This Thursday after the market closes, Alphabet (GOOG, GOOGL) — the company formerly known as Google — will release its third-quarter results. As always, the Alphabet earnings report will be closely scrutinized, not only as a barometer for other consumer technology and Internet-centric companies’ earnings, but also because GOOGL stock is widely owned all over the planet.
And what should current or would-be shareholders expect? As it turns out (and based on history), probably more than the consensus estimates suggest.
It may not, however, entirely matter what kind of numbers the company posts for Q3.
Between a string of initiatives already underway and a complete restructuring of the company that went into effect at the beginning of Q4, the results to be announced on Thursday are for a company and corporate efforts that don’t quite exist in that format any longer.
Alphabet Earnings Outlook
Most companies change over time. That’s just business. But GOOGL stock holders have seen this particular company change quite dramatically in just a short period.
Yes, the name change from Google to Alphabet is a big one, although that change is only a reflection of a regrouping (well, a grouping — Google hadn’t done a great deal of segment breakdown before) of the company’s different divisions.
Beginning with the fourth-quarter’s numbers, Google and all the units that drive ad revenue will report as one segment, while Alphabet and its collection of developmental companies will be reportable as another. No other, or more detailed segmentation, is expected.
Less obvious are some of the initiatives that have been driving changes for a while — and changing results — right now. Examples include a reworked YouTube ad-sales model that had been marked by low cost-per-click prices but very high volume and search-placement preference for websites that cater to users of mobile devices.
It is these efforts that could and should have an impact on the upcoming Q3 numbers for GOOGL stock.
With that as the backdrop, analysts collectively believe Alphabet will post third-quarter earnings of $7.20 per share on $18.54 billion in revenue. Both compare favorably to the year-ago figures of a profit of $6.25 per share of GOOGL stock and a top line of $16.52 billion. In light of recent efforts to ramp up its ad revenue and how much traction it’s received from that work, however, the outlook may underestimate what’s in the cards for Alphabet earnings.
3 Things for GOOGL Stock Holders
While Google already boasted an impressive and largely unfettered growth track record before it was under Alphabet, extending back for well over a decade, GOOGL isn’t a stock the market has ever let off the hook; expectations and perception are everything for this ubiquitous stock.
With that in mind, there are three hot buttons that could make or break GOOGL no matter how encouraging (or not) the Alphabet earnings figures are.
- YouTube Ad Revenue/Growth: As was noted, Google has been reworking the way its ad sales work for YouTube for a couple of quarters now, knowingly lowering it would see less revenue per ad but more than offset that setback with the sheer number of ads it is able to show. The market ended up seeing that glass as half-full rather than half-empty for Q2, but it remains to be seen if investors will remain on board with the idea when Q3 numbers are announced. It matters, because YouTube is seen by some as potentially the biggest and most valuable part of Google. (It would also behoove Google to flesh out a little more detail on the recently announced ad-free subscription option for YouTube.)
- Mobile Ad Revenue/Growth: As fruitful as YouTube is and may be in the future, it’s not as if search advertising is going away anytime soon. And while Google may have been the indisputable king of search ads at one point in time, the advent of mobile — where ads just don’t yield as much revenue — is driving a noticeable headwind for the company. It matters, because just this past summer the number of web searches performed on mobile devices leapfrogged the number of searches performed on a traditional computer. It’s unlikely that trend will reverse course. Google needs a plan to thrive in an increasingly mobile world … especially a world where Apple (AAPL) is making ad-blocking software for its mobile devices.
- Project Fi: With all the attention focused on the name change and the company’s efforts to overhaul its ability to drive ad revenue, the once ballyhooed initiative to bring a wireless phone service into viable existence has largely fallen off the media’s radar. It needs to move back into the radar though, as it’s not gone away. In fact, it’s still moving forward. Although it will be a slow grind penetrating a saturated market, Project Fi could truly be a disruptor, and perhaps sooner than most investors appreciate. The Alphabet earnings call may put Project Fi back at center stage.
Bottom Line for GOOGL Stock
It was previously mentioned that GOOGL stock is pushed around more by relative perceptions and less by actual results, but it should be clarified that those are short-term reactions.
Google has long been a growth machine and a cash cow, and patient shareholders have been more than amply rewarded. Despite being under Alphabet, that’s not apt to change anytime soon; so don’t fret too much if Thursday’s results and outlook are less-than-stellar relative to expectations.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.