Shares of Alphabet (GOOG -7.35%) (GOOGL -7.50%) were falling today after the tech giant reported its fourth-quarter and full-year 2023 results. Alphabet beat analyst estimates on the top and bottom lines in its fourth quarter, but its ad revenue was a bit short of expectations. The sell-off also came after the stock jumped more than 50% in 2023, a sign that investors may believe it had become overheated.
As of 1:11 p.m. ET, shares were down 6.6%.
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The ad biz is recovering, but not fast enough
Alphabet reported 13% revenue growth to $86.3 billion, which beat expectations of $85.3 billion. Operating income jumped 30% to $23.7 billion as its operating margin expanded from 24% to 27%.
On the bottom line, earnings per share jumped from $1.05 to $1.64, aided by accounting gains on its equity securities. That result topped the consensus for $1.59.
However, investors seemed to zero in on the ad business, the source of the majority of its profits, where revenue grew just 11% to $65.5 billion due to a decline in its Google Network segment, which shows ads on other websites. Analysts had expected ad revenue to come in at $66.1 billion.
Elsewhere, Google Cloud continued to show strength with revenue up 26% to $9.2 billion, and it reported operating income of $864 million, up by more than $1 billion from the quarter a year ago.
On the call, management talked up its recent artificial intelligence (AI) initiatives like Gemini, but offered little in the way of details on new products or businesses.
Should Alphabet investors be worried?
It’s hard to fault a company the size of Alphabet for only growing ad revenue by 11%, but the results will be more telling after investors see the performance of peers like Meta Platforms, which has been taking ad market share from Alphabet in recent quarters. Losing market share is generally a negative sign for any company, though Alphabet seems to be benefiting from the broader ad market recovery from the lull in 2022.
At this point, there’s little reason to sell the stock on yesterday’s report as its search and YouTube businesses still look solid, and its valuation looks substantially improved. However, investors should keep an eye on the ad business in future quarters to see if the current trend persists.
Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Jeremy Bowman has positions in Meta Platforms. The Motley Fool has positions in and recommends Alphabet and Meta Platforms. The Motley Fool has a disclosure policy.
