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Google-Parent Alphabet Must Crush Earnings Expectations or Risk Selloff

Last Updated September 23, 2020 1:32 PM
Kiril Nikolaev
Last Updated September 23, 2020 1:32 PM
  • Google-parent Alphabet is reporting quarterly earnings after the bell on Monday.
  • The search giant’s ad revenues must beat Wall Street expectations or risk selloff.
  • New CEO Sundar Pichai must implement changes in terms of company disclosure to attract more investors.

Google-parent Alphabet (NASDAQ:GOOGL), is scheduled to release its fourth-quarter earnings report today after the market closes. More than a week ago, Alphabet’s stock printed an all-time high of $1,500.58, allowing the tech titan to briefly surpass the $1 trillion valuation.

Alphabet reports its fourth-quarter earnings today
Alphabet reports its fourth-quarter earnings today. | Source: Twitter 

Investors are now anxious about whether Alphabet can reclaim its trillion-dollar status and generate a new all-time high. The earnings call later this afternoon will very likely determine Google’s sentiment in the next few days. Here are three key factors to watch out for that will indicate whether Alphabet will regain its bullish composure.

Google’s Ad Revenue Growth Must Reverse the Trend of Deceleration

Wall Street analysts expect the tech giant to post fourth-quarter revenue of $46.87 billion and an earnings per share of $12.76  [Seeking Alpha]. To convincingly crush consensus estimates, Google’s ad revenue growth must surprise even the most bullish analyst. Unfortunately, the trend does not favor the tech giant.

In the third and fourth quarters of 2018, Google’s ad sales growth stood at 20% on a year-over-year basis  [The Motley Fool]. After that, the growth decelerated to 16% in the first quarter of 2019. It then dropped to 15% in the second quarter of 2019. While ad revenue growth recovered to 17% in Q3 2019, the trend appears to be down.

Nevertheless, James Lee of Mizuho Securities remains bullish on the company. In a research note to investors  [Barron’s], the analyst wrote,

Our long-term thesis remains unchanged as we continue to believe that Google is a positive structural story on penetrating TV advertising, improved monetization for Maps and newly introduced Discover ads, and cloud opportunities.

Sundar Pichai Must Take an Investor-Friendly Stance

Alphabet can take a cue from Tesla. The electric car company knows how to boost its share price by simply providing positive guidance for the year.

Sundar Pichai took the reigns from Google co-founder Larry Page in December. This will Alphabet’s first quarterly report with Pichai as head.

Michael Levine, analyst at Pivotal Research Group  [Markets Insider], writes that investors can hope that the company will provide more disclosure around its business segments and make a change in its guidance protocol. In addition, there might be an opportunity for dividend issuance.

If Pichai can show investors that Alphabet’s secretive nature is a thing of the past, it might be enough to inspire GOOGL to rally.

Alphabet Must Show How It Plans to Address Stricter Regulations

A federal probe of Google’s business practices threatens Alphabet’s earnings this year. The Department of Justice and state Attorney Generals are meeting this week  [The Street] to share the details of their investigations into Google. As expected, investors are already jittery on the possible impact of increased regulation on future earnings. For instance, Facebook’s stock plunged due to multiple antitrust investigations.

Alphabet may be facing something else as well. There’s talk that regulators might dissect the tech company. If that happens, one analyst believes that the break up could be a positive development for the company.

Brian White, analyst at Monness, Crespi, Hardt & Co, said [CNBC],

In our view, investors would likely value the sum of Alphabet’s businesses at a higher level than the company as a single, standalone business. We continue to believe Alphabet is undervalued for its growth prospects, leadership position in digital advertising and cash-rich balance sheet.

Whether Alphabet gets dismembered or not, the tech giant must give investors guidance on what it expects from increased regulatory scrutiny.

Disclaimer: The above should not be considered trading advice from CCN.com. The writer does not own any shares of the companies or markets mentioned.