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How to Trade Google's Stock (GOOGL) Ahead of Earnings

On Thursday, July 28 th , Alphabet Inc. (GOOGL) released its Q2 earnings results. The company is currently a Zacks Rank #4 (Sell) and shares are down about 3% year-to-date.

David looked into Alphabet's past earnings, looked at what is currently going on with the company, and gave us his thoughts on their upcoming earnings announcement.

Furthermore, Dave will look into some potential options trades for investors looking to make a play on Alphabet ahead of earnings.

Alphabet Inc. in Focus

Alphabet Inc. is engaged in technology business. The company provides web-based search, advertisements, maps, software applications, mobile operating systems, consumer content, enterprise solutions, commerce, and hardware products through its subsidiaries.

Alphabet is coming off of an earnings miss of 5.35% in its Q1 2016 earnings report, posting an EPS that was $0.34 lower than the Zacks Consensus Estimate.

GOOGL has an average EPS surprise of -2.78% for the last four quarters. In Q2 2015, GOOGL missed estimates by 9.54%. This trend continued in Q3 2015, where GOOGL missed estimates by 2.39%. However, GOOGL went on to beat estimates in Q4 2015 by 6.17%.

ALPHABET INC-A Price, Consensus and EPS Surprise

ALPHABET INC-A Price, Consensus and EPS Surprise | ALPHABET INC-A Quote

Heading into this earnings report, our Most Accurate Estimate for Alphabet is $6.53, higher than the Zacks Consensus Estimate by $0.06.

Alphabet took a big a hit after its Q1 2016 earnings report, so all eyes are on this one as it will decide what direction the stock travels in the near term. Alphabet has been busy on many fronts, but activity on subsidiary Google will be a telltale sign on what is to come.

In Q1, revenue from Alphabet's search business dropped 4.1% sequentially while that from partner sites dropped 10.9%. This resulted in a total ad revenue decline of 5.5%, and given the negative EPS surprise, the stock clearly felt the result. Google-owned sites as well as partner sites brought in 71% and 18% of quarterly revenue respectively, reflecting how large of an impact they have on the company at this point.

Although ad demand has increased, GOOGL has seen a decrease in cost-per-click. This refers to the model in which the amount of payment Google requires from clients is based on the amount of times the ad was clicked on. Should cost-per-click continue to decrease, Alphabet could feel some more pain due to decreased revenue moving forward.

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Dave Bartosiak is the editor of the Momentum Trader and Home Run Investor service. He has over a decade of experience in the financial services industry. He has traded forex, futures, stocks, and options. Mr. Bartosiak is a frequent guest on popular business news TV channels such as Bloomberg TV. He's also the host of a light-hearted, Millennial-minded series of videos called "Trending Stocks."

Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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