Alphabet, the parent company of Google and YouTube, is set to release its earnings report after the trading hours on Tuesday. This report is highly anticipated as it will shed light on the current state of the digital advertising environment and provide crucial data about the strength of the cloud computing business. Analysts are optimistic about both aspects.

Sales and Profit Expectations

For the September quarter, financial experts are predicting a 10% increase in sales compared to the previous year, with an estimated revenue of $76 billion. Furthermore, they anticipate an increase in profits per share from $1.06 to $1.46. The projected advertising revenue stands at $59.2 billion, encompassing Google Search and other ads amounting to $43.3 billion, as well as YouTube ads totaling $7.8 billion. Google Cloud revenue is also expected to show growth, reaching $8.6 billion, a significant 26% increase.

Alphabet does not provide formal guidance, making its upcoming earnings report even more vital for investors and analysts alike.

The Crucial Role of Alphabet's Ad Business

The performance of Alphabet's ad business will be a key factor determining the company's results. Mark Mahaney, an analyst from Evercore ISI, mentioned in a research note that ad spending environment is showing signs of modest improvement, leading him to forecast ad revenue of $60.1 billion. This estimate exceeds the consensus by nearly $1 billion.

Scott Devitt, an analyst from Wedbush, also shares the sentiment of positive growth in digital advertising plays for the second half of the year. He believes growth rates will continue to accelerate and sees potential for operating margin leverage through recent staff reductions and associated cost cuts.

Alphabet's earnings report will provide valuable insights into the current state of the digital advertising landscape and the strength of its cloud computing business. The anticipated positive performance of its ad business has analysts and investors eagerly awaiting the release to gauge the company's overall financial health and prospects for the future.

Google Cloud Business Expands on the Horizon

The Google cloud business is set to face increased scrutiny in the coming months. Market analysis indicates that there will be a surge in cloud spending, driven by the growing demand for artificial intelligence (AI) applications. Industry experts believe that Google's strong position in generative AI software gives them a competitive edge in the cloud sector.

NFL Sunday Ticket Puts YouTube to the Test

Investors are eagerly awaiting feedback on YouTube's recent launch of the NFL Sunday Ticket football package. The question remains: will this initiative drive subscriptions for YouTube TV, the platform's streaming service? Furthermore, there is significant interest in understanding the impact of generative artificial intelligence, such as the company's Bard chatbot, on both costs and revenue. Last quarter, Alphabet mentioned that escalating AI demands would lead to higher infrastructure expenses in the second half of 2023 and throughout 2024.

Leadership Changes at Alphabet

Alphabet recently announced that Ruth Porat, formerly Chief Financial Officer, has transitioned to the role of President and Chief Investment Officer for both Alphabet and Google. In this position, she will oversee the company's Other Bets portfolio. The appointment, effective September 1st, leaves an opening for a new CFO at Alphabet. Following this news, speculation ensues regarding potential spinoffs or sales of non-core holdings like Waymo, Alphabet's autonomous vehicle business, and Verily, their healthcare division.

Financial Outlook

For the upcoming December quarter, analysts estimate that sales will reach $84.9 billion, with a profit of $1.63 per share. These figures are based on consensus estimates tracked by FactSet. Notably, Alphabet shares have experienced a remarkable 55% increase year-to-date, including a 12% surge since the last earnings report.

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