North America

Earnings Preview: Alphabet Q2 2018 (GOOGL)

By: Craig Bowles

Overview

Alphabet, Inc. (GOOGL) is scheduled to report 2Q2018 earnings after the close of trading on Monday, July 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 $9.61 (range $8.71 to $11.12) (Source: Yahoo! Finance). Consensus was $9.93 three months ago.
  • Revenue Ex-Traffic Acquisition Costs: The Street consensus is $25.65 bln. (Source: Zack’s.com)
  • Paid Clicks Q/Q Change: Q1 was 11%.
  • Cost per Click Q/Q Change: Q1 was -9%.
  • Alphabet’s Price/Earnings of 51.4 compares to a 5-year average of 30.4, Price/Book of 5.2 compares to a 5-year average of 4.1, Price/Sales of 7.3 compares to a 5yr average 6.3, and Price/Cash Flow of 21.8 compares to a 5-year average of 18.2.
  • Analysts view Alphabet with 33 Buy, 4 Hold, and 0 Sell ratings. (source: MarketBeat.com)
  • GOOG insiders sold 318,763 shares over the last three months and a net 528,966 shares in the past year. (source: NASDAQ.com) In February 2018, 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 3.24%. Options are pricing in an implied move of 2.77% off earnings.

Recent News

  • 7/18: Google implies it may no longer give away Android for free following EU antitrust decision, according to a post on CNBC.com.
  • 7/18: The European Union plans to hit Alphabet Inc.’s Google with a record antitrust fine of €4.34 billion ($5.06 billion) and will likely demand for changes to Google’s Android business, according to a post by WSJ.
  • 7/17: Google has secured several of the UK’s largest recruitment services for a local version of its jobs-hunting tool, according to a post on BBC.
  • 7/17: Google launches its first WeChat mini program as its China experiments continue, according to a post by Techcrunch.com.
  • 7/02: Google has been working on a lineup of new products, including new Pixel phones, second-generation Pixel Buds, and a new smartwatch. Expect the Pixel Watch later this year, according to a post on Businessinsider.com.
  • 6/29: Google courting developers for coming game-streaming service, according to arstechnica.com.
  • 6/20: IGTV will be rolling out globally over the next few weeks on Alphabet’s Android and Apple’s (AAPL) iOS operating systems, according to Barron’s.com.
  • 6/01: Google decided not to renew its contract with a Pentagon drone program once it expires, after extensive protests from employees, according to Bloomberg.com.
  • 5/09: The U.S. Transportation Department’s 10 winning drone pilot projects includes Alphabet among the winners, according to a post on Reuters.com.

Summary

The European Union plans to hit Alphabet Inc.’s Google with a record antitrust $5 billion fine that the company will appeal. Google decided not to renew its contract with a Pentagon drone program once it expires, after extensive protests from employees. Total TAC as a percentage of Google Advertising Revenues has been increasing recently, 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 February, but insider buying has since turned to selling the past three months. Over the past four quarters, the average beat/miss is 73c. Estimize consensus for a EPS of $9.79 on revenue ex-TAC of $25.892 bln compares to analyst consensus for a EPS of $9.61 on revenue ex-TAC of $25.65 bln.

 

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