Alphabet Class A and C shares have gained 16.3% and 17.4%, respectively, in 2019 through Friday, Oct. 11. The S&P 500 has returned 20.4% over this period. Alphabet stock, however, remains an outperformer for periods of one year and longer.
Here’s what to watch when Alphabet reports.
Key quarterly numbers
Here are Alphabet’s year-ago results and Wall Street’s estimates to use as benchmarks. The company doesn’t provide guidance.
|Metric||Q3 2018 Result||Wall Street’s Q3 2019 Consensus||Wall Street’s Projected Change|
|Revenue||$33.74 billion||$40.34 billion||19.6%|
|Adjusted earnings per share (EPS)||$13.06||$12.41||(5%)|
CFO Ruth Porat said on last quarter’s earnings call that the company expected continued foreign exchange headwinds in the third quarter. Such headwinds negatively impact both revenue and operating income (and, thus, earnings).
Investors can expect that Alphabet will continue to invest to support long-term growth. While this is a positive for investors focused on the long haul, it does negatively impact current operating income and earnings.
For context, here are last quarter’s results by segment:
|Segment||Q2 2019 Revenue||Growth (YOY)||Q2 2019 Operating Income||Growth (YOY)|
|$38.8 billion||19%||$10.4 billion||16%|
|Other bets (formerly “Moonshots”)||$162 million||12%||($989 million)||Loss widened 35%|
|Total||$38.9 billion||19%||$9.2 billion||201%*|
In constant currency, revenue grew 22% — an acceleration from the first quarter’s 19%, though slightly lower than the fourth quarter of 2018’s 23%. Within Google, revenue breakdown was as follows:
- Google properties (“sites”): an 18% increase to $27.3 billion
- Google network members’ properties: a 9.1% rise to $5.3 billion
- Total Google advertising (above two categories): a 16% increase to $32.6 billion, driven by mobile search and YouTube.
- Google “other revenue”: a 40% jump to $6.2 billion, driven by strong growth in Cloud and Play
As has been the trend for some time, Alphabet’s costs increased faster than its revenue in the second quarter. This resulted in the adjusted operating margin edging down to 24%, from 25% in the year-ago period.
Google: Ad revenue growth
As always, investors should primarily focus on revenue growth in the company’s main business: advertising. Last quarter’s ad sales growth of 16.1% year over year represented an acceleration from the first quarter’s growth of 15.3%, but in general, this metric has been decelerating on a sequential basis. In the two preceding quarters, it was 19.9% (Q4 2018) and 20.3% (Q3).
Other bets: Waymo update
Investors can expect management to provide an update on the earnings call about Waymo’s progress and plans. Since late last year, Alphabet’s self-driving vehicle subsidiary has been operating a ride-hailing service in Phoenix, Waymo One. On last quarter’s earnings call, CFO Porat said the service has over 1,000 active riders. Just last week, Waymo announced that it has entered Los Angeles with several vehicles for 3D mapping purposes.
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Beth McKenna has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares) and Alphabet (C shares). The Motley Fool has a disclosure policy.