Despite topping their third quarter top and bottom-line expectations this week, Alphabet (GOOGL) and Meta Platforms’ (META) stock have both dropped following favorable results.
The dips come as Meta warned that broader economic uncertainty is still very much prevalent while cloud segment concerns ripped Alphabet’s stock.
However, investors may be wondering if their post-earnings selloff is a buying opportunity and even a healthy correction considering Meta shares are still up a very impressive +149% in 2023 with Alphabet’s stock up +42%.
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Alphabet Q3 Review
Reporting Q3 results on Tuesday, Alphabet’s earnings of $1.55 per share beat the Zacks consensus by 7% with sales of $64.05 billion topping estimates by 1%.
Third-quarter earnings soared 46% from the prior year quarter with sales up roughly 12%. More importantly, this marked the first double-digit quarterly increase in revenue in over a year with Alphabet posting single-digit sales growth in its last four quarterly reports.
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Alphabet CEO Sundar Pichai attributed the strong results to AI-driven innovations across Search, YouTube, Cloud, and the company’s Pixel devices among others. Pichai reiterated Alphabet’s focus on making artificial intelligence more beneficial to “everyone” but Wall Street was underwhelmed by the boost AI has given its cloud segment.
Cloud revenue of $8.41 billion missed estimates by -1% and was the catalyst for the selloff with Alphabet’s stock down more than -11% since reporting. Still, cloud revenue grew 22% from $6.86 billion a year ago making a stronger case that the post-earnings skid in GOOGL shares is overdone.
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Meta Q3 Review
Meta reported its Q3 results after market hours yesterday, with earnings of $4.39 a share crushing EPS estimates of $3.62 and skyrocketing 167% from $1.64 per share a year ago. Quarterly sales of $34.14 billion topped estimates by 2% and climbed 23% from Q3 2022.
The robust growth and recovery come as advertising spend has largely rebounded after high inflation altered the expansive outlook trajectory for Meta and other tech giants a year ago.
Unfortunately, this was overshadowed by Meta’s cautious commentary that the company is seeing softening ad demand correlated to geopolitical unrest in the Middle East and other broader markets. This caused META shares to drop -4% today as its revenue is primarily derived from advertising.
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That being said, another highlight of Meta’s Q3 results is that the company has continued to monitor its costs including capital expenditures.
Shareholders have previously called for Meta to reserve cash by reducing its spending on the metaverse and doing so has catapulted META shares this year along with what has been a stronger outlook as inflationary pressures started to subside.
Notably, Meta now expects its fiscal 2023 total expenses to be in the range of $87-$89 billion compared to previous estimates of $88-$91 billion. Furthermore, the social media giant said its current cash pile and equivalents are at $61.12 billion after dipping over the last few years and at $40.73 billion at the end of 2022.
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Growth & Outlook
According to Zacks estimates, Alphabet’s fiscal 2023 EPS is now expected at $5.71 per share which would be a 25% increase from $4.56 a share last year. Plus, FY24 earnings are projected to jump another 18% to $6.73 per share. On the top line, sales are forecasted to be up 8% this year and rise another 11% in FY24 to $282.61 billion.
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Pivoting to Meta, its fiscal 2023 EPS is forecasted at $13.56 per share which would be a 38% increase from $9.83 a share last year. More impressive, FY24 earnings are currently projected to climb another 25% to $17.02 per share. Total sales are expected to spike 14% in FY23 and jump another 13% next year to $150.64 billion.
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Takeaway
For now, the long-term prospects for Alphabet and Meta Platforms remain intriguing with both stocks landing a Zacks Rank #3 (Hold) at the moment. There could be more short-term weakness ahead but holding stock in these tech conglomerates at their current levels may still be rewarding.