Alphabet (GOOGL) Down 9.6% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Alphabet (GOOGL). Shares have lost about 9.6% in that time frame, underperforming the S&P 500.Will the recent negative trend continue leading up to its next earnings release, or is Alphabet due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts. Alphabet Q4 Earnings & Revenues Beat Estimates, Up Y/YAlphabet’s fourth-quarter 2024 earnings of $2.15 per share beat the Zacks Consensus Estimate by 1.42%. The figure grew 31.1% year over year.Revenues of $96.469 billion increased 11.8% year over year (16% at constant currency).Net revenues, excluding total traffic acquisition costs (“TAC”) (the portion of revenues shared with Google’s partners and the amount paid to distribution partners and others who direct traffic to Google’s website), were $81.621 billion, which surpassed the consensus mark by 0.30%. The figure rose 12.9% year over year.TAC of $14.848 billion rose 6.2% year over year.Google Cloud revenue growth benefited from strong GCP growth and strong demand for Artificial Intelligence (AI) infrastructure and generative AI solutions. Google Workspace grew due to an increase in average revenue per seat.GOOGL’s Services Rides on Search & YouTubeGoogle Services revenues increased 10.2% year over year to $84.094 billion and accounted for 87.2% of the total revenues. The figure beat the Zacks Consensus Estimate by 0.47%.Google advertising revenues rose 10.6% year over year to $72.461 billion and accounted for 75.1% of the total revenues. The figure beat the consensus mark of by 1.46%.However, Google Network revenues decreased 4.1% year over year to $7.954 billion but beat the consensus mark by 1.58%.Google subscriptions, platforms and devices revenues, formerly known as Google Other revenues, were $11.633 billion in the fourth quarter, up 7.8% year over year. The figure missed the consensus mark by 4.45%.Other Bets’ revenues were $400 million, down 39.1% year over year, and accounted for 0.4% of the fourth-quarter revenues. The figure missed the consensus mark by 33.77%.GOOGL Leverages AI to Boost Search RevenuesSearch and other revenues increased 12.5% year over year to $54.034 billion, surpassing the Zacks Consensus Estimate by 1.61%. Search and other revenues accounted for 64.3%, 74.6% and 56% of Google Services, Google Advertising and total revenues, respectively.Alphabet is leveraging AI boost search dominance. AI overviews powered by Gemini are now available in 100 countries while the Circle to Search feature is available on more than 200 android devices.Search revenues benefited from strong performance in the financial services (due to strength in insurance) vertical, followed by retail.Strong retail performance, particularly on Black Friday and Cyber Monday, which each generated more than $1 billion in advertising revenues, was a noteworthy driver of GOOGL’s search revenues.The introduction of an updated AI-powered Google shopping experience helped in attracting shoppers, as December 2024 saw roughly 13% more daily active users on a year-over-year basis. Travel benefited from higher spend on Travel Tuesday, with 20% year-over-year revenue growth for travel advertisers.Strong Spending on Election Ads Aids GOOGL’s YouTubeYouTube’s advertising revenues improved 13.8% year over year to $10.473 billion, beating the consensus mark by 0.71%. YouTube revenues in the reported quarter benefited from strong spending on U.S. election advertising.Alphabet’s strategy of continuing investments in AI capabilities is driving continued growth and watch time across YouTube’s ad- supported and premium experiences. Viewers globally streamed more than 1 billion hours of YouTube content daily on their TVs in 2024.Investments in podcasts areis also driving creators’ and viewers’ engagement. In 2024, people watched more than 400 million hours of podcasts each month on living room devices alone. According to Edison, YouTube is currently the most popular service for podcasts listening in the United States.Shorts is are also gaining traction. In 2024, the monetization rate of Shorts relative to in-stream viewing increased by more than 30%. Shorts are also and getting significant traction on connected TV, which now makes up 15% of shorts viewing in the United States.GOOGL’s Operating Margin Expands Y/YCosts and operating expenses were $65.497 billion, up 4.6% year over year. As a percentage of revenues, the figure declined 460 basis points (bps) on a year-over-year basis to 67.9%.Total cost of revenues increased 8% year over year to $40.6 billion. Tech expenses increased 6% year over year to $14.8 billion. Other cost of revenues increased 9% to $25.8 billion driven by higher content acquisition costs for YouTube.  The operating margin was 30.7%, which expanded 460 bps year over year.Segment-wise, Google Services’ operating margin of 39% expanded 410 bps year over year.Google Cloud’s operating income was $2.093 billion compared with $864 million reported in the year-ago quarter.Other Bets reported a loss of $1.174 billion compared with a loss of $863 million in the year-ago quarter.Alphabet’s Balance Sheet Remains StrongAs of Dec. 31, 2024, cash, cash equivalents and marketable securities were $110.916 billion, up from $93.23 billion as of Sept. 30, 2024.Long-term debt was $11.87 billion as of Dec. 31, 2024, compared with $12.297 billion as of Sept. 30, 2024.Alphabet generated $39.113 billion of cash from operations in the fourth -quarter of 2024 compared with $30.698 billion in the third -quarter of 2024. GOOGL spent $14.276 billion on capital expenditure, netting a free cash flow of $24.837 billion in the reported quarter.Solid liquidity is helping Alphabet maintain its dividend payout. In fourth-quarter 2024, GOOGL paid $2.4 billion in dividends and bought back shares worth $15 billion. In 2024, the company returned roughly $70 billion to shareholders.GOOGL’s Q1 to Suffer From Unfavorable ForexAlphabet expects first-quarter 2025 revenues to suffer from unfavorable forex and one less day of revenues in the current quarter compared with the year-ago quarter.Throughout 2025, Google Services and advertising revenues are expected to be negatively impacted by tough comparison due to strong financial service vertical performance in 2024.Google Cloud’s growth rate is expected to be negatively impacted by capacity limitations.Alphabet expects to spend $75 billion in capital expenditures in 2025, with roughly $16 billion and $18 billion of debt in the first quarter of 2025. GOOGL expects depreciation expense and growth rate to increase in 2025.Alphabet expects headcount growth in 2025 due to investments in AI and cloud.How Have Estimates Been Moving Since Then?It turns out, estimates review have trended downward during the past month.VGM ScoresCurrently, Alphabet has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.OutlookEstimates have been trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Alphabet has a Zacks Rank #3 (Hold). 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