By: Craig Bowles
Alphabet, Inc. (GOOGL) is scheduled to report 4Q2016 earnings after the close of trading on Thursday, January 26th. 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.
Outliers & Strategy
- Non-GAAP Earnings Per Share (EPS): The Street estimate is $9.63 (range $9.01 to $10.67) (Source: Yahoo! Finance). Consensus was $9.65 three months ago.
- Revenue Ex-Traffic Acquisition Costs: The Street consensus is $20.51 bln. (Source: Estimize.com)
- Paid Clicks Q/Q Change: Q3 was 9%.
- Cost per Click Q/Q Change: Q3 was -5%.
- Alphabet’s Price/Earnings of 30.3 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 6.7 compares to a 5yr average 5.9, and Price/Cash Flow of 17.6 compares to a 5-year average of 18.7.
- Analysts remain bullish on Alphabet with 42 Buy, 3 Hold, and 1 Sell ratings. (source: MarketBeat.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 4.98%. Options are pricing in an implied move of 4.09% off earnings.
- 01/21: Digital ad growth and YouTube will lift Alphabet 20%. YouTube has quietly made Alphabet a major player in social media. (Digital spending is expected to steadily increase and capture a 50% share by 2021, while TV spending will barely expand and its share will shrink to 33%.), according to Barron’s.com.
- 01/12: Cantor Fitzgerald has Alphabet among their “best ideas” with Internet business are accelerating, according to Barron’s.com.
- 01/12: Credit Suisse lists Alphabet as one of three large-cap favorites for 2017 while citing catalysts from ongoing monetization improvements in Search advertising, larger-than-expected contribution from Google’s larger non-search businesses, and shareholder value creation from new monetization initiatives such as Maps, according to a post on Barron’s.com.
- 01/03: Oakmark fund’s Bill Nygren thinks YouTube’s very undervalued and Alphabet has $130 per share in cash on its balance sheet, a massive sum that investors are not fully taking into account, according to a post on Barron’s.com.
- 12/14: Alphabet has moved its autonomous vehicle project from Google X to a stand-alone entity within Alphabet and shifted the emphasis from fully autonomous cars without steering wheels to a robo-taxi service that is open to commercial applications and partnerships. Morgan Stanley thinks Alphabet’s formation of Waymo symbolizes a less ambitious, diversified approach, according to a post on Barron’s.com.
Alphabet shares are testing October’s all-time high ahead of earnings again. The stock sold off shortly after earnings despite the beat. Point and figure technicians have increased their bullish price objective to $954 from $879. (Chart courtesy of StockCharts.com)
Alphabet continues to have a bullish analyst following and that only increases with 2017 expected to see digital advertising overtake television. A second stock buyback since 2010 should help limit downside. Over the past four quarters, the average beat/miss is by 46c. Estimize consensus for a Non-GAAP EPS of $9.78 on revenue ex-TAC of $20.641 bln compares to analyst consensus for a Non-GAAP EPS of $9.63 on revenue ex-TAC of $20.514 bln.
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