Cloud, advertising, and COVID-19 — Here's what 4 analysts are talking about ahead of Google parent Alphabet's earnings
- Google parent Alphabet is scheduled to report its second quarter results on Thursday following the close of markets.
- "We remind investors that 2Q is more of a read on impact of a disruptive virus outbreak and as spend disruptions from protest activity, than on ongoing business trajectory," wrote Bank of America analyst Joanna Zhao.
- Here's what four analysts are talking about ahead of the tech giant's earnings.
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Google parent company Alphabet is set to report its second quarter earnings on Thursday after market close, the same day as Amazon and Facebook.
Here are the key numbers analysts surveyed by Bloomberg expect:
- Earnings per share: $10.19 expected
- Revenue: $30.5 billion expected
In the first quarter of 2020, Alphabet beat Wall Street's expectations for revenue growth, but fell short of profit forecasts.
"Q1 was, in many ways, the tale of two quarters," CEO Sundar Pichai said during a call with analysts. Use of the company's search engine and apps surged during the quarter as people were forced to stay inside. On the flip side, total sales slowed because partners cut spending.
"Overall, recovery in ad spend will depend on a return to economic activity," said Pichai. This quarter, investors will be looking for further information about how the company is faring amid the pandemic recession and economic uncertainty.
The earnings report comes one day after Pichai testified in front of the US House of Representatives' Antitrust Subcommittee, where he was grilled on Google's content and search engine.
Here's what four Wall Street analysts are talking about before the tech giant reports earnings.
1. Bank of America: 2Q a read on "impact of a disruptive virus outbreak and ad spend disruptions from protest activity"
Price target: $1,610
Rating: Buy
"We expect net revenues to be in-line to slightly better than Street at $30.4bn, and think buy side expectations are close to Street," wrote Joanna Zhao in a Tuesday note. "For margins, we est. 2Q core Google margins down 820bps y/y as cost efforts would not fully kick in until 3Q."
"We remind investors that 2Q is more of a read on impact of a disruptive virus outbreak and ad spend disruptions from protest activity, than on ongoing business trajectory. We do expect Google to have remained aggressive with buybacks in 2Q, which is more in the company's control."
"Google Cloud revenue could be a mixed bag as some clients are likely seeing activity increases, while others are significantly reducing spend due to lack of activity and/or delaying big projects."
2. Canaccord Genuity: "Google will benefit with strong engagement across all platforms"
Price target: $1,700
Rating: Buy
"As the COVID-19 pandemic persists and people continue to spend more time at home, we expect Google will benefit with strong engagement across all platforms," wrote analysts led by Maria Ripps in a Sunday note.
"That being said, economic uncertainty caused by the pandemic and a general softness in advertising spend over the near-term will likely limit the company's top-line growth this quarter. Looking beyond Q2, broader trends are encouraging as marketing budgets continue to shift online at a healthy pace."
"We also anticipate that the ongoing pandemic has likely led to heightened demand for cloud computing as most people have been working from home and as schools and colleges continue with virtual classroom education."
3. MKM Partners: "We think overall Google ad revs will decline"
Price target: $1,700
Rating: Buy
"We believe 2Q online advertising trends were better than previously expected, with YouTube CPMs recovering better than expected," wrote Rohit Kulkarni in a Monday note. "However, we think overall Google ad revs will decline."
"We believe near-term investor sentiment for GOOGL is somewhat marginally negative compared to AMZN and FB, given Alphabet's relatively higher exposure to weak pockets in COVID-19, including travel/hospitality, SMBs, offline retail, and restaurants," he said. "Potential upside catalysts could be share buybacks and monetization in Other Bets."
"Overall, we believe trends in online advertising have improved significantly since April, with May being the strongest month in 2Q, driven by accelerating growth in eCommerce. We think civil unrest likely led to a small pullback in brand advertisers during June."
4. Monnes Crespi Hardt: "We expect Alphabet will continue to struggle"
Price target: $1,420
Rating: Buy
"Although we expect Alphabet will continue to struggle with weak digital ad spending and wrestle with antitrust investigations (e.g., July 27th House Judiciary Antitrust Subcommittee hearing), we remain optimistic about Google Cloud in the current environment and the company's longer-term position in a world that will become much more digital in the aftermath of this crisis," wrote Brian White in a Friday note.
White also anticipates that Alphabet will report its first revenue decline on record. "As the COVID-19 crisis ravages more parts of the U.S. in the most nefarious and unpredictable of ways, we believe businesses will be less inclined to spend on advertising," said White.
"Moreover, the ad boycott initiatives rippling across the industry are largely focused on Facebook (FB/Buy); however, some companies have taken a broader stance on social media platforms and YouTube may feel some pressure," he said. "Although we anticipate digital advertising to continue to struggle, we expect cloud trends to remain strong."