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The tech earnings train has gotten derailed on the very first stop and it’s looking uglier by the minute: moments after Microsoft slumped after reporting otherwise solid earnings, and Texas Instruments guided below expectations again, it was Google’s turn to disappoint and it did just that when it reported earnings that missed on revenue and EPS for the second consecutive quarter, sending GOOGL’s stock sharply lower after hours (hardly a shock after the catastrophic Snapchat earnings last week).

Let’s dig into what was another mediocre at best (if perhaps not as ugly as some had expected) quarter for Alphabet:

• EPS $1.06, missing estimates of $1.25, down from $1.40 Y/Y
• Revenue $69.09 billion, up 6% Y/Y and 11% in constant currency,  and missing consensus estimates of $70.76 billion
• Revenue ex-TAC $57.27 billion, missing estimates of $58.18 billion
  • Google advertising revenue $54.48 billion, missing estimates of $56.98 billion
  • YouTube ads revenue $7.07 billion, missing estimates of $7.46 billion
  • Google Services revenue $61.38 billion, missing estimates of $63.98 billion
  • Google other revenue $6.90 billion, beating estimates of $6.84 billion
  • Google Cloud revenue $6.87 billion, beating estimate $6.61 billion
  • Other Bets revenue $209 million, beating estimates $204 million
• Operating income $17.14 billion, missing estimates of $19.71 billion
  • Google Services operating income $19.78 billion, missing estimates of $23.03 billion
  • Google Cloud operating loss $699 million, beating the estimated loss of $814.2 million
  • Other Bets operating loss $1.61 billion, missing the estimate loss $1.37 billion
• Operating margin 25%, missing the estimate 27.9%
• Capital expenditure $7.28 billion, missing the estimate $7.65 billion
• Number of employees 186,779, vs estimate 177,845

The result visually:

And a more detailed breakdown:

Commenting on the quarter, CEO Sundar Pichai was laconic: “We’re sharpening our focus on a clear set of product and business priorities. Product announcements we’ve made in just the past month alone have shown that very clearly, including significant improvements to both Search and Cloud, powered by AI, and new ways to monetize YouTube Shorts. We are focused on both investing responsibly for the long term and being responsive to the economic environment.”

Mercifully, CFO Ruth Porat kept her comment also rather brief, trying to spin an otherwise ugly quarter: “Financial results for the third quarter reflect healthy fundamental growth in Search and momentum in Cloud, while affected by foreign exchange. We’re working to realign resources to fuel our highest growth priorities.”

To the disappointment of some, there were no incremental stock buyback announcements but recall that just two quarters ago GOOGL announced plans to buy back an additional $70BN in Class A and Class C shares, and also unveiled the 20 for 1 stock split.

That said, Alphabet did repurchase another $15.4bn of stock in the quarter (the same as last quarter) , a sign of GOOGL management continued focus on capital allocation and balancing investments/margins in a post pandemic environment. That may explains why Alphabet’s cash hoard declined for a fourth straight quarter, falling to $116 billion from $125 billion in Q2, $134 billion at Q1, and $139.6 billion at the start of the year.

In kneejerk reaction, the stock was not happy  with the across the board miss, and GOOGLE stock is down some 5% after hours…

… and together with MSFT and TXN dragging the Nasdaq down by 1%, cutting today’s gains in half.

Developing