Typically, an Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) earnings report reminds me of six-time Super Bowl winners New England Patriots. They might not always make things look pretty — and that last game was ugly — but they usually find a way. For shareholders of GOOGL stock, they enjoy a similar level of confidence.
In the first half of last year, shares of the tech giant were slowly gaining momentum during a tumultuous period. But between August through December-end, Alphabet stock dropped roughly 15%.
When other tech names like Amazon (NASDAQ:AMZN) or Apple (NASDAQ:AAPL) suffered even worse declines, many folks doubted GOOGL.
However, the internet stalwart is off to a great start in 2019, having gained nearly 9% year-to-date. In addition, we’re seeing generally strong enthusiasm for GOOGL stock heading into the company’s fourth-quarter 2018 earnings report.
More than likely, we’re going to see a healthy dose of the usual suspects; namely, its search engine and advertisement platforms.
GOOGL Stock Offers Diversified Exposure
But over the past few months, Alphabet stock has become a much more diversified investment. Particularly, its Waymo driverless taxi service is extraordinarily compelling. While I still hold some reservations regarding the marriage of artificial intelligence and human transportation, I can’t deny the potential.
Recently, an unexpected car repair forced me to use Uber for the first time. The rapid-fire service and reasonable fare left a very positive impression on me. But I also realized that Uber in its current form had limitations: human drivers.
With an automated service, I can order a ride anytime, anywhere. I don’t have to worry if the driver is drunk or distracted, for instance.
Of course, Waymo is unlikely to move the needle for the fourth-quarter, as it’s too early in the development phase. However, it does provide management with a viable narrative other than its advertisement revenue, which may have hit some speed bumps.
Another talking point is the company’s push into the hardware business. Alphabet is already a key player in the smart-speaker business. Due to its natural synergies, I expect it to maintain its dominance, thereby bolstering the case for GOOGL stock.
And despite Apple’s recent jump higher, I believe Alphabet smells blood in the smartphone arena. With the iPhone maker struggling with “peak smartphone,” GOOGL could possibly reinvigorate the sector with fresh and cheaper products.
GOOGL Earnings Might Face Turbulence
At the same time, nothing occurs in a vacuum. Alphabet stock will still feel the broader effects of the U.S.-China trade war, as well as general economic uneasiness. Despite reasonable profitability and growth targets for Q4, GOOGL might experience some turbulence.
For earnings per share, analysts peg consensus at $10.82. This is toward the higher end of the estimate spectrum, which ranges from $9.28 to $12.13. In the year-ago quarter, Alphabet delivered $9.70, missing its consensus forecast of $9.96. Coincidentally, GOOGL stock also came up short in Q4 2016.
On the revenue side, analysts expect the internet firm to haul in $38.7 billion. Again, this is near the higher end of estimates, which range between $31.5 billion to $39.6 billion. In Q4 2017, Alphabet generated $25.9 billion.
Under normal circumstances, I wouldn’t question the tech giant’s ability to meet and exceed these key metrics. But within the past three months, we’ve witnessed multiple downward revisions in both earnings and revenues.
Additionally, Amazon has consistently flexed its muscles in the advertisement front. According to Monica Peart, senior director of eMarketer, Amazon is busy “chipping away at search ad dollars that were once going to Google.”
Finally, we can’t deny that the broader tech sector has mostly hemorrhaged badly in recent months. While I remain bullish long-term on companies like Nvidia (NASDAQ:NVDA), we must respect what the market is telling us.
Be Patient With Alphabet Stock
So how should we approach GOOGL stock with earnings just around the corner? If you’re in this for the long haul, you may want to consider adding a modest position now.
Despite some profitability and revenue headwinds, I ultimately see Alphabet stock growing into a well-diversified investment. In prior years, I could merely harp on its search-engine dominance, and craft myself a solid argument. Now, I have other avenues to discuss, along with proven track records.
Therefore, I wouldn’t read too much into the immediate market movements. GOOGL is a patient investor’s game, one that will marinate delectably over time.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
