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Google (GOOGL.O) | Second Quarter Outlook: Advertising business revenue is expected to rebound

Event
Google (GOOGL.O) is expected to release its second quarter earnings report on July 25th, Eastern Time. Since hitting bottom at the beginning of 2023, Google has been strong rebounding from March, recording a gain of about 40 points so far.
Key Points
1. Advertising business revenue accounts for as much as 80%, and is expected to return to growth in the second quarter
Google has a variety of business types, and from the perspective of revenue sources, it mainly includes Google services and Google Cloud. Advertising revenue accounts for more than 80% of Google's total revenue, contributing to its core revenue sources, and can be divided into advertising for search and other businesses, Google Network, and YouTube advertising. Economic data in the second quarter indicates that the U.S. economic environment is relatively resilient. With the expectation of the economy transitioning from a strong decline to a weak slowdown or slight growth, it will affect the advertising pace of advertisers this year.
2. The search market share is stable, and the impact of BING is weakening.
Google's search market share is stable. As of the second quarter, Google's search engine market share is 92.64% (QoQ -0.47% / YoY +0.8%), while Microsoft's Bing market share has declined to 2.77% (QoQ 0% / YoY -0.43%). After the hype of ChatGPT subsided, consumers seem to have chosen to return to Google search, reducing the impact of Bing. Google's search moat remains solid, and it is expected to dispel market concerns based on its advertising search business model.
3. The growth rate of Google Cloud is not expected to be too fast.
Currently, due to the impact of macro headwinds, there is no significant rebound in the trend of some enterprise clients reducing and optimizing cloud usage. Compared to Microsoft, Google Cloud benefits less from AI demand, and it is expected that the growth rate of Google Cloud in the second quarter will still not be too fast. As of Q1, Google still has $61.7 billion in remaining performance obligations (RPO), mainly related to Google Cloud, compared to $64.3 billion in 22Q4. These backlogged contracts will guarantee the bottom-line growth of Google Cloud business in the second quarter.
The effect of cost reduction measures such as layoffs will be evident in the second quarter.
In the first quarter, Google announced layoffs of 0.012 million people, accounting for over 6% of the total number of employees. Due to one-time severance compensation of 2 billion and expenses related to the disposal of office space of 0.6 billion, it is expected that improvement of expenses and changes in the number of employees will be reflected in the second quarter. On the other hand, capital spending on data center construction and servers will also accelerate in the second quarter. Additionally, due to the change in timing for stock-based incentives for employees from January to March, SBC expenses will be deferred to the next three quarters, offsetting the profitability impact in the second quarter. Overall, it is estimated that there will not be a significant improvement in profit margin.
Investment advice
According to Bloomberg's consensus forecast, the market's revenue forecast for Google in the second quarter is $72.7 billion, a year-on-year growth of +4.4% (Q1 growth rate was -0.21%), with an EPS forecast of $1.32, a year-on-year growth of 9.2%. We believe that the changes in the advertising market tend to be more significant than the changes in GDP. Under the condition of marginal improvement in the macro environment in the second quarter, Google's core advertising business is expected to outperform expectations. Previously, the market's concerns about Google were mainly focused on the decline in market share and the suppression of advertising business growth due to macro headwinds. After the I/O conference, some factors that have been suppressing the company's valuation have been partially alleviated from a product and technology perspective. The company's performance is expected to improve marginally, and if the earnings report shows a clear signal of a reversal in advertising revenue, there is a considerable upside potential after the earnings release. In terms of options strategies, we suggest that active investors consider buying call options or selling put options to earn option premiums.
Risk Warning
Advertising recovery is slower than expected; macroeconomic risks; enterprise IT spending slows down more than expected; poor cost reduction and efficiency enhancement effects.
