Reports Q2 2019 results on Thursday, July 25 after closing
Income expectation: $ 38.16 billion
EPS expectation: $ 11.1
There are clear signs that investors are nervous about Alphabet today (NASDAQ :), (NASDAQ :). The shares of Google's parent company have lagged behind other top technology companies in the last 12 months because they fear that rapid growth will come under pressure and the days of tempting profitability may be over.
Some investors fear that the growth of the search engine giant may hit a wall (as in 2015) after the disappointment that analysts missed and kept them guessing about the future. In that quarter, the revenue from the Google advertising company increased by about 15% compared to a year earlier, which was the longest growth with that measure since the end of 2015.
Alphabet Class & # 39; C & # 39; price card
Google's advertising revenue is expected to grow by 16% this year, compared to 22% in 2018, according to the latest consensus projections from FactSet. For the second quarter, analysts are projecting advertising revenues of $ 32.4 billion, an increase of 15% over the same period last year.
In this negative context, Google shares have been the worst performing US technology companies with a value of more than $ 100 billion so far this year. The shares have fallen more than 10% since the last earnings report, with class & # 39; A & # 39; shares yesterday at $ 1,148.05 and class & # 39; C & # 39; shares at $ 1,146.21.
Challenging operational environment
There is no doubt that the operational environment will become a challenge for companies with the largest social media platforms. For Google, investors would like to know the status of its FTC regulation on children's privacy on YouTube, as well as the possibility of an antitrust investigation into the company by the Ministry of Justice.
In our opinion, the biggest obstacle to the value of Google shares comes from these regulatory investigations launched after social media companies were accused of manipulating consumer data to their advantage, not stopping the misuse of their platforms and fascinating in monopolistic practices that suppress competition.
If you take away these political and regulatory risks, we do not think that Google's core advertising activities are threatened. We believe that a quarter of a mistake should not detract from Google's impressive growth result.
Google has maintained unhindered leadership in online search for almost ten years worldwide. It manages 92% of the search query, with the second largest competitor, Microsoft & # 39; s Bing, which only draws 2.5%. That enormous economic moat does not disappear quickly and should let Alphabet & # 39; s cash-generating engine hum.
Bottom Line
Alphabet remains a major success story in the technological space. The company successfully navigates through the new privacy rules in Europe that seem to have a limited impact on its advertising activities there. Also, spending on new areas of the digital economy, such as cloud computing and driverless cars, has positioned it to diversify revenues that go beyond its digital advertising activities.
That said, Google shares will remain under pressure in the short term due to regulatory threats. For that reason, they do not yet offer attractive purchasing options. Investors would be better off waiting on the sidelines.
