Alphabet share price: what to expect in Q1 earnings

Alphabet’s [GOOG] share price is under pressure this year. Unlike other tech stocks, the coronavirus has knocked shareholder confidence in a company dependent on advertising. But after a string of analysts reiterated their backing, the current share price could represent a discount for what’s widely considered a high-quality stock.

So what will be the impact of first-quarter results? And what should share price investors watch out for?

What's happening with Alphabet's share price?

Alphabet's share price is down around 5% since the coronavirus sell-off seen at the end of February. For the year, the stock is down over 6.7% but trading above the $1,013.54 52-week low it saw on 21 March.

When does Alphabet report Q1 earnings?

28 April

Why should share price investors care?

Advertising revenue down

Alphabet is likely to see a hefty downturn in income this year as businesses tighten their Google advertising spend. Needham analyst Laura Martin expects that the travel industry will cut ad spend by as much as $3 billion in Q2. 

As a result, Martin slashed her revenue estimate for Alphabet by $1 billion for Q1 and $3 billion for Q2. That's a big hit for Google. Travel-related ads are the fourth biggest ad group on Google and make up 10% of ad revenue. 

For the full year, Cowen and Co. estimate Google’s total net revenue will come in at $127.5 billion, down $28.6 billion from the previous year. However, Cowen expects Google to remain highly profitable, with $54.3 billion in operating income. This will largely continue to come through its advertising platform.

Cut in lobbying spend

According to documents filed with the US federal government, Google cut its lobbying spend 34% quarter-on-quarter. In total, Google spent $1.8 million lobbying officials. In contrast, Amazon, Facebook and Apple all increased their lobbying spend.

The move comes amid ongoing scrutiny of the tech sector, with both Google and Facebook subjects of federal antitrust probes. While the cut in spend won't materially affect the bottom line, the search giant has gained some public goodwill following its coronavirus response. Still, this is unlikely to curry favour with lawmakers.

Analysts back Alphabet

April saw a spate of analysts reiterate their backing for Alphabet. In April, Wedbush, Credit Suisse and Oppenheimer all maintained Outperform ratings, while  UBS maintained its Buy rating.

This follows BMO Capital analyst Daniel Salmon upgrading Alphabet from Market Perform to Outperform at the end of March. Salmon also set a $1,400 share price target - a 9.7% upside on the current share price at the time of writing.

"To upgrade one of the most consensus "high quality" stocks in the market after a historic sell-off should elicit a fair amount of ‘yeah, so what?’” wrote Salmon in a note to investors.

"... we expect our mega-caps to be popular upon rebound, and we think there are important relative fundamental differences that nudge GOOGL into Outperform territory, and thus the focus of this note is relative tactical positioning vs. FB and AMZN."

“... we expect our mega-caps to be popular upon rebound, and we think there are important relative fundamental differences that nudge GOOGL into Outperform territory, and thus the focus of this note is relative tactical positioning vs. FB and AMZN” - BMO Capital analyst Daniel Salmon

What do analysts expect in Q1 earnings?

Wall Street expects earnings of $10.98 per share, up from the $9.5 per share seen in the same quarter last year. Revenue is expected to come in at $40.75 billion, up 12.10% from last year.

Will Alphabet beat analyst expectations? In the past four quarters, Alphabet has posted two beats and two misses, so nothing's for certain. However, investors should note that both the beats and misses were well off Wall Street's predictions.

Alphabet share price vitals, Yahoo Finance, 27 April 2020

Is Alphabet’s share price a 'Buy'?

The majority of analysts covering the share price on Yahoo Finance rate it either a Strong Buy or Buy. An average share price target of $1,497 would be a 17% upside on the current share price. 

The big question is whether the share price is resilient enough to survive a major downturn in ad spend. Tuesday's earnings should provide investors with the first clues.