Google earnings (Shutterstock photo)
Google parent Alphabet (GOOG , GOOGL) is set to report third quarter fiscal 2017 earnings results Thursday after the closing bell.
In the period that ended September, Wall Street is looking for the Mountain View, Calif.-based tech giant to deliver adjusted earnings of $8.33 per share, down about 8% from last year’s profit of $9.06 per share, on revenue of $27.2 billion, which would rise some 21% year over year. For the full year, ending in December, earnings of $30.64 per share would be down from $34.34 a year ago, while full-year revenue of the $109.18 billion would rise 21% year over year.
Google, which according to Tobias Levkovich, analyst at Citi Research, was the top choice of hedge fund managers in Q2, continues to grow in popularity. The “G” in “FANG” has seen its share price, now hovering near $1000, rise 27% year to date, besting the 14% rise in the S&P 500 index. And there’s a chance, prior to the announcement, the stock reclaims its all-time high of $1,008.61 reached on June 6. Wall Street sees tons of upside in the company’s dominant advertising business where it competes with Facebook (FB).
Spending on digital advertising is projected to rise almost 20% in 2017 to $229.25 billion, up from $194.6 billion in 2016. And there’s no sign of slowing down, according to market research firm eMarketer.
“Digital spending will see double-digit growth each year of the forecast, soaring from $83.00 billion in 2017 to $129.23 billion in 2021,” eMarketer says. “Digital ad expenditures surpassed TV for the first time in 2016, and the gap will widen by roughly $10 billion this year.”
These trends bode well for what Google is able to do in the quarters and years ahead. In the second quarter, for instance, the company’s advertising business contributed to almost 90% of revenue. This compared to just above 10% for the non-advertising segment. On Thursday analysts will also look to see how the company’s Other Bets segments, which focuses on areas such as self-driving cars, artificial intelligence and smartphones, performs.
Likewise, investors will look for signs of growth in the company’s cloud computing capabilities, where it competes with Amazon’s (AMZN) dominant AWS cloud platform and Microsoft’s (MSFT) Azure. Then there’s the company’s media and entertainment strategies, including spending to produce original content for recently-launched YouTube TV — its $35-per-month subscription on-demand streaming service service that analyst believe can further bring pain to cable providers.
To what extent can these growth initiates pay off for Google in the long run, helping the company realize its potential as a tech conglomerate? It remains to be seen. But from a valuation perspective, GOOGL stock is still relatively cheap despite being priced at 23 times fiscal 2018 estimates of the $40.17 per share. Plus, when factoring in the company's war chest of around $95 billion and another $36 billion in operating cash flow, Google stock should be owned, not traded, ahead of Thursday’s results.