Just a few days ago, Alphabet reported earnings per share (EPS) of USD 2.15 against the estimated USD 2.13, but its revenue failed at USD 96.47 billion against the expected USD 96.67 billion, a shortfall of just -0.21%. Yet, the market punished Alphabet harshly, making it drop almost 9% from around USD 206 to USD 188 overnight (and currently it went lower than that).
Picture generated by Meta AI
Following this, the media jumped on the bandwagon to add oil to the fire, using negative words and phrases such as “weaker-than-expected”, “revenue miss”, “disappoints”, etc. Reading such headlines naturally fuel the “flight in fear” instinct in us humans, and I would expect some investors to do the figurative “run for the hills”.
However, looking deep into its books, there are some positives coming out from the numbers, like increasing free cash flow AND capital expenditure for the last 3 fiscal years. Placing these figures next to their increasing revenue over the same period, which grew from USD 282.836 billion to USD 350.018 billion, the short conclusion would be that it is still a money-making machine.
Yes, there are some comments on the prospects of Alphabet and the accompanying challenges, like the stiff competition of its businesses and artificial intelligence (AI) models, which may cause them to lose market share and leadership. If this happens, it would not be overnight, but rather gradually over at least a few years, and during then one can see the “writing on the wall”. Recently Alphabet, along with other technology firms, are investing heavily into AI, and this may prove to be a game changer for their business prospects.
The Alphabet earnings situation shared some similarities to Salesforce; back in May 2024, despite a higher-than-expected EPS, a revenue miss of -0.44% brought a price drop from USD 27x to USD 21x. Fast forward today, the share price had increased more than 50% to around USD 33x.
So, what is the takeaway from here? If a fundamentally sound company’s share price had gone down due to short term fears or bad-but-not-so-bad past results, it is time to consider entering it.
Disclosure
The Bedokian is vested in Alphabet (Google).
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