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Will Paid Clicks Help Alphabet (GOOGL) Beat on Q4 Earnings?

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Alphabet Inc. (GOOGL - Free Report) will report fourth-quarter 2017 results on Feb 1, after the closing bell.

The surprise history has been decent in Alphabet’s case. The company missed estimates only once in the trailing four quarters and has an average four-quarter positive surprise of 7.05%.

Coming to the price performance, on a 12-month basis, the company’s shares have rallied 43.9% compared with the industry’s growth of 32.1%.

Increasing Paid Clicks

In the third quarter, paid clicks grew 6% sequentially and 47% year over year.  Google sites paid clicks grew 7% and 55%, respectively, from the previous and year-ago quarters. Also, Network paid clicks increased 2% sequentially and 10% from the year-ago quarter and is expected to grow in the to-be-reported quarter, driven partly by growing volumes of mobile and TrueView ads on YouTube.

Strong Advertising Revenues

In the third quarter, advertising revenues increased sequentially to $24.1 billion.  It is expected to increase in the to-be-reported quarter, driven by healthy growth in its mobile search ads, YouTube ads and programmatic advertising. The Zacks Consensus Estimate for advertising revenues is currently pegged at $26.9 billion.

In the last-reported quarter, mobile search continued to benefit from improvements in ad formats. 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, revenues from mobile platform are expected to increase in the to-be-reported quarter.

Other Bets Segment Gaining Momentum

The segment is gaining momentum and has performed well in the third quarter. The Zacks Consensus Estimate for Other Bets segment for the upcoming quarter is pegged at $362 billion.

Other Factors

The increasing use of machine learning features in Google Maps, YouTube, Gmail and Google Photos will continue to drive top-line growth in the upcoming quarter. Also, 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.

Overhangs Remain

Google is targeting new technologies and markets, which generally require increased spending. Therefore rising costs associated with new businesses initiatives might impact the upcoming results.

Also, Alphabet is mired in legal troubles practically across all continents and continues to earn a bad name on privacy concerns, anti-competitive concerns, patent infringements, tax theft, among others. Therefore, increased litigation charges might affect the company’s profits.

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or #3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. Sell-rated stocks (Zacks Rank #4 or 5) are best avoided.

Alphabet has a Zacks Rank #3 and an Earnings ESP of -0.65%, which does not indicate a likely positive surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

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.

Applied Materials, Inc. (AMAT - Free Report) , with an Earnings ESP of +0.57% and Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Advanced Micro Devices, Inc. (AMD - Free Report) with an Earnings ESP of +12.75% and a Zacks Rank #3.

Advanced Energy Industries, Inc. (AEIS - Free Report) with an Earnings ESP of +0.41% and a Zacks Rank #3.

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