Google parent Alphabet Inc. is on firmer ground than most online ad companies, but YouTube is a big question mark.
Those were two major takeaways from Wall Street analysts after the predominant digital ad company
reported sales and earnings that came up short of projections. The miss was credited in large part to YouTube underperforming in Europe amid a conflict in Ukraine and against intensifying pressure from TikTok and streaming services from Walt Disney Co.
Alphabet shares were down 4% in late-afternoon trading Wednesday.
YouTube’s revenue growth of 14% to $6.9 billion was its third consecutive quarter of slower-than-expected growth and likely represents the lowest year-over-year increase since the pandemic-tainted second quarter of 2020.
YouTube’s “surprisingly weak” performance prompted Mizuho Securities analyst James Lee on Wednesday to lower his fiscal 2024 EBITDA for Alphabet by 3% to $158 billion and slice his price target to $3,500 from $3,600. Lee maintains a buy on the stock.
“Over the past quarter, since Meta surfaced their competitive concerns stemming from the rise of TikTok, the investment community has been buzzing with fears that YouTube’s mobile product will suffer from the same fate,” Michael Nathanson of MoffettNathanson said in a note Wednesday that maintained a buy rating on Alphabet shares with a price target of $3,100.
“The tone of the [earnings conference] call [on Tuesday] was mixed with Alphabet experiencing the impact of suspending activities in Russia (1% of 2021 sales), reduced ad spending in Europe, weaker YouTube direct response trends, and the negative impact of [foreign exchange],” Monness Crespi Hardt’s Brian White said in a note Wednesday that slashed Alphabet’s price target to $3,500 from $3,850.
Alphabet’s less-than-stellar results bode ill for Meta Platforms Inc.
which is considered significantly more vulnerable to the same economic hurdles that have already battered Snap Inc.
In its previous earnings report, Meta Chief Financial Officer David Wehner estimated Apple’s identifier for advertisers (IDFA) under iOS 14.5, which requires app makers to ask consumers to allow tracking of them, will cost Meta an estimated $10 billion in 2022. Additionally, Wehner expressed concern over future versions of iOS and regulatory issues in the U.S. and abroad.
By comparison, Alphabet’s issues seem trivial. YouTube aside, Piper Sandler’s Thomas Champion was encouraged by innovation in search and the performance of Google Cloud, which soared 44% to $5.8 billion.
Still, Tuesday’s not-so-scintillating numbers reflect a tech industry that could endure a rough 2022 marred by a gauntlet of supply chain constraints, inflation and Ukraine ablaze.
“In ‘The dark days of tech’, not even Google is immune to the countless sector headwinds,” Bernstein analyst Mark Shmulik said in a note Wednesday. “The cracks started a few quarters back, but investors were happy to gloss over them given continued Search strength.”
Alphabet shares are now down more than 20% on the year, while the S&P 500 index
has decline 12.4%.