All eyes will be on internet search giant Alphabet Inc (GOOG, GOOGL) — the parent of Google — after Thursday’s closing bell rings. That’s when the company is slated to report its first-quarter numbers, with another round of solid growth anticipated.
As is always the case though, a high-profile name like Alphabet isn’t just about accurately predicting its results. This storied name is as much an exercise in handicapping the market’s perception of GOOGL as it is figuring out how its quarterly results will stack up.
With that as the backdrop, here’s a quick primer on Alphabet headed into what very well could set up some serious volatility for the stock.
What Alphabet Owners Can Expect
As of the latest look, Alphabet is expected to report per-share income of $7.96 on revenue of $20.37 billion for its recently completed Q1. That bottom line would be 23% better than the $6.47 per share of GOOGL the company earned in Q1-2015, while the top line would be an 18% increase of its year-ago revenue.
Those are respectable numbers for a company of Alphabet’s size; double-digit growth is tough to muster as market saturation becomes an issue. But that wouldn’t be an unusual growth pace for Alphabet.
And make no mistake — Alphabet is likely to top estimates. It has exceeded expectations in each of its last three quarters after a streak from 2012 to 2014 that saw about as many misses as beats.
3 Things to Think About
While all companies and their stocks are multi-faceted, only a handful of themes surround these companies and drive their stocks at any given time. GOOGL is no exception to this reality.
These are the top three issues current and would-be Alphabet investors may want to get a grip on before, during, and after the company’s earnings report even though not all of them are apt to be discussed during the earnings conference call.
1. Set-top boxes
It wouldn’t be accurate to say Alphabet is a major threat to established cable providers … yet.
In time though, it could be. And, in light of a recent initiative from the White House, cable television could become more than just an experiment for Alphabet sooner than presumed.
Long story made short, President Barack Obama and the FCC want to quell the cable companies’ requirement that subscribers only use an approved set-top box provided by that cable service provider. By opening the technology up to competition from third-party box providers, manufacturers of such devices have access to another way of gaining a key toe-hold in consumers’ living rooms.
2. Antitrust headaches
It has been in the works for a while, but this week, the European Union is apt to go ahead and file a lawsuit against Alphabet for violation of Europe’s antitrust rules.
The gist of the complaint is that Google pushes its own apps over third-party apps by requiring smartphone manufacturers to pre-install them on Android devices.
The suit itself isn’t unmanageable. The risk lies in the possibility that Google will be forced to abandon this competition-abating practice. While even that isn’t a back-breaker on its own, it opens up the door to similar standards on other fronts.
3. Where’s growth coming from?
Last but not least, Alphabet fans and followers may want to look at the metrics of Google’s advertising revenue.
It’s not exactly a veiled secret that ad revenue doesn’t bear as much fruit on smaller-screened mobile devices that it does on larger-screened computers. What Google has sacrificed in revenue per clicks, it has made up for in sheer volume. While this trend has been evident for several quarters now, it would be nice if there was some evidence it was finally abating.
The benchmarks: In the fourth quarter of 2015, the company’s cost-per-click fell 13%. Note that YouTube’s so-called TruView ad program is a key reason for the weakness, though. Conversely, paid clicks increased 31% in the previous quarter. “Other revenue,” which includes Google Play revenue, was up 24% in the fourth quarter. Meanwhile, website revenue grew 20% in the final quarter of 2015.
Bottom Line for GOOGL
Alphabet is an over-scrutinized stock, and any mere whiff of a shortcoming tends to result in exaggerated selling. That’s nearly always a short-term effect, however. The fact of the matter is, Alphabet has a long-term history of significant growth, and the stock has a long-term history of progress.
That’s the long way of saying that a dip may be a buying opportunity, even if the earnings rhetoric paints a knee-jerk alarming picture.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
