I'm still bullish on Google. In fact I do plan to buy some on this dip. I have posted my earnings commentary on Google over on the US Foundational Stock list. I'll drop the commentary below which will give you an idea on how I feel about the company.
Alphabet reported a mixed quarter in terms of analyst estimates. Revenue of $96.5B missed expectations for $96.6B, but earnings per share of $2.15 topped expectations of $2.12. The company’s cloud revenue came in just shy of estimates as well, likely causing the aftermarket selloff post-earnings.
Make no mistake about it, however, this is still a company firing on all cylinders, and I believe the underlying results outside of small misses were exceptional. When we look to total revenue growth, it came in at 12% year-over-year, while earnings per share increased by 31%. The large increase in earnings per share was a combination of buybacks and strong growth in operating margins, which increased by 5% to sit at 32%.
Although the company’s cloud revenue missed analyst expectations by a mere 1.8%, this segment of the business is still Alphabet’s primary avenue for growth, as year-over-year revenue increased by 30%. I believe the combination of DeepSeek fears and Donald Trump’s tariffs are leading investors, whether retail or institutional, to reach any excuse to sell a stock.
YouTube revenue increased by 13.8%, Google Search by 12.5%, and Google subscriptions and devices by 7.7%. As mentioned, the Cloud segment increased by 30%, and every element of the business is performing well. The company’s annual revenue run rate from YouTube and its Cloud segment alone account for $110B.
The company generated just shy of $25B in free cash flow on the quarter and plans to roll out $75B in capital expenditures in 2025 in an effort to continue developing AI infrastructure.
As a long-term investor, the small misses on revenue don’t really bother me all that much. Do I believe a small 1%~ miss on revenue expectations, primarily from their Cloud platform, is a cause for concern? Absolutely not. In fact, I see it as an opportunity to add a stellar company at a relatively attractive price. The markets are fairly skittish right now, and I do believe any sort of upset in terms of overall results is going to cause a selloff.
This reminds me a lot of mid-2024 when the company sold off on some subpar results. Those who accumulated shares during that drawdown saw a 35%~ return on its subsequent runup.
The company’s Cloud platform is still one of the faster growing out of the big technology companies, and the business’s moat in terms of search revenue, whether that be Google Search or YouTube, is one of the primary reasons I invest in the company today. If weakness persists over the next while, I will continue to accumulate shares at lower prices.