Alphabet Bulls Looking for Earnings Spark From FANG Laggard

(Bloomberg) -- After Netflix Inc.’s earnings whiff last week, investors will be looking for Alphabet Inc. to jump start momentum for FANG stocks.

The Google parent’s earnings report Monday afternoon comes as the shares have been the biggest laggard in the megacap bloc this year, rising only 13 percent. While that’s almost three times the S&P 500 Index’s gain, it trails Netflix, Inc. and even Facebook Inc., which is trading near a record after rebounding from a data-privacy scandal in March sparked consumer backlash and regulatory scrutiny.

Alphabet’s year has been quiet by comparison, until the record $5 billion antitrust fine levied by the European Union last week. The company’s second-quarter results will offer the first glimpse into how a new EU data privacy law is affecting digital ad sales. Web traffic acquisition costs and revenue from the unit that includes Google’s cloud business will be the key areas of focus, according to B. Riley FBR.

Alphabet Bulls Looking for Earnings Spark From FANG Laggard

“We remain positive on the secular ad growth story driven by mobile and YouTube combined with generally better expense management and a more shareholder-friendly capital allocation approach,” Susquehanna analyst Shyam Patil said in a note to clients Monday.

Traffic acquisition costs, or TAC, for the second quarter are expected to rise 29 percent compared with the year-earlier period, B. Riley said. Other revenue -- including Cloud, hardware and app sales -- is estimated to increase 40 percent.

Shares of Mountain View, California-based Alphabet have fallen after its past two earnings reports amid concerns over increased spending needed to keep pace with rivals. Positive search revenue and improved YouTube trends in the second quarter would help give investors more confidence that Alphabet can navigate its investments, Morgan Stanley said in a July 11 note to clients. The bank expects the quarter to be largely in line with estimates.

Alphabet’s second quarter by the numbers:

  • GAAP EPS estimate $9.51 (range $8.71 to $10.29)
  • Revenue ex-TAC estimate $25.56 billion (range $24.77 billion to $26.2 billion)
  • Operating income estimate $10.31 billion (range $9.81 billion to $10.92 billion)
  • Analysts on average expect paid clicks will increase 42 percent, according to B. Riley. Last quarter, Alphabet reported paid clicks growth of 55 percent with cost-per-click down 18 percent.

Expectations for Alphabet’s results may be more muted after the EU fine and a disappointing forecast from Netflix that kicked off the FANG earnings season. Deutsche Bank also cautioned last week that Alphabet’s report could be “slightly tricky” for investors to decipher as analyst estimates for revenue don’t appear to reflect recent currency fluctuations.

©2018 Bloomberg L.P.