Alphabet Quarterly Sales to Surge, Despite Regulatory Haze

(Bloomberg) -- Google parent Alphabet Inc. is expected to report a jump in third-quarter revenue and profit, powered by the internet search giant’s digital-advertising business and growth in its cloud division.

Sales at the Mountain View, California-company are projected to rise 23 percent to more than $27 billion, with net income seen climbing to $10.45 a share, according to analyst forecast data compiled by Bloomberg.

Any shortfall is likely to weigh on Alphabet’s stock, which has tumbled 15 percent since reaching a record in July, dragged down by a broader rout in technology stocks amid concerns that global economic growth may be weakening. The stock rose 3.4 percent to $1,093.52 at 1:16 p.m. in New York on Thursday.

Here’s a look at what else investors are watching closely at Alphabet:

  • Costs: Google is spending billions of dollars a year to build data centers for its web services and cloud business. Traffic acquisition costs, the fees Google pays to partners to distribute its search engine and ads, will also be scrutinized.
  • Hardware: Earlier this month, Google showed off two new Pixel smartphones that compete with devices from Apple Inc. and Samsung Electronics Co. Despite positive reviews, Google’s phones have yet to catch on in a meaningful way. The company’s consumer hardware sales are grouped with cloud and app store results in Google’s "other revenue" category. That segment grew 37 percent in the second quarter.
  • Cloud: Google Cloud Chief Executive Officer Diane Greene has been aggressively courting corporate customers, but the business still lags behind Amazon Web Services and Microsoft Corp.’s Azure. The booming industry may well be big enough for all three to thrive. Greene’s efforts to win more government work have been stymied by some Google employees who say the company shouldn’t sell its products to the military, prompting it to drop out of the running for a Defense Department contract valued at $10 billion.
  • Regulatory Headwinds: In July, European antitrust officials fined Google a record $5 billion and ordered the company to stop forcing Android phone makers to preinstall its search engine and Chrome browser when the manufacturers use Google’s Play app store. Along with other internet companies, Google is also facing questions about its privacy and data-collection practices and political pressure from some lawmakers, who say it’s got too much power over what consumers see online. Any sign that these issues are having an impact on the business will be met with concern.

Just the numbers

  • 3Q GAAP EPS estimate $10.45 (range $9.24-$11.90)
  • 3Q revenue ex-TAC estimate $27.33 billion (range $26.89 billion to $27.83 billion)
  • 3Q operating income estimate $8.41 billion (range $7.75 billion to $9.08 billion)

Data

  • 39 buys, 5 holds, 0 sells
  • Avg PT $1,388 (31% upside from current price)
  • Implied 1-day share move following earnings: 5.8%
  • Shares rose after 6 of prior 11 earnings announcements
  • GAAP EPS beat estimates in 8 of past 12 quarters
  • Shares down 6.2% in past 5 days vs SPX Index down 5.5%
  • Shares up 6.9% in past year vs SPX Index up 3.4%

Timing

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