A cautious ad sales outlook, alongside modestly firmer second quarter revenues, has Google stock leading pre-market gainers Wednesday.
Alphabet (GOOGL) – Get Alphabet Inc. Report shares firmly in pre-market trading after the search and ad sales giant posted modestly softer-than-expected second quarter revenues, defying concerns of the ad-spending meltdown forecast last week by messaging app maker Snap Inc. (SNAP) – Get Snap Inc. Class A Report.
Group revenues rose 13% from last year to $69.69 billion, narrowly missing Street forecasts, as ad sales rose 11.6% to $56.29 billion. Currency headwinds, Google said, took 3.7% from the overall topline total, with CFO Ruth Porat warning that the impact will be even greater over the second half of the year.
Search and other revenues rose 13.5% to $40.69 billion, just ahead of Street forecasts, while YouTube ad sales rose 5% — the slowest since 2018 — to $7.3 billion. Google network revenues were up 9% to $8.26 billion. Alphabet also said cloud revenues were up 35%, albeit from a much lower base, to $6.28 billion.
Google’s bottom line came in at $1.21 per share over the three months ending in June, a tally that missed Street forecasts by around $1.29 per share.
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Snap’s bigger-than-expected second quarter loss last week came with a warning on ad spending, as well as the impact of of Apple Inc.’s (AAPL) – Get Apple Inc. Report privacy changes, which prevent user tracking, on its ad business. For Google, however, the hits were more related to what CFO Ruth Porat described as ‘lapping’ last year’s pandemic-era highs.
“The quarter-on-quarter deceleration in both YouTube and network advertising revenues primarily reflects pullbacks in spend by some advertisers,” Porat told investors on a conference call late Tuesday. “We also saw a slowdown in buyer spend due to a number of factors, including lower engagement levels compared with earlier stages of the pandemic.”
Google shares were marked 3.5% higher in pre-market trading to indicate an opening bell price of $108.69 each.
“Our primary takeaway is that search’s demand is persistent even in a tough macro advertising environment given its consistent and high ROI while benefiting from its diversification across online and offline as well as across verticals and geographies,” said JMP Securities analyst Andrew Boone, who carries a ‘market perform’ rating with a $160 price target on Google stock.
“We continue to believe that Alphabet is well positioned across most major digital secular growth trends as search benefits from AI improving results for advertisers and reducing friction for users, YouTube can continue to take share from linear TV budgets, and GCP remains well positioned to benefit from ongoing cloud growth,” he added.
