Good News for Google Stock?
Alphabet Inc (NASDAQ:GOOG) briefly eclipsed Apple Inc. as the largest company in the world after its last earnings report was released. Can investors expect a repeat performance from Google stock after this quarter’s earnings?
Analysts are expecting Alphabet to draw focus back toward its core function: Google. Not just to the search engine, but also to Google’s expanded services, such cloud computing and mobile services.
What investors see in those divisions is likely to dictate the direction of the stock. The earnings are being released after the closing bell today (Thursday, April 21).
According a survey by FactSet, earnings are expected to grow 21% year-over-year, from $6.57 per share to $7.96 per share. We can be reasonably sure Google’s core business is responsible for the lion’s share of that income, especially if last year was any example. (Source: “Alphabet earnings to put focus back on Google,” MarketWatch, April 21, 2016.)
For all of 2015, Google subsidized Alphabet’s “other bets.” It provided $23.4 billion in net income, whereas the company’s moonshot ideas cost Alphabet $3.6 billion.
Don’t get me wrong, the self-driving cars and connected-home ideas are certainly gaining traction. Revenue from Alphabet’s other bets increased by 37% in 2015, so I would expect to see that trend continue this year. I think those ideas will eventually be cash cows for Alphabet, but for this next quarter specifically, Google is going to take center stage.
The company is looking to poach market share from its competitors in the cloud-computing industry. Amazon.com, Inc. and Microsoft Corporation are both strong rivals in this area, but Google is making headway with its pricing and offerings.
The company recently convinced the music streaming service Spotify to move its back-end account data onto Google’s cloud platform. Like Netflix, Spotify needs a lot of cloud computing services to provide streaming to its 75 million users. (Source: “Spotify is moving its data to Google Cloud Platform,” Engadget, February 24, 2016.)
It was a big win for Google. Analysts are looking to see how much of that added revenue drips down to the bottom line. A significant jump in business for the firm’s cloud-computing arm would most likely send Google stock skyrocketing.