Alphabet (GOOGL) Q2 Earnings: Is Disappointment In Store?

Alphabet Inc. (NASDAQ:GOOGL) will report second-quarter 2017 earnings on Jul 24 after the closing bell.

The surprise history has been decent in Alphabet’s case. The company missed estimates once in the last four quarters and has an average four-quarter positive surprise of 5.74%.

Coming to the price performance, in the last one year, shares of Alphabet have steadily treaded higher. The stock has returned 31.1% compared with the Zacks categorized Internet Services industry’s gain of 21.6%.

What Happened in the Last Reported Quarter?

Alphabet’s first-quarter earnings exceeded the Zacks Consensus Estimate. A surge in ad click aided growth in the quarter. Also, revenues grew year over year, driven primarily by the boom in Mobile Search, with the ongoing strength in YouTube. Also, strength in programmatic advertising and Play aided revenue growth.

Factors at Play in Q2

The main drivers of the Google business haven’t changed. Pricing remains under pressure, both on account of the ongoing FX concerns as well as continued strength in mobile and TrueView. Volumes are however encouraging, as total paid click grew a reassuring 44% in the last quarter.

Google has gained strength in the mobile platform. Management is focused on driving mobile experiences and the company is well positioned to pick up strong intent-to-buy signals as a result of studying mobile searches from its huge database. As a result, revenue from mobile platform is expected to increase in the to-be-reported quarter.

YouTube remains a strong contributor, benefiting from the increase in online video consumption. More than a thousand creators are currently engaged in the platform, bringing in a thousand subscribers every day.

Also, Google’s cloud business trails Amazon’s AWS, Microsoft’s Azure and IBM (NYSE:IBM). The company’s cloud business is expected to do well in the to-be reported quarter. And finally, Google platforms like Android, Chrome and Daydream continue to help it draw more users and sell more ads.

On a cautionary note, Google’s troubles in the EU are mounting. Despite attempts of appeasing authorities by investing in the region, EU might prove to be more expensive for the company. Google is not providing for this outflow, which means it still has a reasonable chance of emerging victorious. But the developments are worth keeping an eye on, as these are the main reasons for the overhang on the company’s shares.

Earnings Whispers

Our proven model does not show that Alphabet will beat on earnings in the second quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

The company’s Zacks Rank #4 and Earnings ESP of -24.02% make surprise prediction difficult. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

We don’t recommend Sell-rated stocks (Zacks Rank #4 or 5) going into the earnings announcement.

Alphabet Inc. Price and EPS Surprise

Alphabet Inc. Price and EPS Surprise | Alphabet Inc. Quote

Stocks to Consider

You could also consider the following stocks with a positive Earnings ESP and a favorable Zacks Rank:

Cypress Semiconductor Corporation (NASDAQ:CY) , with an Earnings ESP of +11.11% and Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Lam Research Corporation (NASDAQ:LRCX) , with an Earnings ESP of +1.33% and a Zacks Rank #1.

Fortive Corporation (NYSE:FTV) , with an Earnings ESP of +2.90% and a Zacks Rank #3.

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