The two largest social media companies in the world – Alphabet (NASDAQ 🙂 and Facebook (NASDAQ 🙂 – are expected to release their third quarter 2020 earnings reports on Thursday, October 29, after markets close. Investors are waiting for signs that for the digital advertising market badly hit by the pandemic, the worst is over.
For Alphabet, the parent company of search engine behemoth Google, the business climate is becoming quite challenging. The California-based company reported its first drop in sales in its 22-year history in its July report.
For the last quarter ending September 30, the analyst consensus is $ 11.3 in earnings per share on sales of $ 42.76 billion.
With Alphabet relying heavily on ad spend from industries like travel and hospitality, which are under pressure for the foreseeable future, analysts seem to agree that this year will be one of Google's in terms of sales.
The company generally makes no predictions, although Chief Executive Sundar Pichai said in July that he saw early signs of possible stabilization. One bright spot that could cushion some of the slack in the current weak digital ad market is the company's cloud computing activity, which continued to grow even during the pandemic, rising 43% in the second quarter.
In addition to earnings, investors will also want to know the company's stance in the antitrust case filed this month by the Justice Department, alleging that Google is using anti-competitive tactics to maintain a monopoly on its flagship search engine and related advertising business.
According to the Wall Street Journal, the lawsuit is the "most aggressive legal challenge in the US" against a company's dominance in the tech sector in more than two decades.
Despite these setbacks, Google's massive cash stack, the promise to continue to buy back shares, and the strength of the cloud and YouTube companies help the stock to withstand this pressure. Shares are up more than 20% in 2020. They closed at $ 1,584.29 yesterday, down about 3% for the day.
Small businesses are driving Facebook sales
On average, analysts expect Facebook to show earnings per share of $ 1.89 on revenue of $ 19.75 billion. The California-based social media giant is well positioned to withstand the economic shock from increasing user engagement during the pandemic.
One major asset that sets Facebook apart from other social media platforms: its powerful and highly diversified revenue stream. While it certainly benefits them, it doesn't rely on big brands cutting their advertising budgets to cope with the economic downturn.
The vast majority of Facebook's 8 million advertisers are small businesses, many of whom rely heavily on Facebook's global reach for their sales.
To counter the sudden disappearance of pedestrians, these companies are turning to digital marketing, and Facebook is well positioned to capitalize on this trend through its massive ecosystem, led by its Instagram app. Evidence of this strength was seen during the doubling of profits.
Shares of Facebook are up about 33% this year, even after incorporating recent weakness in the markets, showing investors expect the company to emerge unscathed after the pandemic. They closed at $ 277.11 yesterday, down just over 2.5% on the day.
