What to Expect From Alphabet's Q4 2023 Earnings Report

Advertisement revenue, which makes up 78% of Alphabet's total income, has seen a return to positive year-over-year growth in the last two quarters. This trend is expected to gain strength with an 11.6% growth predicted for Q4 2023, an increase from 9.5% in Q3 2023. Improved business confidence, spurred by expectations of a US economic "soft landing" and clearer indications of the Federal Reserve's peak interest rates, may boost ad spending. Alphabet's management noted some stabilization in ad spending during Q3 2023, hinting at more optimistic prospects moving forward.

Alphabet, alongside other tech giants, is working to stake its claim in the AI race. Wedbush Securities analysts expect that enterprise monetization of generative AI (GenAI) tech will be a key theme in 2024 and the impact of GenAI on product enhancements will be closely monitored in the upcoming earnings call.

Alphabet exceeded revenue and EPS forecasts in Q3 2023, yet a shortfall in cloud revenue led to a 10% stock price drop, underscoring the market's emphasis on the cloud as a critical growth area. The rise of generative AI is expected to boost demand for cloud services, and any slowdown could result in Alphabet losing ground to competitors like AWS and Azure. With substantial investments in its cloud division, the market has high expectations for its growth, and any significant underperformance could notably impact Alphabet's stock price.

Analysts have suggested that Google Cloud's revenue might see a rebound following a less-than-expected performance in the third quarter. They pointed out the possibility of heightened growth in cloud revenue for the fourth quarter. According to estimates gathered by Visible Alpha, the projected cloud revenue for the fourth quarter of 2023 stands at $8.95 billion, indicating an approximate 22% increase from the previous year.

Morningstar assigns a High Uncertainty Rating to Alphabet, driven by its reliance on online advertising growth. While Google's dominance in search is expected to continue, a significant dip in online ad spending could impact revenue and lower its fair value estimate. Conversely, successful investments in cloud services and innovative projects could substantially raise its value.

Additionally, Alphabet's reliance on user data poses environmental, social, and governance risks, with data privacy and security concerns threatening its advertising business and user trust.

Wedbush has recognized Google as a dominant force in the digital advertising sector, with a vast reach and a strong, lasting presence in overall media expenditure. Additionally, they see considerable potential in Google's initiatives in Cloud and Artificial Intelligence (AI). However, they anticipate that 2024 may present more obstacles for Google, partly due to the uncertainties surrounding its AI projects and the yet-to-be-determined effects that generative AI might have on its Search operations.