* Reports Q4 2019 results on Monday, February 3 after closure
* Revenue expectation: $ 46.91 billion
* EPS expectation: $ 12.51
When the search engine giant and the mother of Google, Alphabet (NASDAQ :), report its quarterly report tomorrow, it must demonstrate that its powerful advertising machine is still running strong enough to generate double-digit revenue growth. And because the company faces one of the most intense antitrust probes of our time, this has become more important than ever.
So far there is no sign that spending on digital advertising is weakening. For that reason, analysts expect a 19% growth in Google sales to $ 46.91 billion in the fourth quarter compared to the same period a year ago.
The shares have indeed risen by 28% in the last 12 months and by 7% since the start of 2020 alone. They closed Friday's session for $ 1,432.78.
Weekly price chart alphabet
Investors are optimistic about Alphabet's prospects: the company's cloud business doubled its sales rate from $ 1 billion to $ 2 billion per quarter between February 2018 and July 2019. There is no doubt that Google's new advertising opportunities are huge, especially in units such as the YouTube video platform and the ubiquitous Google Maps app.
But while the company is increasing its spending on these initiatives, the Trump administration and 50 advocates-general are conducting major investigations into Google, including whether it has an unfair advantage over smaller advertising rivals.
The Ministry of Justice antitrust chief, Makan Delrahim, said in the past quarter that the disintegration of the Silicon Valley technology giants is "perfectly on the table" as part of evaluations opened in the summer or companies abusing their market power.
New Google businesses
While investors are beginning to worry about a recent general slowdown in advertising revenue growth, competitive losses for Amazon.com (NASDAQ 🙂 and Facebook (NASDAQ 🙂 and the increasing overhang in regulation, we remain positive on Google because of the attractive valuation and generous portfolio of assets that are waiting to be unlocked.
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.
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.
This means that companies have little choice but to advertise on the Google platform. Due to its enormous presence on the internet, the giant search engine dominates the digital advertising market with 40% control over the worldwide market.
At the same time, 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 with a high fine and impose changes to the company's internal practices. Google recently tackled both in Europe, without losing market share there.
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.
With its traditional growth factors undisputed and the company positioning itself to capture many of different new growth areas, it is a no-brainer to stay with your alphabet.
