Social Media Technology Provider Alphabet (NASDAQ: GOOG) the stock is down (-33%) for the year after rallying 11% from its lowest earnings numbers. As complicated as Alphabet and its numerous sidelines may be, it’s really just a massive advertising platform powered by the world’s most active search engine Google.com and the most active user-created video content delivery service YouTube. Alphabet has numerous side activities, investments and projects, ranging from the Google Tensor G2 chip used in its line of Pixel smartphones and tablets to Lens translator, DeepMind AI language translation technology for its Waymo autonomous driving division, The growth of has hybrid work has driven the adoption of Google Workspace by more than 8 million companies worldwide. Google Cloud continues to grow as revenue is up 38% to $6.87 billion. That sounds like a lot, but it pales in comparison to the $54.48 billion in Google ad revenue, which grew just 2.5% yoy. The strong US dollar made a significant impact as sales growth was 6.1% versus 11% at constant exchange rates, almost double.
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It’s all about the ad revenue
Declining consumer spending due to high inflation and weak macroeconomic environment has caused certain advertisers to cut their spending. This is proven across the board on social media sites ranging from: Facebook (NASDAQ: META), Snap (NYSE:SNAP), Pinterest (NASDAQ: PINS)and Twitter recently acquired by Tesla (NASDAQ: TSLA) CEO Elon Musk. Many platforms also blame Apple’s (NASDAQ: AAPL) privacy restrictions to reduce their advertising revenue. Google noted that they saw a slump in spending in specific sectors, including financial services, insurance, loans, mortgages, and crypto subcategories. While digital advertising spend on social media has declined, apparently they are still strong enough to support new major video streaming companies such as Netflix (NASDAQ: NFLX), Disney+ (NYSE:DIS), and Warner Brothers Discovery (NYSE:WBD) to include cheaper, ad-supported subscription tiers to incentivize memberships and reduce pressure on consumers. Video ad spend will grow to $76 billion by 2022, significantly higher than beforepandemic levels.
Breaking down the numbers
Alphabet released its fiscal profit report for the third quarter of 2022 on October 23, 2022. Total earnings came in at $1.06 per share, which fell short of analyst expectations at (-$0.19) at $1.25 per share. Total revenues rose only 6.1% to $69.09 billion, which was below analysts’ estimates of $70.67 billion. Operating margins declined to 25% compared to 32% a year ago in the same quarter. The biggest factor driving revenues up 13% was costs related to data centers and other operations. The three segments reported the following: Google ad revenue grew 2.5% to $54.48 billion, YouTube ad revenue fell (-1.8%) to $7.07 billion and Google Cloud grew 38% year-over-year to $6.87 billion. The company expects greater FX headwinds in the fourth quarter and tough comparisons for ad revenue due to strong growth in the fourth quarter of 2021.
This is what the graph says
The weekly candlestick chart has been in a downtrend channel since it peaked at $123.26 in August 2022. The weekly 20-period exponential moving average (EMA) formed an inverse breakout of the pups on the $117.90 breakdown that fell to $104.91, followed by the weekly 50-period MA at $120.54. Shares collapsed after its third-quarter 2022 earnings report fell to a low of $83.45 on very high sales volume that could indicate capitulation, before reversing gains on the favorable CPI report. The bearish price channel indicates that a jump through the upper bearish trendline at $100.50 is what bulls are aiming for. GOOG stocks will have to break through the weekly market structure low (MSL) trigger at $103.73 to face the weekly 20-period EMA of $104.91 to reverse the downtrend. Pullback support levels are at the two-year lows of $83.45, $79.35, $75.73, $72.70 and $70.33.
Bypass Catalysts
The main catalyst for the turnaround would be a bottom and a rebound in ad spend. This could happen if consumer spending picks up again, which could be caused by falling inflation from rising interest rates. However, rising interest rates also mean more incentives to save and earn interest on savings and money market accounts. It also means a declining labor market to be content with. Another catalyst for a turnaround is the fall of the US dollar index, which is already happening as it is (-5%) lower than this year’s highs. YouTube is jumping on the short video cart that has been popular on Tik Tok and Instagram Reels. However, these types of videos cannot directly monetize the content creators, such as regular YouTube payouts through the YouTube Partner Program (YPP). This changed on September 21, 2022, when YouTube announced that it will soon pay creators a portion of the advertising revenue it collects on its Shorts video platform from February 1, 2023. To be eligible to monetize Shorts, creators a minimum of 1,000 followers, 4,000 valid public watch hours in the prior 12 months, or 10 million valid public shorts views in the past 90 days.