Alphabet Inc. is a global technology company and holding company of Google, headquartered in Mountain View, California, USA. The company does business across the Americas, Europe, and Asia Pacific. It offers a wide range of products, including Search, Google Maps, calendars, ads, Gmail, Google Play, Android, Google Cloud, Chrome, and YouTube. Other than these, it offers hardware products, namely Pixel phones, smartwatches, and Google Nest Home products.
Alphabet invests in machine learning, infrastructure, data, analytics, and artificial intelligence. It also offers online advertising services through its Google Network services. Google Network Properties include AdSense, Google Ad Manager, and AdMob. Other than these, it offers internet services, subscription-based products, licensing, and research and development services.
Revenue rose by 7%, from $69,685 Million to $74,604 Million. Looking ahead to the product segment breakdown of revenue, it can be seen that maximum revenue growth is achieved in Google Cloud services by 28%, from $6276 Million to $8031 Million in comparison with Q2 2022. Revenue through Google Search and others is raised by 4.77%, YouTube Ads by 4.43%, Google Network is reduced by 4.95%, and Google Other is raised by 24.25%.
And then looking at the regional breakdown of revenue, maximum growth is supported by the APAC (Asia-Pacific) region by 8.69%, the Europe and Middle East (EMEA) region by 8.55%, the United States by 7.17% and other Americas by 3.95%. Research and development (R&D) expenses rose by 7%, from $9,841 Million to $10,588 Million. This increase in R&D will lead to advancements in search engines and other services, including AI implementation, to improve the overall experience of its services.
The net profit margin has increased by 1.66% from 22.96 to 24.62%. The increase in net profit margin is slightly higher than the increase in operating profit margin, primarily because of the fall in other expenses from expenses of $439 Million to other income of $65 Million. Looking at the sources of growth in operating profit margin and net profit margin, it can be known that growth in operating profit margin is more sustainable and an increase in R&D expenses will increase revenue further.
Earnings Per Share (EPS) is increased by 19% through two sources: an increase in net profits (14% increase from a similar period year) and a reduction in the number of shares done through the repurchase of shares using extra cash.
Activities Performed to Re-Engineer Cost to Make Company More Cost Efficient
Going ahead in the coming quarters, the company is trying to cut costs on two fronts first, by reducing the number of employees, i.e., the company will lay off employees, and second, by making an effort to use the available global office spaces more efficiently. To make these changes, the company is currently reviewing all the employee working and office spaces in use. In Q2, the company incurred some extra costs in performing these severance and optimizing activities. These costs will continue to be a part of the coming quarters as the process continues and will end by the end of 2023.
Liquidity of the Company Is Not at Risk Even After a Slight Fall In Current Ratio
The current ratio of the company fell by 20 points from 2.38x to 2.17x, mostly pertaining to a decrease in inventory and an increase in accrued expenses and other current liabilities. Though a fall in the current ratio is a negative sign for the short-term liquidity position of the company, the ratio is still well above the minimum range of 1x. Additionally, a decrease in inventory is not a negative sign, as the operations of the company are in line. Secondly, the company has sufficient cash and cash equivalents to pay off accrued expenses and other current liabilities.
There is a reduction in long-term debt by 7% and if we dig deeper into the debt repayment schedule, it is observed that almost 50% of the debt needs to be repaid in a period of 5 to 10 years. To fund these debts, the company has enough marketable and non-marketable securities, income, and liquidation, which can facilitate interest and repayment of debt. The total debt/ total asset ratio is reduced from 0.04025x to 0.03578x, which adds to the positive outlook for the company. The company is funded primarily by equity, almost 20 times more than the funds raised through debt.
Conclusion
Generative AI capabilities are increasing opportunities to attract new customers and increase the number of Google Pay customers. An increase in customer satisfaction will bring sustainability to revenue generation because of the safety and security provided by the distributed workforce. YouTube shorts are expected to boost revenue through an increase in the number of viewers; revenue is also increasing through the growth in the number of customers of YouTube Premium and YouTube Music.
Next year, YouTube is all set to host its first-ever football match. Ruth Parot, the current CFO, is announced to take on the responsibility of President and Chief Investment Officer effective from the coming quarter. His successful achievements as CFO are raising high hopes in the minds of stakeholders for the future of Alphabet Inc., as he will be responsible for all the investment decisions in this new position. The CEO is expecting growth in revenue by a single digital number going forward.
The main focus of the company is Google AI in the near future to absorb the maximum opportunities in AI integration and improve the experiences of its customers. Revenue from advertising is also expected to increase. So looking at all this information, Alphabet Inc. is expected to close next quarter on a positive note and improve the financial position of the company further. There are not any operational risks that the company will face in the coming quarters.
Source: https://www.thecoinrepublic.com/2023/10/05/ai-implementation-in-search-engines-can-boost-profits-of-google-inc/