Alphabet (GOOGL) Q4 2023 Earnings Preview

Alphabet Inc. (NASDAQ: GOOGL) will report Q4 2023 results on Tuesday, January 30, 2024, after the market close. Here are the key numbers that we’re watching.

Figure 1: Alphabet – consensus expectations for Q4 2023, past earnings surprises, consensus revisions, and CAGR

Source: Visible Alpha consensus (January 24, 2024). “Previous Surprises” indicate the direction that specific line items beat or missed. “Consensus Revisions” show the trajectory of line items from a given date.

Alphabet Q4 2023 Earnings Preview

According to Visible Alpha consensus, total revenues expected for Q4 2023 have remained around $85 billion since January 2023, driven by resilience in its ad business. In addition, the Q4 consensus expectations for operating income and EPS have remained around $24 billion and $1.61/share since July 2023.

We are closely monitoring the trend of the Cloud business, given last quarter’s margin disappointment. The operating profit margin, which turned positive in Q1 2023 and showed further improvement in Q2, missed expectations in Q3 by 200 bps, coming in at 3% instead of 5%. Looking ahead to Q4, analysts expect the Cloud business to generate a 4% operating profit margin, down 200 bps since July 2023. However, analysts expect the Cloud business operating profit margin to jump back to 6% in FY 2024 and, longer-term, to generate a 9% margin by FY 2025. Is this expectation still too high?

Alphabet stock has traded up 6% since last quarter’s October release and up 8% since the beginning of the year, outperforming the S&P 500. The stock has remained resilient, driven by solid ad growth in its core business. However, questions remain about the profitability of the Cloud business and its Unallocated and Other Bets. Could the Q4 release provide more visibility into the trajectory of 2024 profitability?

Figure 2: Alphabet consensus estimates

Source: Visible Alpha consensus (January 24, 2024). Stock price data courtesy of FactSet. Alphabet stock price is as of the market close on January 23, 2024.