Alphabet (GOOGL) 2nd Quarter Earnings: What To Expect

Alphabet (GOOGL) 2nd Quarter Earnings: What To Expect

Google parent Alphabet (GOOG , GOOGL) is set to report second quarter fiscal 2017 earnings results Monday after the closing bell.

Google, the “G” in “FANG,” has seen its share price rise 25% year to date, besting the 9% rise in the S&P 500 index. But the shares, which closed Friday at $993.84, have been laggard when compared to their FANG peers, referring to Facebook (FB) (up 43%), Amazon (AMZN) (up 37%) and Netflix (NFLX) (up 52%). But with a top- and bottom-line beat on Monday, combined with strong outlook, GOOGL stock would break back above $1,000 per share and stay there.

In the period that ended June, Wall Street is looking for the Mountain View, Calif.-based tech giant to deliver adjusted earnings of $8.25 per share, down about 2% from last year’s profit of $8.42 per share, on revenue of $25.64 billion, which would rise almost 20% year over year. For the full year, ending in December, earnings of $33.97 per share would be down from $34.34 a year ago, while full-year revenue of the $107.87 billion would rise almost 20%.

Alphabet, which generates the lion’s share of revenue and profits from digital advertising, has been working to better differentiate its business. The main drivers of the company’s business has been its search capabilities from Google, which accounted for more than 95% of in first quarter revenue. As such, the management has looked for ways to offset declining mobile advertising value with higher clicks. Likewise, the company is also investing aggressively on its “Other Bets” division.

The company’s Other Bets segments focuses on areas such as self-driving cars, artificial intelligence, and smartphones. Looking to better compete with Apple (AAPL) and Samsung (SSNLF) in mobile devices, in October 2016 Google launched its Pixel phones. Pixel hasn’t yet gained the traction the company expected, but the company has nonetheless shipped more than 2 million devices to date.

Elsewhere, analysts will want to know about the company’s self-driving car unit Waymo, which stands for “a new way forward in mobility.” The search giant has since unveiled various car prototypes fitted with Google’s hardware and software built to move with the touch of a button, with neither a steering wheel nor a brake pedal. To what extent can growth in these areas make Alphabet a diversified company?

Analysts will also look for signs that suggest the company’s strategies, including producing original content for YouTube, are paying off. Google’s YouTube, which boasts more than 1.5 billion viewers who watch more than an hour of video per day, recently launched YouTube TV — a live and on-demand streaming service that analysts believe can further bring pain to cable providers.

The $35-per month subscription service allows access to up to forty networks, along with YouTube creator content. As with Facebook, Google, which has already produced a solid library of original shows, in addition to movies for its YouTube Red service, is betting that increased video will drive higher user engagement and, in return, drive higher advertising.

It remains to be seen whether these bets pay off. Google stock — at a P/E of 31.02 — doesn’t scream bargain compared to the rest of the market. However, the company’s dominant advertising business, combined with $84 billion in net cash on the balance sheet with another $38 billion in operating cash flow, provides tons of reason to own the stock and expect higher future returns.