Alphabet (Google) share price: Q3 Earnings Preview

We examine some of the key things traders and investors should know about Alphabet ahead of its third quarter earnings release.

With search giant Alphabet (GOOG) – parent company of Google – set to release its third quarter financial results this Thursday, October 29, we look back at the company’s recent Q2 results as well as how analysts currently view the stock.

Google struggles, share price lags behind the like of Apple, Amazon, Facebook

With Alphabet stock up close to 16% year-to-date – it has significantly lagged behind its mega-cap tech counterparts – including Apple, Amazon and Facebook.

Indeed, while those companies delivered solid results in the quarter prior – the market looks to have been disappointed by Alphabet’s Q2 – even though it beat on Street expectations – with GOOG revealing weak revenue growth, lower earnings and declining operating margins.

Specifically, for the quarter ending June 30 and on a YoY basis, Alphabet reported:

  • Revenues of $38,297m, down 2% – the first decrease since the company’s IPO
  • Operating income of $6,383m against operating margins of 17%, down from 24% on a PCP basis
  • Net income of $6,959m against diluted EPS of $10.13
  • Google Cloud revenue of $3,007m, up from $2,100m on a PCP basis

Speaking of these results, the company’s CEO Sundar Pichai said:

‘We’re working to help people, businesses and communities in these uncertain times,’ adding that ‘As people increasingly turn to online services, our platforms — from Cloud to Google Play to YouTube — are helping our partners provide important services and support their businesses.’

At the close of Q2 Alphabet had a staggering cash position totalling $121bn and at its last traded price of $1,584 had an implied market capitalisation close to $1.1tn.

Results mixed, market dull, but analysts remain bullish

Alphabet, for whatever share price or fundamental weakness it has faced in recent times – remains favoured by analysts, with the stock commanding a Buy rating on average, according to MarketWatch.

The average analyst price target on GOOG currently stands at $1,789 – modestly ahead of the stock’s last traded price, also according to MarketWatch.

Analysts have continued to view the search giant favourably in the lead up to the Q3. Over the last Month Cleveland Research, Goldman Sachs, JP Morgan, Jefferies, and Credit Suisse all reiterated their Buy ratings on the stock, while Deutsche Bank also reiterated their Buy rating and boosted their price target from $1,975 to $2,020 per share.

Commenting on the ad space more generally, in a recent note, Deutsche Bank analyst Lloyd Walmsley said:

‘We are bullish on the ad names into Q3 results given a continued ad recovery through Q3 and a strong outlook for Q4 based on our industry conversations,’ while adding ‘We are bullish on the space into 2021, where a continued cyclical recovery and easy comps will drive accelerating growth and margin recovery, with potential for more share gains across online advertising.’

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