Alphabet’s Sales Under Microscope After Last Quarter’s Debacle

(Bloomberg) -- Alphabet Inc.’s revenue performance will be watched closely by investors after a shortfall last quarter sparked the stock’s biggest sell-off in years.

While spending on digital advertising appears to have remained strong in the second quarter, financial results due to be reported Thursday afternoon are also expected to show Alphabet’s revenue growth has continued to narrow. Sales are projected to expand 18% to $30.84 billion, down from 19% growth in the first quarter, according to analyst estimates compiled by Bloomberg.

Given concerns about ad product changes that were blamed for the weakness last quarter, even a small revenue beat would probably cause the shares to rise, according to Cowen analyst John Blackledge.

Google ad revenue still accounts for a majority of the parent company’s revenue, which has also benefited from rapid growth in its cloud division, though it still lags behind Amazon.com Inc. and Microsoft Corp. "Google other" revenue, which includes cloud, is expected to jump 27% to $5.63 billion, according to Bloomberg MODL data. Alphabet shares still haven’t recovered from April’s slump and have lagged behind its megacap technology peers.

Investors will also be looking for details about ad revenue trends in the second half of the year and updates on progress in hardware and Other Bets, which includes its self-driving car unit Waymo, according to UBS analyst Eric Sheridan.

"If either management commentary or industry fundamental work can produce better clarity on those items, we see GOOG materially outperforming the market from current levels," he wrote in a research note, referring to Alphabet’s ticker symbol.

The options market is implying a 5.2% move after the earnings report, according to Bloomberg data.

Just the Numbers

• 2Q GAAP EPS estimate $11.19 (range $9.63-$12.92)
• 2Q revenue ex-TAC estimate $30.84b ($29.88b-$31.57b)
  • Google other revenue $5.63b (Bloomberg MODL)
• 2Q operating income estimate $8.67b ($7.88b-$9.22b)

Data

• GOOGL 37 buys, 7 holds, 0 sells; avg PT $1,321 (15.9% upside from current price)
• Implied 1-day share move following earnings: 5.2%
• Shares rose after 6 of prior 12 earnings announcements
• GAAP EPS beat estimates in 10 of past 12 quarters

Timing

• Earnings release expected July 25 after market close
• Conference call website

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