North America

Earnings Preview: Alphabet Q3 2018 (GOOGL)

By: Craig Bowles

Overview

Alphabet, Inc. (GOOGL) is scheduled to report 3Q2018 earnings after the close of trading on Thursday, October 25th.  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 $10.42 (range $9.20 to $11.90) (Source: Yahoo! Finance). Consensus was $10.51 three months ago.
  • Revenue Ex-Traffic Acquisition Costs: The Street consensus is $27.25 bln. (Source: Zack’s.com)
  • Alphabet’s Price/Earnings of 47.7 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 6.3 compares to a 5yr average 6.3, and Price/Cash Flow of 18.6 compares to a 5-year average of 18.2.
  • Analysts view Alphabet with 29 Buy, 4 Hold, and 0 Sell ratings. (source: MarketBeat.com)
  • GOOG insiders sold 103,385 shares over the last three months and a net 558,212 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, they did a buyback in 2010.
  • Alphabet shares have a 1-day average price change on earnings of 3.31%. Options are pricing in an implied move of 5.49% off earnings.

Recent News

  • 10/10: Jefferies noted Alphabet’s Waymo unit has the lead in autonomous driving and plans to launch a commercial ride-hailing service in Phoenix by the end of the year. Widespread autonomous-vehicle usage is admittedly a ways off, however, according to a post by Barron’s.com.
  • 10/10: Alphabet’s Google introduced the Home Hub smart screen but Gartner points out the lag behind Amazon and others, according to a post by Barron’s.com.
  • 10/08: Google will shut down its social network after 500,000 users’ information was exposed back in March, according to a post by nytimes.com.
  • 10/01: Bird Equity Reseаrсh noted Google hаs begun to offer deep disсounts on shopping ads in Europe that could leаd to аs muсh аs а 3% deсline in аd revenue, according to a post by consultantsinsider.com.
  • 09/20: Google has come under increased scrutiny for how it may be tracking and targeting children for advertising, according to a post by nytimes.com.
  • 9/15: Google apparently revealed the colors of its upcoming Pixel 3 phone (black, white, and mint). Google is expected to unveil the new Pixel 3 in both regular and the larger XL sizes at its Made By Google event on October 9, according to a post on Businessinsider.com.
  • 9/12: Google could be affected by the EU’s new copyright directive, according to a post at CNBC.com.
  • 9/08: Morgan Stanley believes cloud usage will more than double in the next two years benefitting companies such as Alphabet, according to a post on Businessinsider.com.
  • 8/27: 2018’s 7 Best Smartphones by Wired rates Google Pixel 2 as #1, according to wired.com.
  • 8/10: Google has thrived under Alphabet for the last three years, but the other businesses have seen mixed results, according to a post on CNBC.com.
  • 8/07: Google is planning to launch a censored version of its search service for China where it had already fallen behind Baidu before getting shut down, according to a post on CNBC.com.

Summary

The European Union’s new copyright directive is their latest swipe at Alphabet Inc.’s Google. (Total TAC as a percentage of Google Advertising Revenues is already above 20%.) Analysts remain bullish overall but less so over the past year probably due to valuations. Another stock buyback was announced in February, but insider buying has since turned to selling. Over the past four quarters, the average beat/miss is $1.79. Estimize consensus for an EPS of $10.99 on revenue ex-TAC of $27.467 bln compares to analyst consensus for an EPS of $10.42 on revenue ex-TAC of $27.25 bln.

 

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