* Reports Q3 2019 results on Monday, October 28 after closing
* Revenue expectation: $ 40.3 billion
* EPS expectation: $ 12.28
For the mother alphabet of search engine giant Google (NASDAQ :), it is more important than ever to show investors that the growth generator remains intact at a time when it faces one of the most intense antitrust probes of our time.
And indeed, despite these uncertain regulations, there is no sign that spending on digital advertising is weakening. For that reason, analysts expect a growth of 19% in Google's revenue to $ 40.3 billion in and roughly the same growth for the current fiscal year.
But the high level of control means that a small error in Alphabet's earnings performance could cause a major negative movement in its shares. The stock closed at $ 1,264.30 on Friday, after rising 13% this year. Equities have been under pressure for most of this year due to concerns that higher spending could harm profits.
Alphabet and Amazon.com (NASDAQ 🙂 are among the companies being investigated in the US Department of Justice's broad antitrust investigation to investigate whether & # 39; the world's largest technology companies are restricting competition.
The Department of Justice antitrust chief, Makan Delrahim, said at a Wall Street Journal technology conference this month that the breakup of a technology company is "perfectly on the table," if justified by the evidence discovered in the probe.
The Advocate General of 48 US states, the Federal Trade Commission, US Congress Committees and Europe & # 39; s anti-monopolistic authority also investigate Alphabet and other technical giants separately.
Google & # 39; s Wide Moat
This is not the first time that Google has been confronted with antitrust investigations. It dealt with a long federal investigation that ended in 2013 without significant damage to the company. However, this time the size and range of these probes is large enough to cause investors panic and uncertainty about its shares.
The question for investors is whether they should continue to focus on the business fundamentals of the company or take into account a possible adverse outcome of these probes, which can take years to complete.
In our opinion, Google is a company with a strong moat that can hardly be challenged. More than 90% of all internet searches take place via Google and its subsidiary YouTube. Google processes 3.5 billion searches every day, making its platform the most valuable for advertisers.
That means that companies have little choice but to advertise on the Google platform. Due to the enormous presence on the internet, the giant search engine dominates the digital advertising market with 40% control over the world market
It is almost impossible to predict the outcome of these legal probes and their impact on Google's business, but if history provides any indication, such probes usually end up with a large fine and make changes to internal practices from the company. Google recently tackled both in Europe, without losing its market share there.
The company, with its strong financial muscle power, leads the way with new technological innovations that will stimulate future growth and can help diversify its revenues outside of advertising activities. In particular, self-driving car technology offers Alphabet the greatest opportunity.
According to a recent report from Deutsche Bank analysts, the cloud business of Alphabet alone is now worth $ 225 billion. The unit could report compound annual growth of 55% between 2018 and 2022 and achieve annual sales of around $ 38 billion in 2025, the analysts wrote.
Bottom Line
Google has the financial strength and future growth strategy to meet future challenges of regulatory action and increased competition. In our opinion, the noise caused by the latest antitrust probes should not distract investors from what it has to offer. Because the traditional growth factors remain undisputed and the company positions itself to conquer a large part of the new growth areas, it is no problem to stick with your alphabet.
