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The broader market currently took a beating and Internet giant Alphabet Inc. (GOOGL - Free Report) was no exception. The company, which operates through Google and Other Bets segments, saw its shares tank 15% from its recent high, the widest selloff since early 2015.
Rise in benchmark bond yields, tariffs, rich valuations, regulation and debt have dragged the broader market down. Investors, in this gloomy scenario, are unwilling to bet on stocks. Thus, only encouraging earnings results can turn things around.
Some companies, by the way, have done it, especially, if you look at McDonald’s Corporation’s (MCD - Free Report) stellar Q3 results and the subsequent rise in share price (read more: McDonald’s Q3 Earnings and Revenues Surpass Estimates). The question now is whether Alphabet will be able to compel investors to reassess the recent selloff when it reports Q3 earnings on Oct 25.
Most market pundits believe the answer is yes! Let us now look at the factors that raise optimism —
Growth Trends to Continue Across All Segments
Alphabet has time and again reported solid growth in revenues, driven by Google’s core search advertisement business. Advertising revenues on Google’s own platform have grown around 20% annually in recent years. In addition, Alphabet’s other revenues from apps, in-app purchases, digital content, Pixel smartphones, licensing, Google Cloud offerings such as Docs have grown even better, up a staggering 40% in recent years.
Growth in advertising revenues is likely to continue on robust search engine and improving search features. Some of the new features that Alphabet has unveiled on its search engine are Featured Videos, Activity Card, Collections, Enhancing Topics, Discover, Image Search, Google Lens and Pathways. At the same time, Alphabet has introduced Discover feed specific preferences for the languages and other related content features.
The company’s advertising revenue growth, thus, should certainly improve profit margins. By the way, the Zacks Consensus Estimate for total advertising revenues is pegged at $29.1 billion for the third quarter, slightly higher than $28.1 billion generated in the second quarter.
Alphabet, in the meantime, owns some of the Internet’s most valuable and essential platforms. The importance of such platforms is likely to grow as Internet usage continues to increase. Meanwhile, the company has other nascent but rapidly improving businesses in growth markets like cloud, IoT, and self-driving. All these should boost Alphabet’s upcoming quarterly results.
Concerns Plaguing Alphabet
Skeptics believe that Amazon.com, Inc. (AMZN - Free Report) is stealing Alphabet’s search advertising dollars, while Google Cloud is losing share to Microsoft Corporation (MSFT - Free Report) . These maybe valid concerns, but let’s admit that such concerns seem overstated. And why not? Amazon’s advertising business is merely $8 billion this year compared to Alphabet’s ad revenues of nearly $100 billion. Thus, Amazon is still a relatively small threat.
On the cloud front, Alphabet dropping out of the $10-billion JEDI race wasn’t a good move, while Google Cloud is still gaining share. And it’s all because of Google Cloud Chief Executive Officer Diane Greene’s aggressive efforts to draw corporate customers.
Q3 Should Be Good
Google-parent Alphabet is well poised to report a jump in third-quarter earnings, powered by the Internet search giant’s advertising business and steady growth in cloud division. The Zacks Rank #3 (Hold) company is widely expected to report $10.54 of earnings per share for the third quarter, higher than $9.57 reported a year ago.
The Zacks Consensus Estimate for earnings has also trended upward over the past 60 days, as estimates have moved up from $39.63/share to $39.98/share right now.
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
Image: Bigstock
Alphabet Set to See Super Earnings in Q3
The broader market currently took a beating and Internet giant Alphabet Inc. (GOOGL - Free Report) was no exception. The company, which operates through Google and Other Bets segments, saw its shares tank 15% from its recent high, the widest selloff since early 2015.
Rise in benchmark bond yields, tariffs, rich valuations, regulation and debt have dragged the broader market down. Investors, in this gloomy scenario, are unwilling to bet on stocks. Thus, only encouraging earnings results can turn things around.
Some companies, by the way, have done it, especially, if you look at McDonald’s Corporation’s (MCD - Free Report) stellar Q3 results and the subsequent rise in share price (read more: McDonald’s Q3 Earnings and Revenues Surpass Estimates). The question now is whether Alphabet will be able to compel investors to reassess the recent selloff when it reports Q3 earnings on Oct 25.
Most market pundits believe the answer is yes! Let us now look at the factors that raise optimism —
Growth Trends to Continue Across All Segments
Alphabet has time and again reported solid growth in revenues, driven by Google’s core search advertisement business. Advertising revenues on Google’s own platform have grown around 20% annually in recent years. In addition, Alphabet’s other revenues from apps, in-app purchases, digital content, Pixel smartphones, licensing, Google Cloud offerings such as Docs have grown even better, up a staggering 40% in recent years.
Growth in advertising revenues is likely to continue on robust search engine and improving search features. Some of the new features that Alphabet has unveiled on its search engine are Featured Videos, Activity Card, Collections, Enhancing Topics, Discover, Image Search, Google Lens and Pathways. At the same time, Alphabet has introduced Discover feed specific preferences for the languages and other related content features.
The company’s advertising revenue growth, thus, should certainly improve profit margins. By the way, the Zacks Consensus Estimate for total advertising revenues is pegged at $29.1 billion for the third quarter, slightly higher than $28.1 billion generated in the second quarter.
Alphabet, in the meantime, owns some of the Internet’s most valuable and essential platforms. The importance of such platforms is likely to grow as Internet usage continues to increase. Meanwhile, the company has other nascent but rapidly improving businesses in growth markets like cloud, IoT, and self-driving. All these should boost Alphabet’s upcoming quarterly results.
Concerns Plaguing Alphabet
Skeptics believe that Amazon.com, Inc. (AMZN - Free Report) is stealing Alphabet’s search advertising dollars, while Google Cloud is losing share to Microsoft Corporation (MSFT - Free Report) . These maybe valid concerns, but let’s admit that such concerns seem overstated. And why not? Amazon’s advertising business is merely $8 billion this year compared to Alphabet’s ad revenues of nearly $100 billion. Thus, Amazon is still a relatively small threat.
On the cloud front, Alphabet dropping out of the $10-billion JEDI race wasn’t a good move, while Google Cloud is still gaining share. And it’s all because of Google Cloud Chief Executive Officer Diane Greene’s aggressive efforts to draw corporate customers.
Q3 Should Be Good
Google-parent Alphabet is well poised to report a jump in third-quarter earnings, powered by the Internet search giant’s advertising business and steady growth in cloud division. The Zacks Rank #3 (Hold) company is widely expected to report $10.54 of earnings per share for the third quarter, higher than $9.57 reported a year ago.
The Zacks Consensus Estimate for earnings has also trended upward over the past 60 days, as estimates have moved up from $39.63/share to $39.98/share right now.
Upbeat earnings performance leads to a rally in the share price. Thus, the company’s current-year earnings are expected to rise 24.7%, higher than the Internet - Services industry’s earnings growth of 9%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot trades we're targeting>>