Shares of Google parent Alphabet (GOOG , GOOGL), despite falling 9% over the past thirty days, have been a relative outperformer when compared to FAANG peers Meta Platforms (FB), Amazon (AMZN) and Netflix (NFLX), which have suffered respective declines of 13%, 15.6% and 37% during that span.
Amid the rout in tech, the market has adopted a “flight to quality” approach. This means investors are pick their spots, looking for companies have to feature fundamental qualities such as sustainable revenue and earnings growth, solid cash flows and strong balance sheets. These are staples of Alphabet, which is due to report fourth quarter fiscal 2021 earrings results after the closing bell Tuesday. Investors want to know if Google's outperformance and positive metrics can continue.
The company’s cloud arm could be a strong catalyst for a rebound in its shares, which are still down more than 7% year to date. When factoring the recent momentum of Google Cloud Platform and Google Workspace, the company has shown considerably more growth than it has received credit for. In the most recent quarter, Google posted segment revenues of $5 billion, rising 45% year over year and accounting for about 8% of total revenues.
If the company can show continued acceleration in that segment, the market will begin to take it more seriously. Estimate calls for Google Cloud to deliver Q4 segment revenues of $5.5 billion, implying year-over-year growth of almost 45%. Will that be enough? In the meantime, the company will continue to rely on its search dominance, where it has 90% market share, and digital advertising which has seen some cyclicality of late. Its recent uptrend in several verticals in digital advertising, particularly in areas such as retail, financial services and travel remain compelling reasons to bet on higher prices on Tuesday.
For the quarter that ended December, Wall Street is looking for the Mountain View, Calif.-based tech giant earn $27.40 per share on revenue of $72.09 billion. This compares to the year-ago quarter when earnings came to $22.30 per share on revenue of $56.90 billion. For the full year, earnings are expected to rise 85% year over year to $108.51 per share, while full-year revenue of the $254.22 billion would rise 39.3% year over year.
The strong year-over-year projections for both revenue and profits underscore how strong the company’s three operating segments have been. While Google Services remains the company's bread-and-butter business, accounting for 92% of revenues for the first nine months of 2021, Google Cloud has accounted for 7% of total revenues so far this year. While Amazon Web Services (30% market share) and Microsoft’s (MSFT) Azure (20% market share) are the two top dogs in the market, Google Cloud is gaining ground with 9% share.
In the third quarter, the company delivered blowout results, driven by its core search advertising business and better-than-expected profit margins. Q3 revenues surged 41% year over year to $65.12 billion, easily beating analysts' estimates by $2 billion. The revenue gains were driven by, among others, Search (up 44%), YouTube (up 43%) and Google Network (up 40%) which benefited from a rebound in consumer and business activity. As noted above, the cloud business surged 45% year over year to $5 billion.
Driven by a jump of eight percentage points in operating margin to 32%, Q3 profits almost doubled to $21 billion from a year-ago $11.2 billion. On Tuesday, beyond a top and bottom line beat, the market will want to see sustained improvement in the cloud segment to drive Google stock higher.
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