Alphabet Inc.’s broad product portfolio should serve it well through mid-2021 despite a raging pandemic.
For that reason, Wall Street analysts agree, the financial stars are aligning for Google’s parent
scheduled to report fiscal fourth-quarter results on Tuesday.
A projected bump in advertising factored into J.P. Morgan analyst Doug Anmuth’s projection of sizable jumps in 2021 revenue growth for Google’s search (19%) and YouTube (38%) businesses. Anmuth is also predicting good things for Google Cloud as it edges toward profitability following years of heavy investment, and further commercialization of Waymo, Alphabet’s autonomous-driving subsidiary. On Monday, Google also said it would make some U.S. offices available for use as vaccination centers.
Judging from such rosy forecasts, one could easily overlook the antitrust risks confronting Alphabet: a Department of Justice lawsuit, and two more from state attorneys general challenging the very foundation of Google’s search business.
“Antitrust suits take years to resolve. Pretrial discovery is alone a laborious process. Think of the IBM antitrust suit, that spanned over a decade of what proved to be needless litigation,” antitrust expert Anthony Sabino told MarketWatch.
The exception, he added, is that any future acquisitions will put it “under an electron microscope.”
“They will be examined at a molecular level,” Sabino said. “The people who run Google know that so, in all likelihood, they shall postpone any major acquisitions until they have a better sense of which way the wind is blowing.”
What to expect
Earnings: Analysts polled by FactSet on average expect earnings of $15.68 a share, which would be an increase from $15.35 a share in the fourth quarter of 2019. The estimate has risen from $13.49 a share on Sept. 30.
Contributors to Estimize, a crowdsourcing platform that gathers estimates from Wall Street analysts as well as buy-side analysts, fund managers, company executives, academics and others, are also projecting earnings of $15.68 a share on average.
Revenue: Analysts on average expect Alphabet to report $52.9 billion in fourth-quarter revenue, according to FactSet, up from $46.08 billion the year before.
Estimize contributors are expecting revenue of $43.7 billion.
Stock movement: Through Tuesday, shares are up 26% over the past 12 months, giving it a market value of $1.3 trillion. The S&P 500 index
has increased 16% in the past year.
What analysts are saying
• “We’re expecting Google’s Q4 revenues across all of its main advertising businesses — including search, YouTube, and other display — to show accelerating annual growth compared to Q3 as the holiday season helped boost ad spend and continue the overall recovery that’s gone on since a trough in Q2 2020. We’re expecting YouTube in particular to continue growing at double-digit year-over-year rates as advertisers continue to turn to digital video ads, especially on CTV, which is a growing business for Google.” — eMarketer analyst Nicole Perrin on Jan. 27.
• “YouTube is a required component of advertisers spending on video. Our expert called YouTube foundational in any video ad spend budgets. He noted the five top streaming channels for CTV are [Netflix Inc.]
YouTube, Hulu, Amazon.com Inc.
with YouTube and Hulu being the most monetizable.” — Jefferies analyst Brent Thill, while maintaining a buy rating and price target of $2,150 on Jan. 24.
• “Our checks point to continued acceleration in 4Q across the digital advertising space, and likely another two quarters of acceleration beyond (through 2Q21). Demand remains strong, above pre-COVID levels, for most segments outside of travel and other COVID-impacted sectors like concerts/movies.” — Barclays analyst Ross Sandler, simply recommending investors buy Alphabet stock on Jan. 21.
• “Google is our top pick for the year, reflecting our bias toward Internets that are well-positioned to deliver strong sustainable growth at reasonable valuation.” — wrote J.P. Morgan analyst Doug Anmuth, while reiterating an overweight rating and $2,050 price target on Jan. 19.