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After the US stock market closed on Tuesday, October 29th local time, Google will release its third quarter financial report. Due to the anti-monopoly lawsuit controversy, the market has doubts about Google's future revenue growth rate. This time, the market will focus on the progress of Google Cloud and capital expenditures. In addition, the latest news such as anti-monopoly split and large-scale model development has also attracted attention.
Data shows that among the 72 analysts tracking Google stock, 56 give a "buy" rating and 16 give a "hold" rating, with an average target stock price of $201.54. Compared to the current price of $168.34, there is still about 20% upside potential in the next 12 months.
Revenue of Google's advertising department
Currently, the market generally expects Google to achieve revenue of $86.23 billion in the third quarter, with a year-on-year growth rate of 12.44%; Expected earnings per share of $1.84, representing a year-on-year increase of 18.97%.
In Google's revenue structure, advertising revenue accounts for nearly 80% of total revenue, becoming the key to maintaining its performance growth rate. Industry insiders analyzed Xinhua Finance that Google's advertising revenue first needs to focus on the growth of accounts receivable, as well as whether changes in Google's search market share have affected advertising revenue and YouTube's contribution to advertising revenue.
At present, the market expects Google's advertising revenue in the third quarter to be $65.5 billion, with a year-on-year growth rate of 9.8%. UBS analysts predict in the latest report that Google's advertising division's revenue will reach $66-67 billion, exceeding market expectations.
UBS stated in the report that, based on data, corporate advertising budget expenditures showed an accelerated upward trend from August to September 2024 due to factors such as politics and improved consumer confidence. Google and YouTube's advertising revenue will benefit from this, as the platform improves the efficiency and revenue of advertising placement through automation technology. It is expected that Google's advertising revenue will exceed expectations.
In addition, the market generally believes that the change in Google's market share in the search field will also be the key to judging the prospects of the advertising business.
Due to the emergence of ChatGPT, there are significant doubts in the market about whether Google can maintain its market share in the search field. In Google's advertising business, the vast majority of revenue is contributed by Google search advertising, which is the foundation for Google's survival and development.
According to Statcounter's statistics, from January 2023 to September 2024, with the support of ChatGPT, Microsoft's Bing saw a slight increase of one percentage point in market share, while Google's market share also experienced a slight decline, but remained above 90%. Its moat and competitiveness may not have been significantly impacted.
In addition, data shows that in the third quarter of this year, Google search traffic increased by 1% month on month to reach 2.7 billion visits, while ChatGPT traffic increased by 20% month on month to reach 115 million visits, still only 5% of Google's usage rate.
Google Cloud Computing Revenue
Analysts generally believe that Google Cloud's revenue will become its key growth engine in the future. In the second quarter, Google Cloud's revenue increased by 28%, exceeding $10 billion for the first time. The focus will be on whether Google Cloud can maintain high growth rates and the profit margin of Google Cloud.
At present, the market expects Google Cloud Computing revenue to be $10.792 billion in the third quarter, a year-on-year increase of 28.31%. Analysts believe that regarding the future growth expectations of the cloud department, attention can be paid to the revenue from the unconfirmed contract portion in the financial report, which represents the amount of orders from Google Cloud's contracted customers that have not yet been executed.
In the field of cloud computing, Google's market share accounts for about 10%, ranking third in the world, lower than Amazon and Microsoft. Therefore, in the cloud computing field where economies of scale are highly valued, the profitability of Google Cloud has always been a key concern in the market. Although Google Cloud's revenue growth rate is significantly ahead of Amazon and Microsoft, its operating profit margin is far inferior to Amazon and Microsoft. In the second quarter, Google Cloud's operating profit margin was 11.3%, while Microsoft Cloud reached 49.6%, and Amazon Web Services also reached 35.5%,
Since the beginning of this year, Google has continued to increase capital expenditures in its cloud computing division. Therefore, whether the operating profit margin of Google's cloud division can continue to rise this quarter will be crucial.
Some argue that according to IoT Analytics research, Google Cloud holds a leading position in AI customer share, particularly favored by small companies. In the competition of cloud AI field, Google has demonstrated unique advantages. After analyzing the new case studies of various suppliers, it was found that Google's cloud AI case studies accounted for the highest proportion, reaching 36% of its overall new case studies. This data indicates that AI has a significant driving effect on Google Cloud, far surpassing other large-scale enterprises.
The constantly fluctuating Google stock price is expected to experience significant fluctuations
It is worth noting that Google's third quarter financial report was released during a turbulent period for the company. Due to Google's great influence in the field of Internet search, antitrust lawsuits have continued in recent years.
On October 9th, a proposal submitted by the US Department of Justice showed that they are considering requiring Google to sell some of its business to weaken the damage caused by monopolizing the online search market. The Ministry of Justice also stated that they are considering how to prevent Google from using its dominant search position to gain an unfair advantage in the competition of artificial intelligence products.
Whether Google's core business model will be substantially impacted as a result, and how the long-term battle against antitrust lawsuits will develop in the future, remains to be seen. The ongoing regulatory pressure has also become a driving force behind its weak growth this year.
Since the beginning of this year, Google's stock price has ranked low among the "Big Seven", rising by about 20.62% so far this year, far below the growth potential of Meta and Nvidia. According to the latest pricing in the options market, option traders predict that Google's stock price will fluctuate by 6.40% after the release of the financial report.
Some people believe that from a technical and valuation perspective, Google's current stock price level is still at a low level. FXTM analysts told Xinhua Finance that from a technical perspective, Google's stock is still in a long-term upward trend, reaching a high of 193 in early July, and then significantly retraced to 149.5 in early September (down 23%). Google's Enterprise Value Multiple (EV/EBITDA) is currently 13.41 times, which is 3.17% lower than the five-year average, indicating that Google's stock price is "cheap" compared to historical levels.
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