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  • Earnings
  • disruptive innovation

Will the Alphabet share price continue to outpace its peers post-earnings?

Analysts at Zacks Equity Research estimate that Alphabet [GOOGL] is to report a 35% increase in revenues and a 41% jump in earnings in its third-quarter results, which are due on 26 October.

“Its expanding ad services portfolio and strong search engine are likely to have benefited the third-quarter performance,” the analysts said.

Alphabet’s share price has been on a tear so far this year, surging 56.9% to 22 October’s market close. Working in its favour are higher online advertising revenues – driven by retailers and financial services – in addition to businesses turning to its cloud services, consumers using their mobiles more often while working at home, and a surge in interest in its YouTube service.

Over the last 12 months, the Alphabet share price has climbed 79%, with peers Facebook [FB] and Microsoft [MSFT] rising 22% and 45%.

 

 

 

What could trigger a move in Alphabet’s share price?

Investors will have a keen eye on Alphabet’s online advertising revenue. Its share price stumbled a little this week after Snapchat owner Snap [SNAP] warned that demand for online ads had waned.

Analysts will also be on the lookout for figures in its cloud arm to see whether the switch to digital is continuing to keep pace and how it is faring in competition with the likes of Microsoft.

Another area of focus will be any information on new services for Android, its video conferencing software Google Meet, its self-driving unit Waymo and any more ambitions for Google TV.

On a less savoury note, investors will be looking for an update on the government’s ongoing antitrust suit against the group. There is also the possibility of regulatory concerns around customer data following high-profile complaints about Facebook.

56.9%

Alphabet's share price increase year-to-date

 

 

Alphabet’s previous earnings performance

In the second quarter, Alphabet’s earnings per share came in at $27.26, up from $10.13 in the second quarter of 2020 and beating estimates of $19.34. Revenues of $61.8bn were up from $38.3bn and beat the $56.1bn forecast.

YouTube advertising revenue was $7bn against $6.3bn estimates, and Google Cloud revenue was $4.6bn beating the $4.4bn expected.

“There was a rising tide of online activity in many parts of the world, and we’re proud that our services helped so many consumers and businesses. Our long-term investments in AI and Google Cloud are helping us drive significant improvements in everyone’s digital experience,” Sundar Pichai (pictured), CEO of Google and Alphabet, said during the company’s earnings announcement.

“Our strong revenues reflect elevated consumer online activity and broad-based strength in advertiser spend. Again, we benefited from excellent execution across the board by our teams,” added Ruth Porat, CFO of Alphabet.

“Our strong revenues reflect elevated consumer online activity and broad-based strength in advertiser spend. Again, we benefited from excellent execution across the board by our teams” - Ruth Porat, CFO of Alphabet

 

What are Wall Street expectations for upcoming earnings?

According to analysts at Zacks, Alphabet is forecast to post revenues of $51.4bn, which would be up 35.3% from the same period last year. However, other analysts see revenues soaring to a record $63.3bn.

That’s an impressive rise for most businesses, but, going on the Zacks figures, would still represent far slower growth than the 62% year-on-year rise seen in the second quarter.

Earnings are expected to come in at $23.13 per share, up 41%. YouTube could continue to be a winner, with ad sales forecast to climb 47%.

“The company has been significantly gaining momentum in the highly competitive cloud market on the back of its expanding cloud services portfolio and an increasing number of data centres” - Zacks analysts

 

Zacks says the group’s search engine had been helped by the introduction of AI-backed Multitask Unified Models (MUM) technology, which is “likely to have continued enhancing the search results to the unique queries of users”.

“The company has been significantly gaining momentum in the highly competitive cloud market on the back of its expanding cloud services portfolio and an increasing number of data centres. The solid adoption of Google Workspace is likely to have contributed well,” the research firm added.

Joshua Warner, writing in City Index, said the slowdown in revenues would be mainly caused by tougher comparisons.

“Alphabet warned in its last set of results that the growth rate delivered by its core Google Services division — housing everything apart from its Cloud unit — would diminish through the last six months of 2021 as it comes up against the stellar levels of growth achieved in the second half of 2020,” he wrote.

But analysts remain bullish, with Royal Bank of Canada having an outperform rating and a $3,400 target. Truist Securities and Brent Thill of Jefferies also have buy ratings, with a $3,100 and $3,325 price target, respectively. “Alphabet remains a top large-cap pick,” Thill wrote in a note to clients, adding that advertisers are ramping up spending.

He also sees, as reported by CNBC, the long-term monetisation opportunities for YouTube, helped by “shoppable ads and actionable connected TV ads”.

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