Alphabet Q2 preview: Where next for Google stock?

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Josh Warner
By :  ,  Market Analyst

When will Alphabet release Q2 earnings?

Alphabet, the owner of search engine Google, is scheduled to release second quarter earnings after US markets close on Tuesday July 26. The company will hold a conference call at 1400 PT, or 1700 ET.

 

Alphabet Q2 earnings consensus

Wall Street forecasts Alphabet’s revenue rose 14.1% year-on-year in the second quarter to $70.59 billion and expect diluted EPS will rise 3.6% to $1.28.

Importantly, Alphabet recently completed its 20-for-1 stock split, which saw shareholders receive 19 additional shares for each one they already owned. This means Alphabet now has significantly more shares in issue than it did when it released its last set of results, impacting the earnings per share measure. The forecasted rise is on a split-adjusted basis. You can read more about this in our Guide to the Google Stock Split.

 

 

Alphabet Q2 earnings preview

Alphabet is expected to be the fastest-growing member of Big Tech this earnings season. Although Wall Street has significantly scaled-back its forecasts amid a weaker outlook, Alphabet is the only member of Big Tech (alongside Microsoft) to deliver bottom-line growth in what has proven to be an extremely tough quarter. The forecasts that earnings will grow despite the fact earnings almost trebled the year before makes it all the more impressive, and come even though a strong US dollar and the withdrawal with Russia will have also been headwinds.

The core Google business is reliant on ads and eyes are on how demand is shaping up given the uncertain economic outlook. However, its monopoly over search means it should prove more resilient versus other ad-reliant peers like Meta. It could also stand to benefit from a shift in spending away from social media platforms following the IDFA changes introduced by Apple last year, which has made it far more difficult for platforms to target consumers and track their online behaviour. YouTube could also benefit if more ad spending moves toward video-based platforms.

With this in mind, Wall Street believes Google Services – driven by advertising on its core search engine and YouTube – will report an 11% year-on-year rise in revenue to $63.5 billion and a 3.7% increase in operating profit to $23.2 billion.

There are some cautious signs that this week’s results may clarify. The company told employees earlier this month that it was slowing down the pace of recruitment and reports just this week suggest it has now extended a hiring freeze for another two weeks. That means Alphabet has become the latest to apply the brakes when it comes to hiring, sparking fears that even the most resilient companies are bracing for an economic downturn and a much tougher time later this year and in 2023.

The driver of growth will continue to be Google Cloud. While Alphabet’s advertising business is exposed to any potential downturn, the cloud-computing division should keep powering ahead as investment in infrastructure should hold up even in the event of a downturn. The problem here is that Google Cloud is still way behind Microsoft and market-leader Amazon, and, unlike its rivals, the business is still burning through cash and in the red. This means Google Cloud will continue to bolster topline growth but remains a drag on the bottom, which is still ultimately reliant on advertising.

Google Cloud is forecast to report a 37% rise in revenue in the second quarter to $6.3 billion but see its operating loss swell to $682.4 million from the $591 million loss seen last year.

 

Where next for GOOGL stock?

Alphabet shares have slumped over 23% since peaking at all-time highs at the start of February, significantly underperforming the S&P 500.

The stock sank to a 14-month low of $101.88 in May but has been in broad consolidation mode since then, trading between a floor of $105.70 and a ceiling of $119.40. We could see the stock breakout of this range once the results are released. Notably, the level of support has been trending higher since hitting that 14-month low, although the stock is still firmly pinned down by the ceiling.

The stock needs to break above the $119.40 level of resistance to install confidence of a move higher. We could see the stock gain momentum quickly should this happen, swiftly to the 100-day moving average at $121.50 and then the key level of support seen during the first four months of 2022 at $126. Notably, the 52 brokers that cover Alphabet remain extremely bullish on the stock, with all but two of them believing the stock offers a buying opportunity at present. They have an average target price of $155.64 on the stock, implying there is over 36% potential upside from current levels and that Alphabet can hit new record highs over the next 12 months.

If the stock comes under renewed pressure, then we could see shares slump back toward $105.70, although the 14-month low of $101.88 should be regarded as a more significant floor. If this fails to hold then Alphabet stock could fall below the $100 mark, in-line with a key support level seen in early 2021.

Will Alphabet stock breakout after the results?

 

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