North America

Earnings Preview: Alphabet Q1 2018 (GOOGL)

By: Craig Bowles

Overview

Alphabet, Inc. (GOOGL) is scheduled to report 1Q2017 earnings after the close of trading on Monday, April 23rd.  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. The company has implemented segment reporting, where Google financials are provided separately.

Outliers & Strategy

Key measures:

  • Earnings Per Share (EPS): (If an EPS ex-items is available, that measure will be the comparable value.) The Street estimate is $9.31 (range $8.24 to $10.07) (Source: Yahoo! Finance). Consensus was $9.25 three months ago.
  • Revenue Ex-Traffic Acquisition Costs: The Street consensus is $24.29 bln. (Source: Zack’s.com)
  • Paid Clicks Q/Q Change: Q4 was 18%.
  • Cost per Click Q/Q Change: Q4 was -6%.
  • Alphabet’s Price/Earnings of 57.6 compares to a 5-year average of 30.4, Price/Book of 4.7 compares to a 5-year average of 4.1, Price/Sales of 6.6 compares to a 5yr average 6.5, and Price/Cash Flow of 19.7 compares to a 5-year average of 18.2.
  • Analysts view Alphabet with 33 (42 five qtrs ago) Buy, 6 Hold, and 1 Sell ratings. (source: MarketBeat.com)
  • GOOG insiders bought 46,954 shares over the last three months but sold a net 333,938 shares in the past year. (source: NASDAQ.com) In February, the company said they will buy back $8,589,869,056 worth of stock. The previous buybacks were $7 billion in October 2016 and $5 billion in 2015. Before that, it was 2010.
  • Alphabet shares have a 1-day average price change on earnings of 3.32%. Options are pricing in an implied move of 2.81% off earnings.

 Recent News

  • 4/13: Google is testing self-destructing emails in new Gmail redesign, according to a post on Techcrunch.com.
  • 4/13: Alphabet could come under similar pressure from Congress as Facebook, according to Barron’s.com.
  • 4/12: Hammerstone notes Alphabet shares look attractive, but don’t expect a meaningful break-out in 2018. EPS could see material EPS upside to consensus of $9.31 as Google potentially marks up its Uber stake and several other securities in OI+E, along with higher interest income from Libor blowing out in 1Q, according to Hammerstone.
  • 4/12: Google has been doing drone analysis projects for the Pentagon which is upsetting workers. The company is actively pursuing a $10 bln proposal that will be awarded in September, according to CNBC.com.
  • 4/12: Google is poised to emerge unscathed from European antitrust crackdown, according to Reuters.com.
  • 4/10: Morgan Stanley maintained an Overweight rating on Alphabet but is concerned near-term with the “growing need” to expand its disclosures to investors and the likelihood that the Street is underestimating the company’s operating expenditure investments, according to Benzinga.com.
  • 4/06: Waymo, a stand-alone unit of Google-parent Alphabet, uses laser-beam scanning for self-driving cars. Setbacks for the industry from accidents could ultimately prove a benefit for Waymo’s technology. Jeffries puts the value of Waymo anywhere from $75 billion to $125 billion, according to Investors Daily.
  • 4/04: Apple hired Google’s chief of search and artificial intelligence, John Giannandrea, a major coup in its bid to catch up to the artificial intelligence technology of its rivals, according to NYTimes.com.
  • 2/20: Alphabet launched Google Pay in response to Apple’s popular mobile payment platform, according to Zack’s.com.
  • 2/16: Google announced plans to invest $2.5 billion over the next few years to open or expand data centers and is constructing new offices or expanding existing, according to a post on CNBC.com.

Summary

Alphabet outspent every other company on Washington lobbying in 2017 and is expecting to see a payoff in those late-Friday Defense Department contract announcements. Alphabet’s Waymo should benefit from the aging baby boom with their self-driving car technology. Total TAC as a percentage of Google Advertising Revenues has ticked up each of the last two quarters, so might be of interest. Analysts remain bullish overall but less so over the past year probably due to valuations. A stock buyback was announced in last quarter’s earnings release, so insiders bought the retest of the 200-day moving average. Over the past four quarters, the average beat/miss is 60c. Estimize consensus for a EPS of $9.36 on revenue ex-TAC of $24.444 bln compares to analyst consensus for a EPS of $9.31 on revenue ex-TAC of $24.29 bln.

 

DISCLAIMER:  By using this report, you acknowledge that Selerity, Inc. is in no way liable for losses or gains arising out of commentary, analysis, and or data in this report. Your investment decisions and recommendations are made entirely at your discretion. Selerity does not own securities in companies that they write about, is not an investment adviser, and the content contained herein is not an endorsement to buy or sell any securities. No content published as part of this report constitutes a recommendation that any particular investment, security, portfolio of securities, transaction or investment strategy is suitable for any specific person.