What's in the Offing for Alphabet's (GOOGL) Q3 Earnings?

Zacks Equity Research
·5-min read

Alphabet Inc. GOOGL is scheduled to report third-quarter 2020 results on Oct 29. In the last reported quarter, it delivered an earnings surprise of 20.17%.

The stock outperformed the Zacks Consensus Estimate in two out of the trailing four quarters, with the average earnings surprise being 3.97%.

For the third quarter, the Zacks Consensus Estimate for earnings is pegged at $11.30 per share, implying growth of 11.7% from the year-ago reported figure.

The consensus mark for revenues is pegged at $35.26 billion, implying growth of 6.8% from the year-ago reported figure.

Performance in the Last Reported Quarter

Alphabet reported second-quarter 2020 non-GAAP earnings of $10.13 per share, which surpassed the Zacks Consensus Estimate of $8.43. Earnings increased 2.6% sequentially but decreased 28.7% year over year.

Revenues of $31.60 billion outpaced the Zacks Consensus Estimate by 3.3% driven by strength in the company’s cloud and YouTube businesses.

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

Alphabet Inc. Price and EPS Surprise

Alphabet Inc. Price and EPS Surprise
Alphabet Inc. Price and EPS Surprise

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

E-commerce, Cloud Momentum & Other Key Catalysts

Markedly, Google has been making strong efforts to reinforce presence in the e-commerce world as e-commerce has been witnessing an unprecedented spike buoyed by the COVID-19 pandemic.
 
Also, the company drove momentum across the advertising business with new features that include booking for services using Local Services ads by Google that is known for connecting customers to trustworthy service providers, Local Opportunity Finder, local store information, smart campaigns and Grow My Store for retailers.

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

In this regard, Google Cloud invested $100 million in Amwell — a telehealth company that enables seamless virtual doctor visits.

Per the deal, the company will shift parts of the business that are currently loaded on Amazon’s AWS to Google Cloud.

The deal is expected to have bolstered Google’s cloud customer base and aided the performance of the cloud division that has become an integral part of the overall business.

Also, during the quarter, the company announced plans to invest a huge amount to build new data centers, which should add efficiency to Google’s business.

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

Waymo Efforts

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

Also, the Latent Logic acquisition strengthened Alphabet’s presence in the booming self-driving vehicles market of Europe and U.K. This deal is expected to have helped the company expand user reach in the self-driving space.

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

Other Initiatives

During the quarter, Google renamed its G Suite — a package of online business tools namely Gmail, Drive, Docs and Meet — as Google Workspace. Customers who utilize Gmail, Google Doc and other tools free of cost will get access to these new features in the coming months.

Also, Google added a new feature to Google Maps in order to help users travel safely amid the ongoing pandemic by identifying COVID-19 hot zones. The new feature, COVID-19 layer button menu, is available on the map. This button enables a user to know the spread of the virus in a particular area.

In addition, Google teamed up with Apple to develop push notifications for iOS and Android users for contact tracing and curbing the spread of the coronavirus pandemic by building more of the necessary technology directly into phones. The newly launched Exposure Notification System is designed to automatically alert people if they might have been exposed to the coronavirus.

The latest efforts are expected to have strengthened Google’s key offerings to individual and enterprise customers, thereby expanding top-line growth.

Concerns

Alphabet’s search advertising business has been facing stiff competition from Amazon. Google Cloud has been trailing 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.

In addition, increased spending on consumer gadgets, YouTube video app and cloud computing services is anticipated to have been a risk. Higher expenses are expected to get reflected in the company’s upcoming results.

Earnings Whispers

Our proven model predicts 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. And that is the case here.

Earnings ESP: The company has an Earnings ESP of +7.40%. 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.

Other Stocks That Warrant a Look

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

TE Connectivity Ltd. TEL has an Earnings ESP of +5.40% and a Zacks Rank #2.

Netflix, Inc. NFLX has an Earnings ESP of +11.35% and holds a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

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