Alphabet (GOOG, GOOGL), the parent company of Google, is scheduled to report results of its fourth fiscal quarter after the market close on Monday, February 4, with a conference call scheduled for 4:30 pm ET.
What to watch for:
1. AD REVENUE, CLICKS, MARGINS: Along with earnings and revenue, two metrics that are closely watched for Google are cost-per-click and paid clicks. Last quarter, the company reported that cost-per-click on Google properties was down 28% compared to the same period of last year, while paid clicks on Google properties were up 62% versus last year in Q3. Canaccord analyst Maria Ripps said in her preview of Alphabet's earnings report that she expects investor focus to center mainly around Google Property advertising revenue growth, which will likely be driven by YouTube and mobile, as well as gross margin progression. She forecasts around 25 bps of gross margin pressure year-over-year, which Ripps notes is in-line with her long-term thesis that gross margin pressure should continue to moderate. Ripps has a Buy rating and $1,250 price target on Alphabet's Class A shares. In his own preview, BofA Merrill Lynch's Justin Post said he views expenses as a risk, given the potential ramp in depreciation, hardware and content, plus the fact that "there have been unusual one-time charges" in prior fourth quarter reports from the company. However, he also said that year-over-year comps are "much easier" and he expects core margins to be down 150bps year-over-year, an improvement from the decline of 350bps in Q3. He kept a Buy rating and Alphabet with a price target of $1,350.
2. CAPITAL RETURNS: On January 30, Jefferies analyst Brent Thill said he believes Alphabet could soon announce a "sharply higher" stock buyback authorization of $12B-$15B, up from $8.6B in January 2018. Despite often heavy investments in many initiatives, Alphabet's net cash balance "has grown massively," Thill told investors. The analyst expects Alphabet's buybacks to remain elevated as its "stock performance has been lackluster" in 2018 and its valuation is "very reasonable." Thill says Alphabet remains a top large cap pick with a Buy rating and $1,450 price target.
3. CLOUD: Google does not break out revenue from its Google Cloud Platform, though analysts often cite the company as third in the U.S. cloud race behind rivals Amazon Web Services (AMZN) and Microsoft (MSFT). In October, after IBM (IBM) announced a deal to acquire Red Hat (RHT), Oppenheimer analyst Timothy Horan noted that those two have lagged leaders such as Microsoft, Amazon and Google in the cloud. By merging, they are trying to improve their cloud position and Horan sees them looking to use the disruptive Container/Kubernetes to create a new hybrid cloud platform. Given how far behind they are in infrastructure, the analyst believes they may look to partner much more with Google, which he said is a threat to Microsoft more so than AWS. While Horan thinks the deal does open up an opportunity for a combined IBM/Red Hat to enter the market with a new service, they still have a long way to go before they can compete with Microsoft and Amazon in cloud, he stated.
Alphabet
+20.52 (+1.83%)
Alphabet
+18.77 (+1.69%)
Microsoft
+2.88 (+2.80%)
Amazon.com
+7.89 (+0.49%)
Red Hat
-0.08 (-0.04%)
IBM
+0.61 (+0.45%)