$Alphabet(GOOGL.US)Context: Q3 disappointed, with ad growth, Cloud growth, and Services margin all missing buyside expec…
$Alphabet(GOOGL.US)
Context: Q3 disappointed, with ad growth, Cloud growth, and Services margin all missing buyside expectations. For a name already battling a tougher narrative, this print is likely to keep a lid on valuation via weaker sentiment. Search ad growth was 12% in Q3, a clear QoQ decel. In a heavy AI investment phase, with margins and FCF under pressure, a slowdown in the core franchise is the most damaging outcome for GOOGL and lends credence to the AI erosion narrative. Group operating margin fell 50bps QoQ in Q3, driven by higher D&A and R&D, pointing to compute infra build-out and foundation model training. By segment, Google Services margin fell 100bps QoQ, while Cloud margin improved.
My Trade: I'm trying to purchase at below $280 but it seems rather unlikely tonight. No worries, I don't think the selling pressure will subside anytime soon.
Takeaway: Capex was 51.4 bn in Q3, doubling YoY and still accelerating, reaching 40% of revenue. This drove FCF deeper into negative territory at 9.1 bn. Business still looks solid, but the main issue for investors this year is the continued Capex increment and negative cash flow. @Captain's Treasure
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