A number of companies are gearing up to report their fiscal second-quarter earnings this week. In fact, Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) is taking a turn at the bat July 30. If there’s a positive earnings surprise, then the already pricey GOOGL stock could become even more expensive.
Buying GOOGL stock during any year since its initial public offering would have resulted in a profit in 2020. However, now the shares might be considered overpriced. And upon Alphabet’s upcoming earnings announcement, the share price could move hundreds of dollars in either direction very quickly.
This means that informed investors need to know what to expect as the earnings reveal approaches. Yet, there’s also a recent announcement from Alphabet that shouldn’t be ignored. It could make GOOGL stock worth owning at just about any price.
A Closer Look at GOOGL Stock
Even with GOOGL stock touching $1,500 not long ago, you might be surprised to discover that it’s a bargain according to one often-used metric. Specifically, the stock has a trailing 12-month price-earnings ratio of 30.6 times. That doesn’t suggest that GOOGL stock is in bubble territory.
Unfortunately for income-focused investors, there’s no dividend offered with GOOGL stock. This means that buy-and-hold investors should hope for substantial price appreciation in the stock.
That’s going to be challenging for a stock that has four digits. We can’t rewind the clock and buy GOOGL in 2004 for a 1,000%-plus gain. And we also can’t realistically expect the share price to increase 1,000% from $1,500.
So, we have to look at the data surrounding the company and decide for ourselves whether Alphabet is still a compelling growth story. In that regard, a recent change to Google Shopping makes a strong argument that Alphabet does indeed still have a few tricks up its sleeve.
Downbeat Earnings Anticipated
It is often said that tech-focused companies have thrived during the novel coronavirus pandemic. There’s certainly some truth to this contention. However, it doesn’t mean that everyone is expecting Alphabet to post spectacular data in its fiscal second-quarter earnings report.
In fact, the consensus estimate for Alphabet’s quarterly earnings is just $8.23 per share. That’s quite low for a stock that recently hit the $1,500 level. Besides, it indicates a rather appalling year-over-year EPS decline of 40.7%.
Somewhat less shocking, but nonetheless discouraging, is the consensus Q2 estimate of $37.4 billion in revenues for Alphabet. That’s a 4.1% decrease compared to the same quarter of the prior year.
Low expectations aren’t necessarily a bad thing, though. Indeed, it’s a possible setup for a positive earnings surprise.
The Big Announcement
As significant as earnings are, there’s a major announcement that could be even more impactful. In a serious threat to Amazon (NASDAQ:AMZN), Alphabet just announced that it won’t charge third-party retailers a fee for transacting with customers through Google Shopping.
Within the next few weeks, both new and existing Google Shopping sellers can expect to participate in the zero-fee structure. Could this signal an imminent migration of Amazon’s third-party retailers over to Google Shopping?
Only time will tell, but don’t be surprised if Alphabet manages to steal some of Amazon’s considerable market share in this area. Surely there must be some Amazon retailers who aren’t fond of these fees as they can cut into the retailers’ profit margins.
The associated press release boasted that Google Shopping will now be “even more of an open platform for digital commerce, where merchants of all sizes can sell for free, using the tools and providers of their choice.”
That’s an ambitious mission, but Alphabet’s fee-free initiative is certainly a step in the right direction.
The Bottom Line on GOOGL Stock
Alphabet’s earnings report might boost the GOOGL stock price as downbeat expectations offer the possibility of a pleasant surprise. Meanwhile, the elimination of Google Shopping transaction fees for merchants is a savvy move that could take Amazon down a notch or two.
David Moadel has provided compelling content — and crossed the occasional line — on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets. As of this writing, David Moadel did not hold a position in any of the aforementioned securities.