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What's in the Offing for Alphabet's (GOOGL) Q2 Earnings?

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Alphabet Inc. (GOOGL - Free Report) is scheduled to report second-quarter 2020 results on Jul 30. In the last reported quarter, it delivered a negative earnings surprise of 5.1%.

The stock outperformed the Zacks Consensus Estimate in two out of the trailing four quarters, with the average earnings surprise being 4.9%.

For the second quarter, the Zacks Consensus Estimate for earnings is pegged at $8.43 per share, implying a decline of 40.7% from the year-ago reported figure.

The consensus mark for revenues is pegged at $30.66 billion, implying a decline of 3.3% from the year-ago reported figure.

Performance in the Last Reported Quarter

Alphabet reported first-quarter 2020 non-GAAP earnings of $9.87 per share, which missed the Zacks Consensus Estimate of $10.97. Also, earnings decreased 35.7% sequentially and 17.1% year over year.

However, revenues of $33.7 billion outpaced the Zacks Consensus Estimate by 3.4% driven by strength in the company’s cloud and YouTube businesses.

Let’s see how things have shaped up for this announcement.

E-commerce, Cloud Momentum & Other Key Catalysts

During the quarter, the company gained momentum in the advertisement world amid the coronavirus pandemic by promoting the interest of businesses that were severely impacted by the unprecedented catastrophe.

The company drove momentum across the advertising business with new features that include booking for services using Local Services ads by Google that is known for connecting customers to trustworthy service providers, Local Opportunity Finder, local store information, smart campaigns and Grow My Store for retailers.

Moreover, advertisement remains the key catalyst behind the robust Google segment, which is expected to have contributed to Alphabet’s top-line growth in the to-be-reported quarter.

Markedly, Google has been making strong efforts to reinforce presence in the e-commerce world as e-commerce has been witnessing an unprecedented spike buoyed by the COVID-19 pandemic.
 
In this regard, the company launched a new voice-based grocery shopping service in France. The service allows customers to voice order groceries with the help of the Google Assistant.

Its focus on e-commerce activities is expected to have enhanced top-line growth.

In addition, Google has been significantly gaining momentum in the highly-competitive cloud market over the last few quarters. During the second quarter, it expanded the cloud service portfolio and data centers.

In this regard, Google signed a long-term partnership with Deutsche Bank during the quarter.

Per the new alliance, Deutsche Bank will leverage Google’s cloud services to build technology-based financial products for clients and deliver enhanced cloud services. The latest move is likely to be a major breakthrough for Google Cloud in the financial sector, which holds significant prospects.

Also, during the quarter, the company announced plans to invest up to $2 billion to build a data center in Poland, which should add efficiency to Google’s business.

The positive impact of these efforts is likely to reflect on the upcoming results.

Waymo Initiatives

The company’s self-driving project, Waymo, has been steadily gaining momentum in the autonomous vehicle market.

During the second quarter, Alphabet partnered with Volvo to develop a new self-driving electric vehicle for use in a ride-hailing service. This deal strengthened its presence in the booming self-driving vehicles market.

Also, the acquisition of Latent Logic strengthened its presence in the booming self-driving vehicles market of Europe and U.K. This deal is expected to have helped the company in expanding user reach in the self-driving space.

These efforts are likely to have driven Alphabet’s top-line growth in the quarter under review.

Concerns

Alphabet’s search advertising business has been facing stiff competition from Amazon. Google Cloud trails both Amazon and Microsoft (MSFT - Free Report) in the cloud computing space. Increasing competition in both the markets might have hurt its top-line growth in the to-be-reported quarter.

In addition, increased spending on consumer gadgets, YouTube video app and cloud computing services is anticipated to have been a risk. Higher expenses are expected to get reflected on the company’s upcoming results.

Earnings Whispers

Our proven model predicts an earnings beat for Alphabet this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. And that is the case here.

Earnings ESP: The company has an Earnings ESP of +0.32%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Currently, Alphabet has a Zacks Rank #3.

Stocks That Warrant a Look

You may consider the following stocks that have the right combination of elements to beat on earnings in the upcoming releases.

NXP Semiconductors N.V. (NXPI - Free Report) has an Earnings ESP of +11.90% and holds a Zacks Rank of 2.

Etsy, Inc. (ETSY - Free Report) has an Earnings ESP of +10.98% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

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