* Reports Q1 2019 results on Monday, April 29, after closing
* Revenue forecast: $ 37.34 billion
* EPS expectation: $ 10.53
When Alphabet Inc. (NASDAQ 🙂 reports it later today, there is little danger that the parent of the search engine google will disappoint investors when it comes to his large cash machine – digital advertisements. The California-based company Mountain View, which is experiencing a duopoly in the digital advertising market with the social media giant Facebook (NASDAQ :), is likely to show that its main advertising business continues to grow.
Analysts expect sales growth of more than 19% to $ 10.58 billion in the quarter, as companies have spent more on Google ads to reach their consumers online. Last week, Facebook achieved robust revenue growth in its advertising business, reflecting the resilience of the online advertising market, despite concerns about consumer privacy and threats of regulatory measures against major social media giants, including Alphabet.
A powerful rally in the company's stock also shows that investors expect no less than a robust quarter, expecting mobile search, YouTube and programmatic ads to contribute significantly to growth. In the year in which other major tech stocks continue to lead the recovery in the broader market, Alphabet has not fallen behind. His stock has risen more than 30% from its low point in December and reached a new record last week. The stock closed Friday at $ 1,277.42 a share.
Google Class A, weekly chart
Spiral cultivation costs
Despite market optimism about Alphabet's overall growth, the company's rising costs are a major concern that could put pressure on its shares after the first quarter report.
In the fourth quarter, Alphabet saw its margins squeezed because it spent heavily on diversifying its revenue base from the advertising business. Capital expenditures in the fourth quarter increased 80% to $ 6.85 billion. The operating margin of the company, a closely controlled measure of profitability, decreased to 21%, a decrease compared to 24% compared to a year ago.
The dramatic rise in costs is partly due to the rising invoices from partners that Google pays to share its search engine, and partly to the billion dollars it spends per year on building data centers and developing new consumer devices like are Pixel phones.
Investors are OK to ignore spending as long as company margins improve, but a continued deterioration of this important measure will certainly cause an alarm. Especially since the company does not reveal much about its newer initiatives. For example, YouTube numbers are included in Google sales, while cloud and hardware results are part of the & # 39; Other & # 39; of the company.
Bottom Line
In addition to these short-term risks, Alphabet remains a major success story in the technology space. The company successfully goes through the new privacy rules in Europe that seem to have had a limited impact on the company's advertising business there. In addition, spending on new areas of the digital economy, such as cloud computing and driverless cars, is positioned to maintain its leadership. We recommend long-term investors to buy Alphabet shares if they show some weakness after today's earnings report.
