Google Pre-earnings Analysis
Not long ago, Google was lagging far behind the market, but optimism around their core advertising business, cloud & AI momentum, and regulatory relief has sparked a monster rally, leaving the stock up 42% YTD at the time of this writing. But as earnings approach and as the stock sits at record highs, the question is whether or not they’ll post a strong enough report to maintain these highs, or if their earnings are already priced in.
Looking at the numbers, Google is expected to post revenue of $99.94 and earnings per shares of $2.26. The company has a long history of meeting and exceeding expectations, so there’s a good probability they’ll do so this time again. If they meet revenue this time, it’ll be their first ever $100 billion quarter, a significant milestone for the company.
There’s no debate that Alphabet is a solid choice when it comes to large cap platform plays with durable moats. The company’s multiple growth channels and resilient ad business gives them an edge and the safety net to maintain growth if one channel slows down. The focus on these earnings in specific, as with most large cap tech stocks, is cloud growth. Their cloud business is expected to grow 30% year over year in revenue, but investors will also be looking for profitability in their cloud business, which has dragged compared to their ads business. While ads / search are still the core business, accounting for ~85% of the company’s revenue, cloud is seen as the strategic expansion layer.
Spending:
Like any other large technology company right now, Google is spending heavily on data center infrastructure to power its artificial intelligence goals. As a result, investors will pay close attention to earnings per share and margins. Projections are already calling for a more moderate profit growth this quarter, a miss on that could send the stock lower, especially as it sits at record highs.
All in all, Alphabet remains a solid long term choice, but earnings may already be priced in. Future projections do point to massive revenue growth in the coming years, however this quarter’s revenue growth is projected to be moderate, so it may leave the stock correcting and cooling off before it ramps up again into next year.
Option chain analysis:
Google’s option chain expiring on October 31st currently reflects an implied volatility reading of 105%, which translates to about a move of (+/-) $18 in the underlying stock, the direction depends on the earnings outcome.
Disclaimer: This article is for informational and educational purposes only and does not constitute financial advice. Investing involves risk, including the possible loss of capital. Always do your own research or consult with a licensed financial advisor before making investment decisions.