Alphabet Q3 preview: Where next for the Google share price?

Alphabet is almost worth twice as much today as it was before the pandemic thanks to being one of the biggest beneficiaries as the world shifts online. We explain what to expect from the earnings and consider how Alphabet shares could react.

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When will Alphabet release Q3 results?

Alphabet, the owner of Google, YouTube and a wide range of digital tools spanning Maps to Gmail, is scheduled to release third quarter earnings after US markets close on Tuesday October 26.

 

Alphabet Q3 earnings preview: what to expect from the results

Alphabet has been its element during the past 18 months, thriving during the pandemic as businesses digitally transform their operations and people spend more time online.

In fact, Alphabet delivered record revenue and profits in the second quarter, driven by consumers living more of their lives online and strong growth in advertising expenditure across the board. Retailers stepped up their online advertising more than any other sector as they look to capitalise as the global economy reopens, while the travel, financial services and media & entertainment segments also delivered strong growth.

At the same time, the company has been ramping-up opportunities for the millions of content creators that draw people to its apps, websites and services. For example, publishing partners and YouTube creators both earned more money in the last quarter than ever before and the company has driven more traffic to third-party sites this year than any previous year.

The third quarter is expected to follow a similar trend, with the online advertising market forecast to have remained strong while the other major aspect of Alphabet’s business – Google Cloud – is anticipated to have continued to see growth accelerate.

Wall Street is expecting third quarter revenue to hit a new record by rising to $63.32 billion from just $46.17 billion the year before. That 37% year-on-year growth would be impressive but mark a slowdown from 62% growth delivered in the second quarter and bring it in-line with the 34% growth booked in the first. 

Analysts forecast net income will jump to $16.21 billion from $11.25 billion last year, with diluted EPS to rise to $23.93 from $16.40.

The slowdown will be primarily caused by tougher comparisons. Alphabet warned in its last set of results that the growth rate delivered by its core Google Services division – housing everything apart from its Cloud unit – would diminish through the last six months of 2021 as it comes up against the stellar levels of growth achieved in the second half of 2020.

Consensus figures from Bloomberg suggest Alphabet will deliver low-to-mid digit sequential growth in the third quarter compared to the second. Notably, other digital giants that rely on advertising, such as Facebook, have warned that the latest changes made to Apple’s iOS will make it much more difficult to target ads to iPhone users going forward. Alphabet is not immune to this but is better protected considering its exposure to the changes is limited to its Network Members unit, which, as a result, is the only segment where growth may disappoint. This implies Alphabet, which owns the Android operating system, is in a much better position to weather the impact from Apple’s changes than other major advertisers it competes with.

One area that is continuing to become a differentiator for Alphabet is YouTube. The company says there is increasing evidence that advertisers are able to reach audiences by advertising on YouTube that they cannot reach through any other channel, such as TV advertising. Analysts are forecasting the video platform’s ad sales could rise 47% year-on-year in the third quarter after soaring 84% in the second.

Meanwhile, Google Cloud is forecast to deliver sales growth of at least 45% to 50%, according to Bloomberg figures, which suggest momentum will have been maintained from the 53% growth delivered in the second quarter. The company is prioritising topline growth over profitability, with the unit booking a loss in the last quarter, but margins will still be closely-watched with investors hoping they will improve as the unit continues to build scale as demand continues to increase.

Alphabet shares have risen over 91% since the start of the pandemic and trade close to the all-time highs seen in early September. Still, brokers remain bullish on the stock with an average Buy rating and a target price of $3167.97 – implying it can hit new all-time highs and rise over 11.7% from the current share price.

 

Where next for the Alphabet share price?

Alphabet has been trading within an ascending channel since September last year. The price hit an all-time high of $2920 at the start of September before easing lower. 

The share price rebounded off support on the 100 sma and has recently recaptured the 50 sma. 

Strong numbers could help bulls refocus on $2920 and fresh all-time highs.  

Weakness in the numbers or guidance could see sellers look to break back below the 50 sma at $2800, exposing the key 100 sma support at $2663. 

Where next for the Google share price?

 

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