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Alphabet earnings: is the search engine giant poised for more growth?

Alphabet stock fell 20% from its November highs, but as earnings near, the stock’s prominent position in the search engine market should continue to see it perform well.

Trader Source: Bloomberg

When does Alphabet report earnings?

Alphabet reports earnings on 1 February, covering its fiscal fourth quarter (Q4).

Alphabet earnings – what to expect?

Alphabet is expected to report revenue of $72 billion, up from $65 billion in the third quarter (Q3). Earnings per share are expected to fall to $27.40 from $27.99 in the previous quarter.

Revenues continue to be driven by growth in its search engine division, helped by growth in its mobile search element. Improvements in local services ads and upgraded Google Assistant and Google Maps services are also likely to push revenue higher. Looking at the broader picture, the continuing growth of the global economy in its rebound from the Covid-19 pandemic should keep fuelling earnings growth, as businesses spend more on ads and consumers search more as they return to more of their pre-pandemic activities.

Alphabet earnings – broker ratings and forecasts

Fourteen analysts cover Alphabet, with 5 ‘strong buys’ and 8 ‘buys’. The current median target price is $3400, a premium of 29% to the current price (as of 26 January).

Alphabet stock price – technical analysis

Alphabet’s stock has fallen below the 200-day simple moving average (SMA) for the first time since April 2020. This remarkable run has seen the shares more than double, even with the 20% drop from peak to trough witnessed since November. A bounce from possible trendline support from the September 2020 low now suggests a fresh test of the 200-day SMA, and then on towards $2850 and trendline resistance from the November high.

A move above this would provide a more bullish view, but a rally above $3000 is needed to break the recent run of lower highs, notably the rallies since November have been accompanied by weaker stochastics, a sign of falling bullish momentum.

A failure to move back above $2860 would mark a fresh bearish development, although a full-blown reversal would need to see the price below $2650 and then fall through the post-September 2020 trendline.

Alphabet chart Source: ProRealTime
Alphabet chart Source: ProRealTime

Don’t give up on Alphabet

Tech stocks have taken a beating of late, falling sharply from record highs. But as Microsoft earnings have reminded investors, and as Alphabet should when it reports, these big stocks continue to control a powerful position in the US economy and are big cash generators. This is why they command a higher growth valuation than some, but a company at 22 times earnings with $42 billion in free cash flow is still a compelling prospect for many investors.

The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer.

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