Back to top

Image: Bigstock

Will Alphabet (GOOGL) Surprise Investors in Q1 Earnings?

Read MoreHide Full Article

Alphabet Inc. (GOOGL - Free Report) will report first-quarter 2017 earnings on Jan 27 after the bell.

The surprise history has been decent in Alphabet’s case. The company missed estimates twice in the last four quarters but has an average four-quarter positive surprise of 2.71%.

Coming to the price performance, over the past one year, shares of Alphabet steadily treaded higher. The stock returned 18.4% compared with the Zacks categorized Internet Services industry’s gain of 11.3%.

What Happened in the Last Reported Quarter?

Alphabet’s fourth-quarter earnings missed the Zacks Consensus Estimate due to higher taxes. However, revenues grew year over year, driven primarily by the boom in Mobile Search, with the ongoing strength in YouTube. Also, strength in programmatic advertising and Play aided revenue growth.

Factors at Play in Q1

The main drivers of the Google business haven’t changed. Pricing remains under pressure, both on account of the ongoing FX concerns as well as continued strength in mobile and TrueView. Volumes are however encouraging as total paid click grew a reassuring 36% last quarter.

Google has gained strength in the mobile platform. Management is focused on driving mobile experiences and the company is well positioned to pick up strong intent-to-buy signals as a result of studying mobile searches from its huge database. As a result, revenue from mobile platform is expected to increase in the to-be-reported quarter.

YouTube remains a strong contributor benefiting from the increase in online video consumption. More than a thousand creators are currently engaged with the platform, bringing in a thousand subscribers every day.

Also, Google has turned more aggressive in the commercialization of its self-driving cars. It aims to expand its revenues from this segment in the to-be-reported quarter. However, the current regulatory environment doesn’t support fully automated cars, so there could be some hurdles on the way.

Google’s cloud business trails Amazon’s AWS, Microsoft’s Azure and IBM. The company’s cloud business is expected to do well in the to-be reported quarter. And finally, Google platforms like Android, Chrome and Daydream continue to help it draw more users and sell more ads.

On a cautionary note, Google’s troubles in the EU are mounting. Despite its attempts to appease authorities by investing in the region, EU may prove much more expensive for the company. Google is not providing for this outflow, which could mean that it still has a reasonable chance of coming out victorious. But the developments are worth keeping an eye on as these are the main reasons for the overhang on the company’s shares.

Earnings Whispers

Our proven model does not show that Alphabet will beat on earnings this third quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

The company’s Zacks Rank #3 and Earnings ESP of 0.00% make surprise prediction difficult. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

We don’t recommend Sell-rated stocks (Zacks Rank #4 or 5) going into the earnings announcement.

Alphabet Inc. Price and EPS Surprise

 

Alphabet Inc. Price and EPS Surprise | Alphabet Inc. Quote

Stocks to Consider

You could also consider the following stocks with a positive Earnings ESP and a favorable Zacks Rank:

Fortive Corporation (FTV - Free Report) with an Earnings ESP of +1.75% and a Zacks Rank #2.You can see the complete list of today’s Zacks #1 Rank stocks here.

Northrop Grumman Corporation (NOC - Free Report) , with an Earnings ESP of +1.03% and a Zacks Rank #2.

PayPal Holdings, Inc. (PYPL - Free Report) , with an Earnings ESP of +3.03% and a Zacks Rank #3.

Zacks’ Best Private Investment Ideas

While we are happy to share many articles like this on the website, our best recommendations and most in-depth research are not available to the public.                                                                                                                                                                               Starting today, for the next month, you can follow all Zacks' private buys and sells in real time. Our experts cover all kinds of trades… from value to momentum . . . from stocks under $10 to ETF and option moves . . . from stocks that corporate insiders are buying up to companies that are about to report positive earnings surprises. You can even look inside exclusive portfolios that are normally closed to new investors.

Click here for Zacks' private trades >>

Published in