North America

Earnings Preview: Alphabet Inc. Q1 2017 (GOOGL)

By: Craig Bowles

Overview

Alphabet, Inc. (GOOGL) is scheduled to report 1Q2017 earnings after the close of trading on Thursday, April 27th.  Results are usually available minutes after the closing bell with a conference call webcast at Alphabet Investor Relations slated to begin at 4:30 p.m. ET. The S&P E-Mini, NASDAQ 100 E-Mini futures contracts and PowerShares QQQ (QQQ) tend to see active trading off the results. Alphabet Inc. replaced Google Inc. as the publicly-traded entity. The company has implemented segment reporting, where Google financials are provided separately than those for the rest of Alphabet businesses as a whole.

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Outliers & Strategy

Key measures:

  • Non-GAAP Earnings Per Share (EPS): The Street estimate is $7.40 (range $6.62 to $7.92) (Source: Yahoo! Finance). Consensus was $9.36 three months ago.
  • Revenue Ex-Traffic Acquisition Costs: The Street consensus is $19.65 bln. (Source: Estimize.com)
  • Paid Clicks Q/Q Change: Q4 was 20%.
  • Cost per Click Q/Q Change: Q4 was -9%.
  • Alphabet’s Price/Earnings of 30.8 compares to a 5-year average of 27.9, Price/Book of 4.3 compares to a 5-year average of 3.9, Price/Sales of 6.6 compares to a 5yr average 5.9, and Price/Cash Flow of 16.7 compares to a 5-year average of 18.7.
  • Analysts remain bullish on Alphabet with 39 (42 last qtr) Buy, 5 Hold, and 1 Sell ratings. (source: MarketBeat.com)
  • Insiders sold 226,328 shares over the last three months and sold 2,637,220 shares in the past year. (source: NASDAQ.com) The company increased the stock buyback to $7 billion in October 2016. The 2015 $5 billion allotment was their first since 2010.
  • Alphabet shares have a 1-day average price change on earnings of 4.56%. Options are pricing in an implied move of 3.76% off earnings.

Recent News

  • 04/21: Google is at the center of a solution to the existential threat of consumers blocking online ads, according to Bloomberg.com.
  • 04/07: The Department of Labor accused Google of paying women less than men in a courtroom. Advertisers have recently gotten upset because Google was putting their ads alongside hateful content on YouTube, according to Barron’s.com.
  • 04/06: Alphabet’s Google unit has a chip running in its data centers 15 to 30 times faster than today’s “contemporary server-class CPUs and GPUs,” by which it means the chips from Intel (INTC) and Nvidia (NVDA), according to Barron’s.com.
  • 04/04: BMO Capital Markets thinks Amazon (AMZN) can take market share from Google in areas like retail, consumer electronics, media and entertainment and consumer packaged goods, according to a post on Barron’s.com.
  • 03/09: Robert W. Baird notes that Google (GOOGL) and YouTube are aggressively pushing into ecommerce, expanding their shopping ads and transactional capabilities, according to a post on Barron’s.com.
  • 03/08: Hilliard Lyons reiterated a Neutral rating on Alphabet citing valuation but likes that CFO Ruth Porat announced that the company will stop excluding stock-based compensation expense from non-GAAP results, according to a post on Barron’s.com.

Technical Review

Alphabet shares are testing an all-time high ahead of earnings, so same story, different quarter. The stock can sell off a couple of days after even an earnings beat with so much optimism going into earnings. Kind of odd that GOOG closed near the intraday high on Friday and GOOGL closed near the intraday low. (Chart courtesy of StockCharts.com)

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Summary

Alphabet Non-GAAP EPS will no longer exclude stock-based compensation expense. Analysts remain bullish on the promise of digital advertising growth and stock buybacks. Over the past four quarters, the average beat/miss is by 39c. Estimize consensus for a Non-GAAP EPS of $8.38 on revenue ex-TAC of $19.757 bln compares to analyst consensus for a Non-GAAP EPS of $7.40 on revenue ex-TAC of $19.65 bln.

 

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