Shares of technology giant Alphabet (NASDAQ:GOOGL) dropped nearly 6% in Tuesday’s after-hours of trading despite reporting stronger-than-expected Q4 earnings. What irked investors was Google’s lower-than-anticipated advertising revenue. While Q4 ad sales missed analysts’ forecast, investors shouldn’t fret over it as the long-term prospects remain bright.
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But before we dig deeper, it’s worth noting that the company delivered advertising revenue of $65.5 billion in Q4, up from about $59 billion in the year-ago quarter. However, it fell short of the analysts’ projection of $66.1 billion.
Ad Sales: Solid Long-Term Growth Potential
While Google’s ad sales missed estimates, its year-over-year growth rate has shown an upward trend in recent quarters. For instance, its ad revenue increased by 11% year-over-year in Q4 compared to the growth of 9.5% and 3.3% in Q3 and Q2, respectively.
Further, as advertising generates the bulk of the company’s revenue, it continues to invest heavily in this segment. GOOGL is leveraging Artificial Intelligence (AI) to enhance its offerings. Moreover, it has introduced CTV-first formats, including 30-second non-skippable ads, pause experiences, and a send-to-phone feature facilitating second-screen engagement with ads. Furthermore, Alphabet is strategically introducing new and existing advertisers to YouTube through sports content, which will likely drive future growth.
For YouTube Shorts, Alphabet has developed new, less disruptive formats. Moreover, the monetization of Shorts is progressing favorably, indicating a positive trajectory. The company foresees solid long-term growth potential for advertising revenue, which supports its bull case.
What is the Forecast for Alphabet Stock?
Wall Street is bullish about Alphabet stock’s prospects. With 16 Buy and five Hold recommendations, GOOGL has a Strong Buy consensus rating.
Notably, Alphabet stock has gained over 53% in one year. Thus, analysts’ average price target of $159.83 implies a limited upside potential of 5.53% from current levels.
