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What's in the Offing for Alphabet's (GOOGL) Q4 Earnings?

Zacks Equity Research

Alphabet Inc. GOOGL is scheduled to report fourth-quarter 2019 results on Feb 3. In the last reported quarter, it delivered a negative earnings surprise of 19.5%.

For the fourth quarter, the Zacks Consensus Estimate for earnings is pegged at $12.76 per share, implying a decline of 0.1% from the year-ago reported figure.

The consensus mark for revenues is pegged at $38.44 billion, implying growth of 20.7% from the year-ago reported figure.

Alphabet Inc. Price and EPS Surprise

 

Alphabet Inc. Price and EPS Surprise

Alphabet Inc. price-eps-surprise | Alphabet Inc. Quote

Performance in the Last Reported Quarter

Alphabet reported third-quarter 2019 non-GAAP earnings of $10.12 per share, which missed the Zacks Consensus Estimate of $12.57. Also, earnings decreased 29% sequentially and 22.5% year over year.

However, revenues of $33.01 billion outpaced the Zacks Consensus Estimate by 0.5% and improved 21.5% on a year-over-year basis.

Let’s see how things have shaped up for this announcement.

Search, New Devices & Cloud Momentum - Key Catalysts

Alphabet’s dominant position in the search world is anticipated to have been a key catalyst for top-line growth.

The company’s continued focus on innovation of the search segment, which accounts for a major portion of total revenues, is expected to have enhanced the segment’s earnings and driven traffic on its platform.

Google has been significantly gaining momentum in the highly-competitive cloud market over the last few quarters. During the fourth quarter, it expanded the cloud service portfolio and data centers.

The company also introduced a software service, Transfer Service, in a bid to make data shifting to cloud easier and seamless. It also acquired Typhoon Studios, a video game developer startup based in Montreal, to expand presence in the cloud gaming space.

The positive impact of these efforts is likely to reflect on the upcoming results.

The company’s initiatives to expand presence in the electronic gadgets space on the back of advanced technologies are expected to have been a key catalyst. During the quarter, it launched new devices and the Google Nest Mini smart speaker in India. These devices are expected to have driven its top-line growth in the to-be-reported quarter.

Waymo Initiatives

The company’s self-driving project, Waymo, has been steadily gaining momentum in the autonomous vehicle market.

During the fourth quarter, Alphabet acquired Latent Logic, a British AI company that specializes in a form of ML namely imitation learning that trains machines to perform actions similar to humans. This deal strengthened its presence in the booming self-driving vehicles market of Europe and the U.K.

The company launched the Waymo’s ride-hailing app for Apple’s (AAPL) iOS and iPhone users residing in Phoenix, AZ. This move is expected to have helped the company in expanding user reach in the self-driving space.

These efforts are likely to have driven Alphabet’s top-line growth in the quarter under review.

Concerns

Alphabet’s search advertising business has been facing stiff competition from Amazon. Google Cloud trails both Amazon and Microsoft (MSFT) in the cloud computing space. Increasing competition in both the markets might have hurt its top-line growth in the to-be-reported quarter.

The company continued to face data privacy challenges in the quarter. In addition, increased spending on its consumer gadgets, YouTube video app and cloud computing services is anticipated to have been a risk. Higher expenses are expected to get reflected on the bottomline.

Earnings Whispers

Our proven model does not conclusively predict an earnings beat for Alphabet this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. But that is not the case here.

Earnings ESP: The company has an Earnings ESP of -1.95%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Currently, Alphabet has a Zacks Rank #2.

Stocks That Warrant a Look

You may consider the following stocks that have the right combination of elements to beat on earnings in the upcoming releases.

Advanced Energy Industries, Inc. AEIS has an Earnings ESP of +10.80% and a Zacks Rank of 1.

Applied Optoelectronics, Inc. AAOI has an Earnings ESP of +8.12% and a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Facebook FB has an Earnings ESP of +2.62% and a Zacks Rank of 3.

5 Stocks Set to Double

Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.

Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

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