Google’s 2024 Earnings: Key Insights and What to Watch

Cloud Growth, Advertising Resilience, and the AI Race: All Eyes on Alphabet’s Next Big Move

Google, also known as Alphabet, is a household name that most of us use daily, whether for search, email, maps, or YouTube. As a business, Alphabet operates in three major segments: Services (primarily advertising), Cloud, and "Other Bets," which includes innovative projects like self-driving cars (Waymo) and healthcare technology (Verily).

The question many investors ask today is: how does Google fare as an investment in 2024, leading into 2025, given the challenges it faces this blue-chip company faces?

Strong Business Fundamentals

Google's core business—advertising—is its largest revenue generator. This includes services like Google Search and YouTube. Advertising alone makes up around 87% of Google's total revenue. As digital advertising grows, Google remains a major player in the field, though it faces competition from companies like Amazon and Meta. Analysts expect the global digital ad market to grow significantly, but Google will need to maintain its dominant position to benefit fully.

Alongside advertising, Google Cloud is a growing part of Alphabet's business. Over the years, it has gained market share in the cloud industry, now accounting for around 10% of the global market. Cloud computing is critical for businesses, and Google's cloud offerings, including AI tools and data analytics, make it a key player in this space. Impressively, Google Cloud has started to generate positive earnings, with margins improving year after year, a promising sign for its long-term profitability.

What’s Next for Alphabet?

Innovation Through "Other Bets"

While advertising and cloud drive the bulk of revenue, Alphabet’s "Other Bets" segment, which includes projects like Waymo (self-driving cars), is where its long-term innovations lie. These ventures are high-risk, often unprofitable in the short term, but have the potential to disrupt industries and open new revenue streams in the future. For example, Waymo is gaining attention, but scaling it profitably remains a challenge.

Risks for Alphabet Inc Investors

Despite its strong performance, Google faces some significant risks. One of the most pressing concerns is regulatory pressure. Recently, Google lost an antitrust case related to its dominance in the search market, and another lawsuit regarding its advertising business is looming. While these lawsuits may not have an immediate financial impact, they create uncertainty about the company's future structure. Some investors fear that Google could face penalties or even be broken up.

Another challenge comes from AI technology, which is evolving rapidly. While Google has invested heavily in AI, competitors like OpenAI and Microsoft are gaining ground. The fear is that AI-driven innovations could disrupt Google's core search business, though this concern seems premature for now.

What are investors looking out for in the upcoming earnings call?

Alphabet (Google)'s next earnings call is scheduled for October 29, 2024. During this call, investors and analysts will be looking for key updates on several important aspects of the company’s performance and future prospects. Here’s what to keep an eye on:

• Cloud Business Performance

  Google Cloud has shown strong growth in recent years and is increasingly profitable. Analysts will be watching closely for updates on its revenue growth and margin improvements. Investors are particularly interested in how Google Cloud continues to compete with major players like Amazon (AWS) and Microsoft (Azure), and how it plans to capture more market share in the fast-growing cloud industry.

• Advertising Revenue

  Advertising remains Google’s largest revenue generator. With global digital advertising expenditures projected to increase, investors will be keen to see if Google’s advertising revenue continues to grow at a healthy pace. Specific focus will be on how well Google is maintaining its market share, particularly in the face of competition from other tech giants and social media platforms.

• Impact of Antitrust and Regulatory Issues

  Google is facing antitrust challenges, particularly regarding its search dominance and advertising practices. During the earnings call, investors will likely look for updates on how these legal issues are impacting the company’s operations, and whether there’s any indication of potential fines, restructuring, or other outcomes. Regulatory risks have been a key factor affecting Alphabet’s stock performance, so any news on this front will be closely scrutinized.

• AI Development and Integration

  Alphabet’s investments in artificial intelligence (AI) will also be a major point of discussion. Investors will want to know how Google is integrating AI into its core businesses, including advertising and cloud services. Additionally, there will be interest in how Google is positioning itself against competitors in the AI space, such as Microsoft and OpenAI, particularly in terms of AI-driven search capabilities and chatbot advancements.

• AI Competition and Market Share

  As AI-driven tools continue to evolve, concerns about AI disrupting Google’s core search business have emerged. While these concerns may be premature, investors will listen for any commentary on how Google is addressing the potential impact of AI on its search engine dominance and the future of its advertising business.

• Profit Margins and Revenue Growth

  We will be closely watching Alphabet’s profit margins and overall revenue growth. Consensus estimates for Q3 2024 predict total revenue of around $86.2 billion (+12.4% year-over-year) and non-GAAP EPS growth of +18.9%, with an expected EPS of $1.84 per share. Meeting or exceeding these expectations could give the stock a boost, especially in a competitive market environment.

• Prices broke below the 160.00 support level in early Aug and Sep

• 100d MA has also started to slope downwards in Oct, narrowing the gap between both 100d and 200d MA which could signal caution as price action approach a consolidation phrase

• 200d MA is still heading upwards signaling the longer term uptrend could still remain intact

• Immediate support and resistance levels to note are around 160 and 170 respectively

• As earnings results & company’s forecast will be announced on 29 Oct after market close, it could be a catalyst for the subsequent price action

  • If buying pressure return with price recapturing the 170 level, potential upside towards 180 first, with higher target place at the 200 psychological level subsequently

  • If market sentiment is negative towards the announcement, we may potentially see more weakness back towards 150 where buyers could return

Alphabet (Google) continues to show strong growth potential in its advertising and cloud segments. The company’s ventures into new technologies, such as self-driving cars and artificial intelligence, are exciting but come with significant risks. Investors should be aware of potential regulatory hurdles and the evolving competitive landscape in AI.

While some see Google as undervalued, particularly compared to its peers, it's important to recognize that future growth may depend on how the company navigates regulatory challenges and maintains its leadership in innovation. As always, a balanced approach, considering both the opportunities and risks, is key when evaluating Google's future as an investment.

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Sources:
1.Alphabet Stock: Road To $500 Available at: https://www.forbes.com/sites/greatspeculations/2024/10/23/alphabet-to-7-trillion-by-2025/
2.What the Google breakup threat means for Alphabet’s stock. Available at:https://www.cnbc.com/2024/10/09/what-the-google-break-up-threat-means-for-alphabets-stock.html
3..There Is Still A Lot Of Potential In Google Available at: https://seekingalpha.com/article/4728565-there-is-still-a-lot-of-potential-in-google
4. Google Q3 2024 Preview: Relative Bargain, Consider Buying Available at: https://seekingalpha.com/article/4727927-google-q3-2024-preview-relative-bargain-consider-buying

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