North America

Earnings Preview: Alphabet Q4 2017 (GOOGL)

By: Craig Bowles

Overview

Alphabet, Inc. (GOOGL) is scheduled to report 4Q2017 earnings after the close of trading on Thursday, February 1st.  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 than those for the rest of Alphabet businesses as a whole.

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 $10.00 (range $9.00 to $10.92) (Source: Yahoo! Finance). Consensus was $9.62 three months ago.
  • Revenue Ex-Traffic Acquisition Costs: The Street consensus is $25.67 bln. (Source: Zack’s.com)
  • Paid Clicks Q/Q Change: Q3 was 6%.
  • Cost per Click Q/Q Change: Q3 was 1%.
  • Alphabet’s Price/Earnings of 39.5 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 7.9 compares to a 5yr average 6.3, and Price/Cash Flow of 22.9 compares to a 5-year average of 18.2.
  • Analysts view Alphabet with 36 (42 one year ago) Buy, 7 Hold, and 1 Sell ratings. (source: MarketBeat.com)
  • GOOG insiders sold 171,477 shares over the last three months and sold 605,895 shares in the past year. (source: NASDAQ.com) A buyback announcement could easily be funded with nearly $100 billion in cash and investments available. The last buyback funding was $7 billion in October 2016 and that has been spent. The 2015 $5 billion allotment was their first since 2010.
  • Alphabet shares have a 1-day average price change on earnings of 4.83%. Options are pricing in an implied move of 4.99% off earnings.

Recent News

  • 1/25: Google expands controls to mute ads that follow you on every site in an attempt to give the consumer more transparency and control, according to a post on Techcrunch.com.
  • 1/25: Smartphone adoption in emerging markets delivered the highest number of app downloads Google Play has ever seen in a quarter, topping 19 billion in Q4 2017, according to TechCrunch.com.
  • 1/24: Alphabet’s “X,” the research and development team founded by Google to develop solutions that address global issues, unveiled a new independent company called Chronicle to predict and deflect “cyber-attacks before they infiltrate an organization’s network,” according to Businessinsider.com.
  • 1/24: Alphabet spent over $18 million, more than any other company, on lobbying efforts in Washington in 2017, advocating its position on a range of issues, including immigration, tax reform, and online advertising, according to Fortune.com.
  • 1/22: Google is launching an AI research center in France and expanding its office, according to TechCrunch.com.
  • 1/19: Alphabet’s Google has agreed to a patent licensing deal with Tencent Holdings Ltd, a Chinese social media and gaming firm, as it looks for ways to expand in China where many of its products, such as app store, search engine and email service, are blocked by regulators, according to Reuters.com.
  • 12/20: Alphabet Inc.’s online video streaming platform, YouTube finally signed agreements with Sony Music Entertainment and Universal Music Group for publishing their music on the platform in exchange of royalties, according to Zack’s.com.
  • 12/6: Google announced plans to hire more than 10,000 people “working to address content that might violate our policies,” according to a post on CNN.com.

Summary

Alphabet outspent every other company on Washington lobbying in 2017. Investors are interested in advertising changes and the continued ability to monetize search. A stock buyback announcement could be funded. Analysts remain bullish overall.  Insider selling picked up the past three months but that looks seasonal. Over the past four quarters, the average beat/miss is by 60c. Estimize consensus for a EPS of $10.29 on revenue ex-TAC of $25.762 bln compares to analyst consensus for a EPS of $10.00 on revenue ex-TAC of $25.67 bln.

 

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