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Alphabet (GOOGL) Stock Q2 Earnings Preview: Will It Beat?
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Alphabet (GOOGL - Free Report) , Google’s will report second quarter earnings on Jul 28 after the bell.
The company’s Zacks Rank #4 (Sell) and positive Zacks Earnings ESP of 0.93% make surprise prediction difficult. That is because while Buy (Zacks Ranks #1 or #2) and Hold (Zacks Rank #3) rated stocks coupled with a positive ESP makes us reasonably comfortable about an earnings beat, we don’t recommend sell rated stocks (Zacks Ranks #4 and #5) going into the earnings announcement.
In Alphabet’s case, the surprise history also leaves a lot to be desired, since the company has missed estimates in three of the last four quarters, although by a small margin.
Moreover, while the Zacks Consensus Estimate for the Jun quarter remains steady, for 2016 it has moved lower in the last 7 days indicating some bearish sentiment going into the earnings announcement.
Valuation appears reasonable, so upside may be possible in case the company beats estimates this quarter.
Alphabet has started reporting results in the Google and Other Bets segments. While other bets includes a host of businesses (Fiber, Verily, Calico, Nest, self-driving cars and X Labs), most of the revenue is likely coming from Nest. The other businesses are still in the investment phase.
That means the bulk of the business is still all about Google.
Revenue matched the Zacks Consensus Estimate in the last quarter while earnings missed. On the Google side of things, year-on-year revenue growth was attributable to paid click growth of 29% that offset continued price declines. Mobile, YouTube TrueView and Google Preferred, and Play Store sales were other positives. Other Bets also grew. Negative FX and non-operating losses affected earnings.
What To Expect in Q2
The core advertising business has multiple challenges mainly as a result of the increasing competition. But Google’s volumes have been phenomenal, especially considering that the growth is coming off a very large base. It appears to be sacrificing prices in the bargain, which doesn’t feel like a bad thing given the continued revenue growth. Expect more of this in Q2.
The company’s strength in mobile is also likely to continue. That’s because, unlike previously assumed, it’s not a great experience to have a huge load of apps on your phone. Being able to search them for content and use makes the browser an extremely important tool. Google can cater to a lot of searches through mobile browsers, being the default search on Android and iOS devices (which means practically every mobile device).
Its app indexing strategy is superb in this respect. But it’s worth noting that Microsoft (MSFT - Free Report) has integrated Bing closely with Windows 10 and its enterprise installed base will likely start migrating to the new operating system this year. So there could be share losses for Google.
Another important platform is YouTube. Google has both paid and free models so people can choose whatever system they like. For the free model, its TrueView ads continue to do extremely well (according to management). The company started branding YouTube Red as its premium service on which it launched YouTube Originals in the last quarter. It doesn’t however break out revenue under the different models, so results generally lack granularity. But if TrueView continues to grow at a very rapid pace, the company may be required to disclose more before long.
Play Store sales are soaring and there doesn’t seem to be any reason for decline. Google’s innovations in the area continue.
Google’s cloud business trails Amazon’s (AMZN - Free Report) AWS, Microsoft’s Azure and also IBM (IBM - Free Report) according to some. But Google has turned more aggressive in recent times, hiring Dianne Greene to run things. That said, it still lumps together SaaS (like work and other apps) and IaaS (infrastructure services as offered by AWS and others), so it’s hard to tell how much progress it’s made at this stage.
On a cautionary note, Google’s troubles in the EU are mounting and despite its attempts to appease authorities by investing in the region, it may finally prove much more expensive for the company. Google is not providing for this outflow, which could mean that it still has a reasonable to come out victorious. But the developments are worth keeping an eye on and the main reason for the overhang on the shares.
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Alphabet (GOOGL) Stock Q2 Earnings Preview: Will It Beat?
Alphabet (GOOGL - Free Report) , Google’s will report second quarter earnings on Jul 28 after the bell.
The company’s Zacks Rank #4 (Sell) and positive Zacks Earnings ESP of 0.93% make surprise prediction difficult. That is because while Buy (Zacks Ranks #1 or #2) and Hold (Zacks Rank #3) rated stocks coupled with a positive ESP makes us reasonably comfortable about an earnings beat, we don’t recommend sell rated stocks (Zacks Ranks #4 and #5) going into the earnings announcement.
In Alphabet’s case, the surprise history also leaves a lot to be desired, since the company has missed estimates in three of the last four quarters, although by a small margin.
Moreover, while the Zacks Consensus Estimate for the Jun quarter remains steady, for 2016 it has moved lower in the last 7 days indicating some bearish sentiment going into the earnings announcement.
Valuation appears reasonable, so upside may be possible in case the company beats estimates this quarter.
Alphabet has started reporting results in the Google and Other Bets segments. While other bets includes a host of businesses (Fiber, Verily, Calico, Nest, self-driving cars and X Labs), most of the revenue is likely coming from Nest. The other businesses are still in the investment phase.
That means the bulk of the business is still all about Google.
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What Happened Last Quarter
Revenue matched the Zacks Consensus Estimate in the last quarter while earnings missed. On the Google side of things, year-on-year revenue growth was attributable to paid click growth of 29% that offset continued price declines. Mobile, YouTube TrueView and Google Preferred, and Play Store sales were other positives. Other Bets also grew. Negative FX and non-operating losses affected earnings.
What To Expect in Q2
The core advertising business has multiple challenges mainly as a result of the increasing competition. But Google’s volumes have been phenomenal, especially considering that the growth is coming off a very large base. It appears to be sacrificing prices in the bargain, which doesn’t feel like a bad thing given the continued revenue growth. Expect more of this in Q2.
The company’s strength in mobile is also likely to continue. That’s because, unlike previously assumed, it’s not a great experience to have a huge load of apps on your phone. Being able to search them for content and use makes the browser an extremely important tool. Google can cater to a lot of searches through mobile browsers, being the default search on Android and iOS devices (which means practically every mobile device).
Its app indexing strategy is superb in this respect. But it’s worth noting that Microsoft (MSFT - Free Report) has integrated Bing closely with Windows 10 and its enterprise installed base will likely start migrating to the new operating system this year. So there could be share losses for Google.
Another important platform is YouTube. Google has both paid and free models so people can choose whatever system they like. For the free model, its TrueView ads continue to do extremely well (according to management). The company started branding YouTube Red as its premium service on which it launched YouTube Originals in the last quarter. It doesn’t however break out revenue under the different models, so results generally lack granularity. But if TrueView continues to grow at a very rapid pace, the company may be required to disclose more before long.
Play Store sales are soaring and there doesn’t seem to be any reason for decline. Google’s innovations in the area continue.
Google’s cloud business trails Amazon’s (AMZN - Free Report) AWS, Microsoft’s Azure and also IBM (IBM - Free Report) according to some. But Google has turned more aggressive in recent times, hiring Dianne Greene to run things. That said, it still lumps together SaaS (like work and other apps) and IaaS (infrastructure services as offered by AWS and others), so it’s hard to tell how much progress it’s made at this stage.
On a cautionary note, Google’s troubles in the EU are mounting and despite its attempts to appease authorities by investing in the region, it may finally prove much more expensive for the company. Google is not providing for this outflow, which could mean that it still has a reasonable to come out victorious. But the developments are worth keeping an eye on and the main reason for the overhang on the shares.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>