It is expected that the technology giant Alphabet on Tuesday, October 29, will release data on the slowest revenue growth in the last four quarters hurt by competition that weighed on its core Google Search business and dented YouTube advertising spending.
According to media reports, it is highly likely that the financial performance of the mentioned company for the third quarter of 2024 will become a negative factor, which will be more significant than the success of its cloud computing business driven by artificial intelligence. It is also worth noting separately that last quarter was the first since Anat Ashkenazi took over as finance chief from Ruth Porat.
Alphabet’s dominance in the digital advertising market, which has already become something like a traditional or natural state of affairs, has recently been threatened by the increasing competitiveness of players such as Amazon and TikTok in this space. The mentioned competitors of the Google owner have recently been actively scaling up cooperation with advertisers interested in taping a ready pool of customers.
Alphabet is also currently facing the risk related to the attention of regulators, who are considering breaking up Google to loosen what they call the illegal monopoly on online search.
Analysts expect Google Search and other related revenue to show 11.6% growth in the third quarter of 2024. It is worth noting that in the previous quarter, this indicator increased by 13.8%. The relevant information was published by Visible Alpha.
MoffettNathanson analysts said that new entrants like Perplexity AI and ChatGPT are raising billions of dollars on the premise that search can now be disrupted. They also noted that Google has now been seen as slow and unprepared in the context of the present pace of development of generative artificial intelligence. Separately, analysts said that some of this negative narrative will be hard to disprove in the coming year. They also expect significant changes in Google’s ability to maintain its exclusive search advantage on Apple and Android phones in the United States.
A report by the research company eMarketer, which was published in the current month and triggered alarm bells among investors, predicted that Google’s share of search advertising revenue in the US next year would fall below 50% for the first time in at least 18 years. This report also contains information about expectations that the corresponding share of Amazon will grow to 24% At the same time, according to experts of the mentioned research company, competitors using generative artificial intelligence technologies in the Internet search area, such as Amazon founder Jeff Bezos-backed Perplexity AI, are also snatching some advertising dollars from Google.
Google is currently working on improving the efficiency of its tools. The company has started showing promotional materials in summaries generated by artificial intelligence and placing it at the top of search results. Some analysts suggest that this solution may help Google to stave off competition.
In the three months to September, the value of Alphabet shares fell by almost 9%. In this case, the largest quarterly drop in the mentioned indicator since the third quarter of 2022 was recorded. At the same time, since the beginning of the current year, the value of the technology giant’s shares has increased by 17%.
LSEG reported that the average analyst forecast provides that Alphabet’s revenue for the third quarter of 2024 will be fixed at $86.31 billion. The corresponding reading means an increase of 12.6%. It is worth noting that the technology giant’s revenue rose by 13.6% in the second quarter of 2024.
Also, according to media reports, analysts expect YouTube to have suffered from some marketers shifting spending to advertising-supported tiers of streaming services such as Netflix and Amazon Prime Video. Experts predict that the revenue of this virtual platform, which is part of the Alphabet ownership structure, will show an 11.5% increase in the third quarter of 2024. It is worth noting that in the previous quarter, the corresponding figure rose by 13%.
At the same time, Truist analysts expect YouTube, especially YouTube TV, to be the beneficiary of increased spending on political advertising in the third quarter of 2024.
Google Cloud revenue for the mentioned period is expected by analysts cited by the media to grow by 29.2%. It is worth noting that this increase is the largest in the last seven quarters. The corresponding expected result is because customers have increased their spending on artificial intelligence services, including the Vertex AI platform, which will allow companies to use machine intelligence models from the technology giant and develop their own custom models.
It is worth noting that in July, Alphabet warned that capital expenses would remain high in 2024. The company pointed out that the dynamic of the corresponding indicator is related to investing in artificial intelligence. These financial injections aim to keep Alphabet up with competitors in the advanced AI industry.
Google’s competitors in the cloud services area have also increased capital expenditures. These companies strive to enhance their functional offerings using artificial intelligence.
According to preliminary estimates, revenue from Amazon’s cloud business increased by 19.3% in the quarter ended in September. Microsoft’s cloud unit revenue is expected to grow by about 11% over the corresponding period.
Investors will probably pay close attention to what Anat Ashkenazi will do to keep other costs in check. Analysts at Bank of America said that with her appointment, there was potential for the technology giant to surprise with further self-help cost-cutting actions after limited layoffs in the current year.
It is worth noting that the expectations regarding Alphabet’s financial performance in the third quarter of 2024 are very indicative in a context that is more global than the corporate situation of one of the largest players in the global technology sector. In this case, it is clearly evident that much smaller companies developing artificial intelligence are beginning to impact the dominant position of the unambiguous market leader in the recent past. So far, there has been no critical damage to Alphabet’s position, but the very fact of the increased importance of AI developers is symptomatic. Virtually, this is an example of how the importance of artificial intelligence is growing as a technology with significant capabilities and huge potential. At the same time, Alphabet is investing in AI and planning to maintain its position in a new configuration of what can be called a global technological evolution.
As we have reported earlier, Alphabet to Invest in South Carolina.
