Breaking Down Alphabet’s Stellar Q3

ChatGPT is trying to steal Google’s thunder. Will it? First, you need to know the backstory…

The share price of Alphabet Inc. (NASDAQ: GOOGL) took off on the morning of October 30 following impressive third quarter earnings that surpassed analyst estimates. In particular, the Google parent reported strong growth in its cloud business.

Image: $GOOGL five day return as of the morning of October 30, 2024 (source: TradingView)

Alphabet reported earnings per share of $2.12 on revenue of $88.27 billion during the third quarter ending September 30, versus analyst expectations of an EPS of $1.83 on revenue of $86.44 billion. 

Compared to last year, Alphabet’s results represent a 15% rise in sales and a stellar 37% surge in profit.

Google CEO Sundar Pichai said the company’s AI business is helping draw in news customers, leading to bigger deals. Cloud revenue for the quarter was also highlighted, generating $11.4 billion, a 35% jump for the same quarter in 2023.

Is Alphabet a Buy?

Alphabet has experienced a bumpy ride this year. While the journey to the present day hasn’t been smooth, the company is still up well over 20% year to date. 

Image: $GOOGL year-to-date performance (source: TradingView)

Further volatility could be in Alphabet’s future — for instance, following a stellar October 30, the stock had a somewhat rougher day yesterday, following ChatGPT’s introduction of a search feature. 

Will ChatGPT dethrone Google as a search leader? It remains to be seen, but for now, GOOGLE still looks promising, especially as a longterm tech holding. Aside from the impressive recent earnings results, here are a few other reasons GOOGL remains compelling:

Image: $GOOGL Zen Score (source: WallStreetZen)

Alphabet enjoys a solid Zen Score of 51, more than double its industry peer average of 25. 

A high Zen Scores means the stock passed a number of comprehensive due diligence checks, implying strong fundamentals. In particular, Alphabet appears undervalued by 17.6% compared to our estimate of its fair value based on discounted cash flow modeling. 

Image: Wall Street analyst rating (source: WallStreetZen)

There are a lot of eyes on Alphabet, which is unsurprising since it's one of the world’s largest companies. As a result, we can gain a broad picture of what Wall Street thinks of the stock. 

Of the 22 Top Analysts that cover the name on WallStreetZen, none rate the company a Sell or Strong Sell, five consider it a Hold, while 17 analysts believe Alphabet is either a Buy or Strong Buy.

Image: Wall Street analyst’s price forecast (source: WallStreetZen)

In fact, the average forecast of all Top Analysts sees GOOGL appreciating a healthy 20.5% over the next 12 months, with the highest forecast expecting an over 40% price climb.

The Bottom Line

Alphabet's Q3 earnings report rocked expectations, delivering strong performance, particularly in its cloud business, which grew by 35% year-over-year. With revenue up 15% and profit surging by 37%, Alphabet is enjoying the success of its AI investments and robust cloud revenue. 

Despite some year-to-date volatility, the stock has risen over 20%. Along with Wall Street analyst backing and impressive fundamentals, Alphabet remains an attractive tech name to include in your portfolio, especially as a long term holding.

👉 Research 38 due diligence checks + 28 analyst ratings on GOOGL here.

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