Alphabet (GOOGL, Financial), the parent company of Google, is set to release its third-quarter earnings. Analysts predict a revenue growth slowdown due to competition, impacting both Google Search and YouTube. Google Search's growth is expected at 11.6%, down from 13.8% the previous quarter, while overall revenue is projected to rise 12.6% to $86.31 billion, according to LSEG estimates, marking a decrease from the 13.6% increase seen in the second quarter.
YouTube's revenue might grow by just 11.5%, down from 13%, as advertising expenditure shifts to ad-supported streaming services like Amazon Prime Video. Nevertheless, political ad spending could offer some relief for YouTube, particularly YouTube TV, in the third quarter.
Despite these challenges, Google Cloud remains a bright spot, with expected growth of 29.2%, the highest in seven quarters. This growth is fueled by increased customer spending on AI services, including Vertex AI. However, Alphabet's digital advertising dominance faces threats from competitors like Amazon (AMZN) and TikTok, which are gaining market share.
Regulatory pressures also loom large, with U.S. authorities considering breaking up Google over antitrust concerns. Analysts foresee significant changes in Google's exclusive search position on Apple and Android devices.
Alphabet's stock fell nearly 9% in the past quarter, its most significant drop since Q3 2022, though it has risen 17% year-to-date. The company warned of high capital expenditures due to AI investments, a sentiment echoed by cloud competitors like Amazon and Microsoft (MSFT), which are also boosting AI-related spending.
This quarter marks the first under new CFO Anat Ashkenazi, who succeeds Ruth Porat. Investors will closely watch how Ashkenazi manages costs. Analysts suggest that further cost-cutting measures could surprise in 2024 following limited layoffs.
