Alphabet (GOOG, GOOGL) looks set to report better-than-projected fourth-quarter results, aided by tailwinds from YouTube, search, and artificial intelligence, as well as the recent ad sector rebound, BofA Securities said Friday.
The parent company of internet search giant Google is scheduled to report results Tuesday. BofA continues to expect per-share earnings of $1.63 amid the potential for “slightly higher” costs, BofA analysts including Justin Post and Nitin Bansal said in a note. The firm raised its consolidated net revenue outlook to $72.62 billion from $72.16 billion. Wall Street is looking for EPS of $1.61 and revenue of $71.11 billion, the brokerage said.
“We expect (fourth-quarter) revenue strength from a (post-October) ad sector rebound, AI tools driving incremental ad spend, and linear video spend shift” to YouTube, the analysts said. BofA raised its price objective on the Alphabet stock to $175 from $166 while reiterating its buy rating.
BofA expects fourth-quarter search revenue to increase 14% year over year to about $48.54 billion amid a continued recovery in the ad market and incremental ad spend from AI-enabled advertiser tools. It projects YouTube revenue of $9.08 billion, up 14% from a year earlier on improving fundamentals, as the platform is benefiting from ramping Shorts monetization. In the fourth quarter, YouTube “may also see a small benefit from reallocated ad spend from linear TV due to Hollywood strike,” the analysts said.
Cloud revenue for the December quarter is seen rising 23% to $8.98 billion. The analysts said for the quarter that they expect “positive” remarks from the company on large language model innovation, integration in search, new AI tools for advertisers, and AI deployment for Cloud customers. “We do not expect a dividend announcement, though we think a dividend would be well received.”
For the current first quarter, BofA projects EPS at $1.49 on revenue of $66.21 billion. Earlier this month, Google reportedly eliminated “hundreds of positions” from its core engineering unit, Google Assistant, and a hardware division, according to the note.
BofA expects “marginally higher” 2024 operating expenditures but lower headcount growth amid the recent layoffs. “We believe majority of the eliminated roles will be replaced by higher costs AI engineers,” the analysts said.
For 2024, the firm raised its EPS outlook to $6.76 from $6.73 and its net revenue estimate to $290.74 billion from $288.9 billion. “We believe in 2024, continued recovery in the ad sector, ramping Shorts monetization, AI integrations boosting (return on investment) and strong cost management can drive upside to Street (estimates).”