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The analysts pointed to several challenges faced by the tech giant, including a slowdown in its cloud business and significant expenses related to YouTube’s streaming rights for the NFL Sunday Ticket.
They highlighted that Google Cloud’s growth deceleration has now extended to four quarters, lagging behind Amazon (NASDAQ:AMZN) Web Services (AWS), which saw a slowdown over six quarters. He predicts that Alphabet’s cloud division will only see a 21% revenue growth in the fourth quarter, which is three percentage points below the consensus.
The analysts also noted rising legal costs that have not been fully factored into Wall Street’s projections. These costs exceeded $600 million in the third quarter and are expected to climb further. Additionally, the NFL Sunday Ticket deal appears to be a financial burden for Alphabet, with half of its $1.8 billion annual cost being recognized in the fourth quarter. The subscriber revenues, coming from users paying $350 annually, are estimated at around $263 million, resulting in an anticipated loss of $638 million for the period.
Furthermore, they cautioned that current optimism might overlook necessary investments in infrastructure to support advancements in cloud services and artificial intelligence at Alphabet. Mizuho estimates that these factors will lead to an operating margin of 27.5% for Alphabet, which is one full percentage point below consensus expectations.
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