Alphabet’s share price has surged more than 17% year-to-date. Can the positive momentum continue in light of upcoming Q1 results?
When does Alphabet report earnings?
Alphabet Inc is set to release its quarter one (Q1) financial results on 25 April 2023, after market closes.
Alphabet’s earnings – what to expect
Current expectations from Refinitiv are for Alphabet’s upcoming Q1 revenue to come in at $68.8 billion, up 1.2% year-on-year. Earnings per share (EPS) is expected to come in at $1.07, a 13.1% decline from a year ago.
Advertising environment remains tough but signs of resilience will be on watch
78% of Alphabet’s top line comes from Google advertising revenue, so development on that front will continue to drive the numbers for its upcoming results. Given the cyclical nature of the advertising market, there is little doubt that the uncertain economic outlook will lead corporates to continue tightening their belts and pull back on advertising spending, weighing on Alphabet’s key revenue generator as a result.
However, with the downbeat environment being a given, signs of resilience will be what market participants are looking for. Current expectations are for a 1.7% decline in advertising revenue from the previous year. Considering that 1Q 2023 brought about a more restrictive interest rate environment and unexpected instabilities in the global banking space, one may argue that a mere 1.7% contraction can be a remarkable feat and meeting expectations may provide a source of relief.
Furthermore, 1Q 2023 saw the US economic surprise index revert back into positive territory to deliver its highest reading since April 2022. A still-robust US labour market may play a part and the positive reading suggests that economic conditions could still be holding up above expectations, at least for 1Q 2023. This may raise the odds of potential resilience being reflected in the upcoming results. Alphabet derives almost half of its revenue from the US.
Hopes for its cloud division to cushion lower advertising revenue
All eyes will also be on Alphabet’s cloud division to provide some cushion against the lower advertising revenue and will be key in helping the company eke out a positive top line growth for the upcoming results.
Expectations are for a further slowdown in the segment’s growth, but nevertheless, still showing a strong double-digit increase from a year ago (expected 28.7% versus 32.0% in Q4 2022). While corporates are more cautious with their spending now, digital transformation in business processes is still expected to remain the priority to maintain longer-term competitiveness. With that, signs of resilience in cloud adoption will be on the lookout.
According to Refinitiv, for the past four straight quarters, Alphabet has failed to deliver up to expectations for both its top and bottom line. Therefore, meeting or exceeding estimates this time round may provide a much-needed positive surprise.
ChatGPT – Will Alphabet’s search-engine dominance slip?
With the recent hype around ChatGPT, Google has been deemed to be on the backfoot in integrating AI capabilities for its search features. Previous launch of its own version of AI Chatbot, Bard, has created an uproar about its misinformation. Therefore, focus will also be on how its management will convince investors in staying competitive to avoid losing market share.
For now, Alphabet remains the dominant player in the search engine market with more than 80% market share, but it will be a race against time to defend its share of the pie with intense competition. Any guidance on the progress of its Bard integration will be on close watch.
To add to more uncertainties, Samsung is also reportedly considering making Microsoft Bing the default search engine on its Galaxy phones, instead of Google. While it could be a move from Samsung to squeeze more billions from Google ahead of its deal renewal, this will be an issue which needs to be addressed by the management as well.
Technical analysis – Rising channel pattern in focus
From its technicals, Alphabet’s share price has been largely trading within a rising channel pattern since November last year. The series of higher highs and higher lows still keep an upward trend in place, while its share price successfully defended the key 200-day moving average (MA) lately.
That said, recent retests of the upper channel trendline were met with some resistance, with declining Moving Average Convergence/Divergence (MACD) on recent price highs suggesting some moderation in upward momentum for now. Greater conviction may come from an upward break of the US$110 level to pave the way towards the US$117 level next. On the downside, its 200-day MA remains a key trendline to watch and holding the line may still keep its prevailing upward trend intact.