Here we go again. The world’s biggest (and arguably best) web-search company is set to report last quarter’s results. Specifically, Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) is scheduled to unveil its fiscal Q4 results after Thursday’s closing bell rings. The corresponding conference call will begin at 4:30 pm EST.
Will the iconic outfit sustain what has become a multi-year growth trend for the top and bottom line, or will this be the quarter the company’s engine runs out of gas?
It’s probably the former, but there are three overarching initiatives current and would-be GOOGL investors will want to get a firm grip on before and after the earnings report.
Here’s your primer for the Alphabet earnings report.
Alphabet Earnings Preview
As of the most recent look, analysts collectively expect the company to report earnings of $9.63 per share on revenue of $25.22 billion. Alphabet posted earnings of $8.67 per share of GOOGL stock and a top line of $21.33 billion in the same quarter a year earlier. A beat, or even just a meet, would extend a (very) long-term streak of sales and earnings growth. While year-over-year comparisons have not been positive in every single quarter for the past several years, most have been positive.
The organization has adapted well, maximizing the advent of broadband that made online video possible, and then capitalizing on the advent of web-enabled mobile phones by providing an open source operating system that allows Alphabet to serve as the proverbial gatekeeper for a wide swath of the technology’s users.
Three Things GOOGL Investors Need to Watch
Although Alphabet — the organization formerly known as Google — is a multi-faceted outfit, traders can only focus on about three hot-buttons at a time when deciding whether to buy or sell the stock. These hot-buttons change over time, but the three in play right now are clear.
Google’s Proprietary Products
Hardware like the new Pixel phone and Nest home-management tools is still only a tiny sliver of its overall revenue mix, but that may not be the case forever. Indeed, if the recent use of Google’s ad inventory is any indication, the company is quite serious about selling more hardware.
As The Wall Street Journal notes: “ads for products sold by Google and its sister companies appeared in the most prominent spot in 91% of 25,000 recent searches related to such items. In 43% of the searches, the top two ads both were for Google-related products.”
Alphabet is getting real serious about physical products.
When Google acquired YouTube back in 2006, web-based video was a relatively new idea, and it wasn’t clear how to measure the successful monetization of it.
That has changed in the meantime as the idea has matured. That maturation has forced GOOGL to rethink how it sells and displays ads at the popular video venue, and the company may finally have the math and metrics down to a science. Following the previously reported quarter, it was estimated that YouTube’s annual revenue was now in excess of $10 billion, and it was growing at an annual clip of as much as 40%. [Alphabet doesn’t offer such details.]
That’s a sentiment that has persisted in the meantime. Barron’s recently opined that YouTube, in conjunction with digital ad business growth, could boost the value of GOOGL stock by 20%.
Android Apps Everywhere
Finally, Alphabet has finally embraced the reality that more of its apps need to function on more devices. It has also made the appropriate change, introducing more Chromebooks that run Android apps. Not only will that make Chromebooks more marketable, it will make Google Play’s apps and digital content more marketable.
Note that the company may not dish out any specific details about all — or any — of these three matters with its earnings release or during the conference call. That, however, doesn’t mean they aren’t going to be the key drivers of the performance GOOGL stock produces going forward.
Bottom Line for GOOGL Stock
Last week, Pacific Crest began coverage of Alphabet with a price target of $1,030. This week, Barron’s suggested GOOGL shares could reach $1,000 before the end of 2017. Those numbers are 21% and 18%, respectively, higher than the stock’s current value.
Both opinions mentioned a combination of the company’s growing digital ad business and YouTube as key growth drivers. The Barron’s take added the potential of Alphabet’s cloud business to its bullish thesis, while Pacific Crest mentioned the possibility of Alphabet establishing a multi-channel video service.
It’s telling that both outfits made a point of sharing their opinions in front of earnings. It’s even more interesting that both parties are in agreement about what Alphabet shares are worth headed into (and then out of) its earnings report.
Should the knee-jerk response be a selloff, it should be used as a buying opportunity.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.