The Positives
+ Google Cloud momentum still strong, with profitability in focus. Cloud remained GOOGL’s fastest growing segment, increasing 32% YoY to US$7.3bn as customers continue to leverage on Cloud’s AI/Infrastructure/Cybersecurity offerings. Cloud continues to operate in the red, with a 4Q22 operating loss at -US$480mn, although management spoke about its focus on making Cloud profitable sooner rather than later.
+ Slowing expense growth guided moving forward; FY23e CAPEX in line with FY22. Management remains committed to slowing expense growth moving forward; guiding FY23e CAPEX to be at similar levels with FY22 as it consolidates office facilities, offset by continued investments in tech infrastructure. GOOGL also announced the reduction of around 12,000 jobs (~6% of workforce) in 1Q23e as it looks to reduce some of its fixed costs, and will remain prudent and more selective when making investment decisions. FY23e operating margins are still expected to remain relatively similar compared with FY22 at around 27% due to consolidation and severance-related charges, but to expand more meaningfully in FY24e.
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The Negative
– Headline earnings missed on weakness in advertising demand, inventory charges, and FX drag. 4Q22 revenue of US$76bn missed estimates marginally by US$440mn, dragged down by a 2% YoY decline in services (advertising) revenue; and a 6% FX headwind. Headline earnings also missed due to higher-than-expected inventory charges of US$1.2bn; and a US$1.5bn unrealised loss on debt/equity investments.
Jonathan covers the US technology sector focusing on internet companies. Formerly a national and professional athlete, he graduated from the University of Oregon with a Bachelor’s Degree in Social Sciences.