Alphabet (NASDAQ:GOOGL) shares experienced a drop of up to 6% in pre-market trading on Wednesday (31), after the company released fourth-quarter results. While it posted earnings per share of $1.64, beating LSEG (formerly Refinitiv) expectations, and revenue of $86.31 billion, slightly above estimates, advertising revenue of $65.52 billion was below expectations.

YouTube, which has been a driver of Alphabet’s growth, also failed to meet expectations in terms of advertising revenue. Ads on YouTube were $9.2 billion versus $9.21 billion expected.

Although the results generally beat estimates, investors reacted negatively, sending shares lower. This comes as Facebook continues to grow its advertising business and TikTok poses a threat as it gains popularity among younger users.

Google Cloud continues to be a strength, recording 26% growth in the fourth quarter. The company is also profiting from its cloud business, which has gone from loss to profit. Google Cloud earned $9.19 billion versus an expected $8.94 billion, according to StreetAccount.

CEO Sundar Pichai reinforces the focus on investments in artificial intelligence, as the company seeks to incorporate new AI tools into key Google products. However, these investments could also lead to job cuts, following around 12,000 cuts last year.

Additionally, Alphabet announced severance and related charges of $2.1 billion in 2023 due to workforce reductions. The company also exited some of its offices, resulting in additional charges.

Although net profit increased 52% in the fourth quarter to $20.7 billion, the market reaction highlighted concerns about advertising revenue and growing competition. Alphabet shares rose 56% last year, excluding the after-hours drop, reflecting technology market volatility.

Earnings per share were US$1.64 versus US$1.59 expected by LSEG. Revenue totaled US$86.31 billion against the expected US$85.33 billion. Traffic acquisition costs were $13.9 billion versus $14.1 billion, according to StreetAccount.

Price Target

Morgan Stanley Lifts Price Target on Alphabet to $165 From $150, Highlights Benefits of ‘Durably Re-Engineering’ Cost Base, Keeps Overweight Rating…

Barclays Cuts Alphabet’s Price Target to $173 From $180, Maintains Overweight Rating…

Wolfe Research Raises Alphabet’s Price Target to $180 From $170, Maintains Outperform Rating…

Redburn Adjusts Alphabet’s Price Target to $165 From $150, Maintains Buy Rating…

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