $1.25 as revenue posted a meager 8.7% increase to $70.8 billion, according to consensus estimates from Visible Alpha.

As with many other tech firms like Snap, whose shares plunged last week after reporting slow revenue growth, Alphabet relies heavily on ad spending. A cooling economy, high inflation, and mounting fears of a recession threaten to hit advertiser budgets, potentially leading to slowing revenue growth. Alphabet has been a leader in the space thanks in large part to YouTube, which generated $29 billion in ad revenue for 2021. The threat from TikTok could further undermine ad sales.

Investors will also look to revenue for Google Cloud, one of the company's main business segments, which offers tools for developers through a cloud platform as well as other workplace collaboration tools. Analysts predict growth in Google Cloud revenue will be slower than the prior-year quarter.

Google shares fell along with the broader market for most of the past quarter after mid-August. The company's stock is down 29% in the past year, compared with a drop of 18% for the S&P 500.

One-year total return for S&P 500 and Alphabet (Google) stock (GOOGL)
Source: TradingView.

Google (Alphabet) Earnings History

Alphabet's EPS declined in three quarters between Q1 2019 and Q4 2021, a period in which it more than doubled in three other quarters. Profit growth slowed considerably throughout 2021 and has declined in each quarter in the first half of 2022. Analysts expect another period of declines for Q3.

The company's revenue has fluctuated, as growth spiked in mid-2021 and has declined since then. Its expected drop in the quarter to 8.7% would be down from 41% in the prior-year quarter.

Google (Alphabet) Key Stats
  Estimate for Q3 FY 2022 Q3 FY 2021 Q3 FY 2020
Earnings Per Share ($) 1.25 1.40 0.82
Revenue ($B) 70.8 65.1 46.2
Google Cloud Revenue ($B) 6.7 5.0 3.4

Source: Visible Alpha

The Key Metric

Google Cloud is one of Alphabet's primary business segments and a key measure of the company's performance. The cloud segment provides developers with a highly scalable and reliable platform for building, testing, and deploying applications. It also offers workspace collaboration tools, including apps like Gmail, Docs, Drive, Calendar, Meet, and more. Revenue is generated through the collection of fees related to those services. The cloud market is much less saturated for Alphabet than its search business and is growing quickly. Competition is nonetheless fierce, particularly with major rivals including Microsoft Corporation's (MSFT) Azure and, Inc.'s (AMZN) Amazon Web Services.

Google Cloud revenue surged by 50% or more in six of the past 15 quarters. This growth has slowed somewhat in recent periods, though, dropping to 35.6% for the second quarter of this year from 53.9% in the first. Estimates suggest that this pace of growth will further slow for Q3 to 33.8%.

Article Sources
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  1. Wall Street Journal. "Three Things Marketers Should Know About Ad Spending Trends."

  2. J.P. Morgan. "Latest Thoughts & Updated FX/Estimates Ahead of Next Week's Earnings: GOOG/L, SPOT, META,AMZN, PINS," Pages 1-2.

  3. "Largest Tech Companies by Market Cap."

  4. Visible Alpha. "Financial Data."

  5. Nasdaq. "Will Q3 Earnings Boost Alphabet (GOOGL) Stock?"

  6. Alphabet Inc. "Form 10-K for the Fiscal Year Ended December 31, 2021," Pages 6 & 7.

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