With the digital advertising market in recovery across all industries, Alphabet will likely benefit when it reports first-quarter earnings Tuesday.
Yet, after a powerful fourth-quarter, expectations for Alphabet (ticker: GOOGL) have ratcheted up considerably.
The consensus adjusted earnings estimate has jumped nearly 15% since January, now clocking in at $18.05 a share. Analyst revenue expectations have increased roughly 5% since January, with the current expectation at $42.48 billion, excluding traffic acquisitions costs, or TAC; with TAC, analysts model total revenue of $51.66 billion.
Stifel analyst Scott Devitt wrote that his team expects another batch of strong results. He argued that third-party data and industry commentary suggest that paid search ads will benefit from retail and commerce spending, and some early rebounding travel dollars.
In typical years, advertising company revenue shrinks in the first quarter, compared with the holidays. But this year, Devitt wrote the decline is expected to be less significant.
Baird analyst Colin Sebastian wrote in a note that data collected by his team supports prospects for a strong online ad spending rebound through this year. According to his calculations, spending will increase 26% to just under $200 billion in the U.S. Alphabet is set to capture the most of, followed by Facebook (FB), and Amazon.com (AMZN).
Snap reported better-than-forecast results for the first quarter last week, also supporting the idea that digital ad sales are rebounding quickly.
MKM Partners analyst Rohit Kulkarni wrote that his team was “marginally cautious” in part because of the high expectations ahead of results. In the research note Kulkarni said his top questions include whether the company can accelerate YouTube revenue similar to other social media platforms. The consensus estimate for YouTube ad sales is $5.72 billion.
In its fourth-quarter earnings, Alphabet broke out its cloud business as a separate reporting segment. Doing so gave investors the first opportunity to gauge its profitability, through its operating income or losses line item. Analysts had a mixed view of the operating losses it reported but it’s likely a positive sign the company started to make the disclosure.
For the first quarter, analysts expect the company’s cloud computing segment to report revenue of $4.01 billion.
Of the sell-side analysts that cover Alphabet, 95% rate shares a Buy, and 4.7% rate it a Hold. There are no Sell ratings on the stock. The average target price is $2,509.44, which implies upside of 8.6%.
Alphabet Class A shares closed up 0.4% to $2,309.93. Shares of the company surged 81% in the past year as the S&P 500 index advanced 48%.
Alphabet is expected to report earnings after the closing bell Tuesday, and has scheduled a conference call for 5 p.m. Eastern time.
Write to Max A. Cherney at [email protected]
