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What investors can expect from big tech earnings

With Amazon and Google slated to report earnings this week, TECHnalysis Research President Bob O'Donnell joined Yahoo Finance Live to break down what investors can expect.

Video Transcript

ADAM SHAPIRO: Thank you for joining us. This is big.


ADAM SHAPIRO: And let's start with Alphabet, or what most of us would call Google. I always get a little glassy-eyed because you have to talk about the-- what is it? The x traffic acquisition cost. How important is that going to be tomorrow?

BOB O'DONNELL: It's hard to say. I mean, you know-- I mean, I think the overwhelming-- to be honest with you, I think it's going to be a small piece of the puzzle. Because the really big story we're going to see from Amazon, as we saw from Facebook-- or excuse me, from Google, pardon me-- as we saw from Facebook was huge advertising revenues in Q4. And then, of course, Google has the added benefit of Google Cloud, their cloud-based service, which we will hear from Amazon as well.

So I think the story is really going to be around advertising for search-based advertising for Google, for YouTube as well, and then, of course, the cloud-based business from Google Cloud. I think that's going to be the primary pieces of the story. The other details are not going to be a big issue, in my opinion. And I think we're going to see pretty big numbers. The question is, how does the market think about the potential regulatory concerns that are clearly going to be facing all the big tech companies? But I think Google, Alphabet, in particular, could have some of the biggest challenges.

SEANA SMITH: Bob, I wanted to ask you about the cloud because this is going to be the first report where Google is going to break out the cloud's operating profit. I'm curious-- you're saying it's so important to this. I think a lot of the people would agree. But what are you expecting to see number wise tomorrow when we do get that number for the first time?

BOB O'DONNELL: Yeah, it's a fair question. And I'm not sure exactly what we're going to see number wise. My guess is, it's probably going to be pretty good. And I'm not going to try and throw out a number because I would be speculating in a way that I don't think makes sense.

But I do believe that because of the maturity of the business and the way that they've been doing this for a long time and essentially doing the legwork behind the scenes, that when they are choosing to finally release this profitability number, it's going to be pretty good. Because we know what they've been spending from a capital perspective. We can see that from the chip suppliers and everything else. They're buying the components they need to build their cloud infrastructure. And I think we're going to see that the profitability on that cloud business is going to be very strong.

ADAM SHAPIRO: Let's turn to Amazon because there's a key metric you're going to be looking for. This could be their first ever quarter doing more than $100 billion in revenue. Anything to slow them down?

BOB O'DONNELL: No, I mean, Amazon is on a tear. And remember that in Q4, that's when they had Prime Day this year. Prime Day used to be in the summer, but because of the pandemic, it was during Q4, during the holiday shopping season, which was going to be big anyway. So you put those two together, and it's going to be enormous. And then, again, as well, they have Amazon Web Services. They're cloud-based computing.

And both Google and Amazon, of course, are benefiting as we saw with Microsoft and their Azure business. They are benefiting from the fact that so much of the computing infrastructure that every company needs to continue functioning in this pandemic world is being driven by cloud-based computing. So that is going to be a huge part of the story.

You know, I mean, Amazon had-- they hired 400,000 people last year to accommodate the growing business. I mean, if you just think about the number of bodies involved in shipping all the products they've had to ship out, I mean, it's going to be a blockbuster number. I mean, the numbers I've seen have been all over the map. But I think it could be really big.

SEANA SMITH: Bob, you mentioned regulation earlier. Just in terms of what it specifically means for Amazon, how are you looking at that, just in terms of the potential risk that that poses to the company?

BOB O'DONNELL: Well, I mean, I think in the case of Amazon, it's not quite as clear because they have very distinct businesses. Obviously, they have a huge percentage of online sales. But remember that online sales, as big as it is, is still a very small percentage of overall retail sales. And their cloud business, yes, is industry leading, but they have very strong competitors. So I don't think they have as many of the big issues, other than the fact that they're seen as a very large company. And therefore, they are going to be subject to a lot more scrutiny because of that.

But in terms of the specific details, I think Amazon is a little bit safer than some of the other companies that we've been talking about-- Facebook in particular obviously and potentially with Google.

ADAM SHAPIRO: Do you think there will be any kind of mention in the report about the military contract, the kerfuffle that was taking place from the last administration?

BOB O'DONNELL: I doubt it. I mean, I don't think so. I mean, look, they're going to focus on the positive things, right? They're going to focus on the fact, as I said, they're hiring lots of people in a pandemic, when a lot of people-- pardon me-- have lost work. That's a big deal.

They've been making a big deal of the fact that a lot of their business is actually through small and medium businesses. Even though a lot of small and medium business-- retail stores have obviously been terribly impacted. A lot of them are doing quite well on Amazon. And there's been a real focus from Amazon to get these small and medium businesses online to feature them. And that's been a big part of the revenue story. And my guess is, we're going to hear them talking about that as well tomorrow.

ADAM SHAPIRO: All right, Bob O'Donnell is president and chief analyst at TECHnalysis Research. Thank you for being here on Yahoo Finance Live.

BOB O'DONNELL: Thanks, Adam.