Full text
Event Google (GOOGL.O) is expected to release its second-quarter financial report on July 25th, Eastern Time. Since hitting a low at the beginning of 2023, Google has been strongly rebounding since March, recording an increase of about 40 points to date. Key Points 1. Advertising business revenue accounts for as much as 80%, and is expected to return to growth in the second quarter. Google has multiple business types, mainly including Google services and Google Cloud from a revenue perspective. Advertising revenue accounts for more than 80% of Google's total revenue and contributes to the core source of income. It can be divided into advertising for search and other business, Google Network, and YouTube advertising business. Multiple economic data in the second quarter indicate that the US economic environment is relatively resilient. As the economic expectations transition from strong recession at the beginning of the year to weak slowdown or weak growth, it will affect the advertising timing for advertisers this year. 2. The search market share is stable, with weakened impact from BING. Google's market share of the search market remains stable. As of the second quarter, Google's search engine market share was 92.64% (-0.47% QoQ / +0.8% YoY), while Microsoft's Bing market share declined to 2.77% (0% QoQ / -0.43% YoY). After the hype of ChatGPT settled down, consumers seem to have chosen to return to Google search, and the impact of Bing has weakened. Google search's moat remains strong and is expected to...
Event Google (GOOGL.O) is expected to release its second-quarter financial report on July 25th, Eastern Time. Since hitting a low at the beginning of 2023, Google has been strongly rebounding since March, recording an increase of about 40 points to date. Key Points 1. Advertising business revenue accounts for as much as 80%, and is expected to return to growth in the second quarter. Google has multiple business types, mainly including Google services and Google Cloud from a revenue perspective. Advertising revenue accounts for more than 80% of Google's total revenue and contributes to the core source of income. It can be divided into advertising for search and other business, Google Network, and YouTube advertising business. Multiple economic data in the second quarter indicate that the US economic environment is relatively resilient. As the economic expectations transition from strong recession at the beginning of the year to weak slowdown or weak growth, it will affect the advertising timing for advertisers this year. 2. The search market share is stable, with weakened impact from BING. Google's market share of the search market remains stable. As of the second quarter, Google's search engine market share was 92.64% (-0.47% QoQ / +0.8% YoY), while Microsoft's Bing market share declined to 2.77% (0% QoQ / -0.43% YoY). After the hype of ChatGPT settled down, consumers seem to have chosen to return to Google search, and the impact of Bing has weakened. Google search's moat remains strong and is expected to...
Event Google (GOOGL.O) is expected to release its second-quarter financial report on July 25th, Eastern Time. Since hitting a low at the beginning of 2023, Google has been strongly rebounding since March, recording an increase of about 40 points to date. Key Points 1. Advertising business revenue accounts for as much as 80%, and is expected to return to growth in the second quarter. Google has multiple business types, mainly including Google services and Google Cloud from a revenue perspective. Advertising revenue accounts for more than 80% of Google's total revenue and contributes to the core source of income. It can be divided into advertising for search and other business, Google Network, and YouTube advertising business. Multiple economic data in the second quarter indicate that the US economic environment is relatively resilient. As the economic expectations transition from strong recession at the beginning of the year to weak slowdown or weak growth, it will affect the advertising timing for advertisers this year. 2. The search market share is stable, with weakened impact from BING. Google's market share of the search market remains stable. As of the second quarter, Google's search engine market share was 92.64% (-0.47% QoQ / +0.8% YoY), while Microsoft's Bing market share declined to 2.77% (0% QoQ / -0.43% YoY). After the hype of ChatGPT settled down, consumers seem to have chosen to return to Google search, and the impact of Bing has weakened. Google search's moat remains strong and is expected to...
Event Google (GOOGL.O) is expected to release its second-quarter financial report on July 25th, Eastern Time. Since hitting a low at the beginning of 2023, Google has been strongly rebounding since March, recording an increase of about 40 points to date. Key Points 1. Advertising business revenue accounts for as much as 80%, and is expected to return to growth in the second quarter. Google has multiple business types, mainly including Google services and Google Cloud from a revenue perspective. Advertising revenue accounts for more than 80% of Google's total revenue and contributes to the core source of income. It can be divided into advertising for search and other business, Google Network, and YouTube advertising business. Multiple economic data in the second quarter indicate that the US economic environment is relatively resilient. As the economic expectations transition from strong recession at the beginning of the year to weak slowdown or weak growth, it will affect the advertising timing for advertisers this year. 2. The search market share is stable, with weakened impact from BING. Google's market share of the search market remains stable. As of the second quarter, Google's search engine market share was 92.64% (-0.47% QoQ / +0.8% YoY), while Microsoft's Bing market share declined to 2.77% (0% QoQ / -0.43% YoY). After the hype of ChatGPT settled down, consumers seem to have chosen to return to Google search, and the impact of Bing has weakened. Google search's moat remains strong and is expected to...
