First, the advertising revenue of Youtube in the second quarter did not meet expectations, leading to a slowdown in business growth; Second, high technical infrastructure expenditures have raised profitability concerns.
Google's second-quarter revenue and net profit both increased, but the market reaction was flat.
In post-market trading of US stocks last night, Alphabet, Google's parent company, released its Q2 2024 financial report. The report shows that the company's total revenue in Q2 increased by 13.6% YoY to $84.74 billion, higher than analysts' expected $84.37 billion. The adjusted EPS increased by more than 31% YoY to $1.89, also higher than the expected $1.84.
While the market has had a significant response with huge fluctuations.$Alphabet-A (GOOGL.US)$After rising 2%, the stock price fell 1% and then rose again, reaching a peak of 3%, but ultimately fell more than 1.6%. On Wednesday's pre-market trading session, Google Class A shares fell 2.25% to $177.7.
Although overall performance exceeded expectations, Wall Street remains concerned about Google's profit momentum.
Firstly, YouTube's advertising revenue was lower than expected, with Q2 revenue increasing by 13% YoY to $8.66 billion, lower than the market expectation of $8.95 billion, and growth also slowed compared to Q1.
This led to a slowdown in growth of Google's main revenue driver, the core advertising business, which increased by 11.2% YoY in Q2, slower than the 13% growth in the previous quarter.
Secondly, Alphabet stated during the earnings call that considering the entry of new graduates in Q3, the number of employees may increase, which could threaten the trend of profit expansion. In addition, Alphabet CFO Ruth Porat also added that the company is facing the risk of increased depreciation expenses due to increased investment in technological infrastructure.
As we all know, the main driving factor behind the continuous significant increase in capital expenditures by tech giants including Google is AI.
Ben Reitzes, an analyst at Melius Research, commented:
"The reaction to this report may be somewhat flat, as some of the comments during the conference call suggest a slowdown in the pace of profit margin expansion."
"Given the recent surge in capital expenditures by Alphabet and leading cloud computing companies, we should closely monitor these companies' comments on depreciation expenses when discussing EPS and gross margin, especially the Mag 7 including Microsoft, Amazon, and Meta."
Edited by Jeffrey