- Alphabet stock surged 8% on Wednesday after its 2nd-quarter results proved stable amid a time of heightened economic uncertainty.
- Investors had grown increasingly worried about the digital advertising space following Snap's earnings implosion last week.
- "Alphabet shows digital ad business not falling off a cliff and relatively stable with some soft spots," Wedbush analyst Dan Ives said.
Alphabet stock surged as much as 8% on Wednesday and added more than $95 billion in market value after the search giant reported second-quarter earnings results that proved stable amid a period of growing macro concerns.
Here were the key numbers:
Revenue: $69.7 billion, versus analyst estimates of $69.8 billion
Earnings per share: $1.21, versus analyst estimates of $1.27
Google Advertising Revenue: $56.3 billion, versus analyst estimates of $55.9 billion
Alphabet CEO Sundar Pichai said the company's Search and Cloud divisions helped drive most of the growth, and that its focus remains on the long-term. "The investments we've made over the years in AI and computing are helping to make our services particularly valuable for consumers, and highly effective for businesses of all sizes… we'll continue to invest responsibly in deep computer science for the long-term," Pichai said.
But investor concerns have not been fully relieved and worries linger, as a potential economic recession could lead to a slowdown in advertising spend and ultimately hurt Alphabet's business. This scenario was seen in Snap's big earnings miss last week, which sent its stock down nearly 40% in a single day.
But so far, so good for Alphabet based on its results. "Alphabet shows digital ad business not falling off a cliff and relatively stable with some soft spots," Wedbush analyst Dan Ives said. But other Wall Street analysts are tepid about the next few months for Alphabet.
"Despite Alphabet's overall resiliency in 2Q, management used the terminology 'uncertain/uncertainty' 13 times during the conference call to characterize the global economic outlook," JPMorgan analyst Doug Anmuth said in a note to clients.
Anmuth called Alphabet's results "solid" concerning the uncertain macro outlook, highlighting that the company's year-over-year revenue growth of 16.3% outpaced his estimate of 15.9%. Strong results in Search helped power the revenue beat, which was driven by a resurgence in travel and retail advertising spend.
Goldman Sachs is staying cautious in their growth outlook ahead due to the potential for advertising spend to slowdown if a recession materializes.
"While this set of results were broadly inline with our expectations, the overall digital advertising and cloud computing outlook remain volatile for the coming quarters as an output of the macroeconomic environment - going forward, we forecast only a modest improvement in YoY revenue growth rates for YouTube and a moderation of YoY growth in Search revenue in 2H'22," Goldman Sachs analyst Eric Sheridan said in a note to clients.
Alphabet's solid earnings outlook, combined with better-than-feared quarterly results from Microsoft, helped power the Nasdaq 100 higher by more than 2% on Wednesday.