Event Google (GOOGL.O) is expected to release its second-quarter financial report on July 25th, Eastern Time. Since hitting a low at the beginning of 2023, Google has been strongly rebounding since March, recording an increase of about 40 points to date. Key Points 1. Advertising business revenue accounts for as much as 80%, and is expected to return to growth in the second quarter. Google has multiple business types, mainly including Google services and Google Cloud from a revenue perspective. Advertising revenue accounts for more than 80% of Google's total revenue and contributes to the core source of income. It can be divided into advertising for search and other business, Google Network, and YouTube advertising business. Multiple economic data in the second quarter indicate that the US economic environment is relatively resilient. As the economic expectations transition from strong recession at the beginning of the year to weak slowdown or weak growth, it will affect the advertising timing for advertisers this year. 2. The search market share is stable, with weakened impact from BING. Google's market share of the search market remains stable. As of the second quarter, Google's search engine market share was 92.64% (-0.47% QoQ / +0.8% YoY), while Microsoft's Bing market share declined to 2.77% (0% QoQ / -0.43% YoY). After the hype of ChatGPT settled down, consumers seem to have chosen to return to Google search, and the impact of Bing has weakened. Google search's moat remains strong and is expected to...
Event Google (GOOGL.O) is expected to release its second-quarter financial report on July 25th, Eastern Time. Since hitting a low at the beginning of 2023, Google has been strongly rebounding since March, recording an increase of about 40 points to date. Key Points 1. Advertising business revenue accounts for as much as 80%, and is expected to return to growth in the second quarter. Google has multiple business types, mainly including Google services and Google Cloud from a revenue perspective. Advertising revenue accounts for more than 80% of Google's total revenue and contributes to the core source of income. It can be divided into advertising for search and other business, Google Network, and YouTube advertising business. Multiple economic data in the second quarter indicate that the US economic environment is relatively resilient. As the economic expectations transition from strong recession at the beginning of the year to weak slowdown or weak growth, it will affect the advertising timing for advertisers this year. 2. The search market share is stable, with weakened impact from BING. Google's market share of the search market remains stable. As of the second quarter, Google's search engine market share was 92.64% (-0.47% QoQ / +0.8% YoY), while Microsoft's Bing market share declined to 2.77% (0% QoQ / -0.43% YoY). After the hype of ChatGPT settled down, consumers seem to have chosen to return to Google search, and the impact of Bing has weakened. Google search's moat remains strong and is expected to...
Event Google (GOOGL.O) is expected to release its second-quarter financial report on July 25th, Eastern Time. Since hitting a low at the beginning of 2023, Google has been strongly rebounding since March, recording an increase of about 40 points to date. Key Points 1. Advertising business revenue accounts for as much as 80%, and is expected to return to growth in the second quarter. Google has multiple business types, mainly including Google services and Google Cloud from a revenue perspective. Advertising revenue accounts for more than 80% of Google's total revenue and contributes to the core source of income. It can be divided into advertising for search and other business, Google Network, and YouTube advertising business. Multiple economic data in the second quarter indicate that the US economic environment is relatively resilient. As the economic expectations transition from strong recession at the beginning of the year to weak slowdown or weak growth, it will affect the advertising timing for advertisers this year. 2. The search market share is stable, with weakened impact from BING. Google's market share of the search market remains stable. As of the second quarter, Google's search engine market share was 92.64% (-0.47% QoQ / +0.8% YoY), while Microsoft's Bing market share declined to 2.77% (0% QoQ / -0.43% YoY). After the hype of ChatGPT settled down, consumers seem to have chosen to return to Google search, and the impact of Bing has weakened. Google search's moat remains strong and is expected to...
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Google (GOOGL.O) Second Quarter Preview: Advertising Revenue Expected to Rebound.pdf826.3K
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Risk Disclaimer: The above content only represents the author's view. It does not represent any position or investment advice of Futu. Futu makes no representation or warranty.Read more
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