A Google building

ALPHABET – Watch the Revenue Numbers – Q2 Earnings later today

The Cloud is King

Over the last 2 years, Alphabet has beaten EPS estimates 75% of the time and revenue estimates 100% of the time. Zack Investments report that Alphabet’s search market share (north of 90%) is a big positive, which along with its focus on innovation of its AI techniques, strategic acquisitions and Android OS should continue to generate strong cash flows for the company. Moreover, the growing momentum of Google Cloud and expanding data centres will continue to bolster the company’s presence in the cloud space.

From the negative perspective though, Alphabet is facing some downwards risks, as with Q42018 and Q12019, it invested heavily on digital advertising and on opening data centres to extend its cloud footprint worldwide and for designing, developing and marketing the new range of Pixel phones. Growth in advertising revenues will also be under the spotlight later. The revenue growth in Q1 was under 20% (the first time in over 3 years) at 16.7% and the key revenues from advertising were down 15.6%, representing a two-year lows. On top of this was the announcement earlier in the week, from the Department of Justice that the US Attorney General, William Barr, was interested in launching a broad antitrust investigation into the Big Tech companies within the USA- the sort of scrutiny that has brought successful anti-trust actions in the past in other jurisdictions, notably from the EU.

So what does Q2 hold?

In general, Alphabet is expecting revenues to be just shy of $31.00 billion at $30,90 with a consensus earnings per share coming in at $11.49 for a decline of 2% However, Alphabet has a history of beating estimates by more than 10% on average, so could Q2 prove to be the same? The Cloud business continues to grow significantly following the huge invest from Q42018, some analysts polled by Reuters are expecting the business unit to be worth between $17 and $20 billion by Q42020. However, it is a very competitive space with Amazon, IBM and Microsoft, all key players and with larger market shares than Alphabet. The investment needs to continue.

Technically, Alphabet shares are up 9% year to date, under performing peers and the wider USA500 in general. The chart is very mixed although Analysts remain biased to the upside with 38 of 43 having a BUY or STRONG BUY rating for the stock, with targets ranging from $1,150 to $1,500.

The Pivot zone is the confluence of the 200, 50 and 20-day moving averages at $1130. Below this level $1100 provides short-term support with the lower Bollinger band at $1075. Resistance sits initially at $1160, the upper Bollinger band at $1180 and $1190.

The Alphabet numbers are released at 20:00 GMT later today, and all eyes will be on the revenue numbers and the growth of Google Cloud.

 

Stuart Cowell, Head Market Analyst at HotForex
(read our HotForex Review)