Alphabet: YouTube advertising miss presses pause on stock comeback  

Alphabet was on its way to becoming a meme stock earlier this year. Individual investors suddenly noticed that Google’s parent company was trading at a lower earnings multiple than its peers while reporting higher revenue growth. For the world’s leading search engine with $67 billion in annual free cash flow, that seemed conservative.

All of this remains true. Alphabet trades at an EV/ebitda multiple of about 15x — lower than the Nasdaq average. Sales growth is forecast to surpass Meta, Amazon and Apple this year. But a slowdown in digital advertising growth in the first quarter is enough to dampen the excitement.

The company points to a tough comparison to last year’s post-lockdown recovery, which is fair. Rising interest rates and the war in Ukraine also call for caution. Snap pointed out the same factors last week.

The question is whether Alphabet has longer-term problems. Across the company’s portfolio, some of the most interesting parts of the business have yet to be broken down. App store revenue, a sore point for antitrust activists, is being turned into “services.” That said, it’s not possible to see the exact impact of fee reductions.

Ad break-ins are more transparent. Google uses its own search data to sell ads, so it’s better protected from Apple’s change privacy as Snap and Meta, which require personal data for targeted advertising. But YouTube’s revenue, where 2 billion people log on to watch videos every month, grew just 14 percent last quarter. That’s down from 25 percent in the previous quarter, driven by a slowdown in personalized direct mail.

Like Meta, YouTube is also struggling with younger netizens who prefer TikTok’s rapid-fire short videos over older platforms. Advertising on YouTube’s TikTok clone Shorts is still being tested.

Chief Financial Officer Ruth Porat has launched another massive share buyback program. At $70 billion, it exceeds last year’s free cash flow. Alphabet has $134 billion in cash and marketable securities and about $15 billion in long-term debt, so there’s no risk of the company going idle. But Big Tech is supposed to have big ideas, not just big buybacks.

Alphabet: YouTube advertising miss presses pause on stock comeback   Source link Alphabet: YouTube advertising miss presses pause on stock comeback  

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