Jon Hadad

About the Author Jon Hadad

Jon Hadad graduated from the University of Delaware with a degree in political science. Prior to joining the Smarter Analyst team, he was an industry analyst at a New York research firm.

Last Minute Thought: Buy or Sell Alphabet (GOOGL) Stock Before Q1’19 Earnings?


Alphabet (GOOGL) is set to release its first-quarter earnings in just a few minutes, with Wall Street expecting lower earnings on higher revenue, compared to the first quarter of last year. Consensus calls for EPS of $10.58, (down from $13.33), while revenue is estimated to rise to $37.33 billion, a 19% y/y increase. This earnings report will include the European Commission’s $1.7 billion fine on Google, which will contribute to lower earnings.

Ahead of the print, Monness’s top analyst Brian White maintains a Buy rating on GOOGL stock. However, his price target of $1,315 price target is just 2% above current share price.

But credit has to be given where it’s due. According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, White has a yearly average return of 25.9% and a 78% success rate. White has an average return of 11.3% when recommending Alphabet and is ranked #14 out of 5,194 analysts.

White expects Alphabet to “at least meet” his Q1 revenue estimate of $36.31 billion and EPS forecast of $10.33. As usual, Alphabet is expected to generate the majority of its revenue through Google Properties and Advertising, with the analyst “forecasting Google Properties revenue to grow by 16% YoY to $25.50 billion in [Q1] and Google Network Members’ Properties revenue to increase by 6% to $4.94 billion for total Google Advertising revenue growth of 14% to $30.44 billion,” accounting for 84% of estimated revenue.

While Google, among its rivals, face stiffer regulation in Europe (and the threat of that in the US), as well as “a constant flow of unflattering media reports,” White says Alphabet continues to innovate. The analyst points to “new capabilities to enhance” Google Cloud, as well as a new gaming platform and progress in its drone program. Furthermore, Google continues to grow its Cloud business, as the company recently announced it would open regions with Seoul and Salt Lake City, both available next year.

While advertising continues to be the number one money-maker for Google, the company continues with its heavy investments in moonshot projects, which remains woefully unprofitable. Its self-driving car business, Waymo, for example, is expected to eventually generate significant revenue for the company, but so far is burning through money. However, given its high profit margins from ads, the company is able to finance these projects, even if most never go mainstream.

All in all, Wall Street remains extremely optimistic on Alphabet stock ahead of earnings. Of 27 analyst ratings tracked by TipRanks, 25 are Bullish on the company, while only two say Hold. The 27 analysts have an average price target of $1,351.83, which represents a 6% upside to the stock. (See GOOGL’s price targets and analyst ratings on TipRanks)

 

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