Alphabet Inc. is bracing to expose some secrets that could help Google’s parent company pass Apple Inc. in market capitalization.
Alphabet GOOGL, +1.74% GOOG, +1.64% is expected to report fourth-quarter earnings after the market’s close on Monday. The company will finally break out non-Google reporting segments under the recently-formed Alphabet structure after initially announcing the restructuring in August. It will have two reporting segments: Google and “other bets.”
Investors will have their eyes on how the core Google’s business is growing in terms of revenue, profitability and margins, but the first look at Alphabet’s “moonshots” will also drive interest. The company’s stock will also be closely followed during and after the earnings release, as Alphabet’s market capitalization zeroes in on that of market leader Apple Inc. AAPL, +3.45%
Here’s what to expect:
Earnings: Analysts expect Alphabet to report earnings per share of $8.09, versus $6.88 in the year-earlier period. Estimize, a software platform that uses crowdsourcing to track earnings estimates from hedge fund executives, brokerages and buy-side analysts, has Alphabet earning even more, at $8.17 a share. Alphabet has surpassed the Estimize consensus estimate in its last two quarters.
Revenue: FactSet-surveyed analysts and contributors on Estimize are all forecasting revenue of $16.9 billion, compared with $14.5 billion last year. Alphabet has underperformed the Estimize consensus in every quarter since the fourth quarter of 2013, but it has topped the FactSet estimate in its last two.
Stock reaction: Shares of Alphabet have risen 2% over the last three months despite market uncertainties that have pushed the S&P 500 down 7.5%. Over the last year, its shares are up 48%, vastly outperforming the index’s 5% decline.
Analysts are overwhelming bullish on the company. The average stock rating on Alphabet is the equivalent to buy, according to a poll of roughly 40 analysts surveyed by FactSet. The average price target on the stock is $861, implying upside of 15% from Thursday’s closing price.
This week, Wedbush raised its price target on the stock to $800 from $740, though Raymond James analyst Aaron Kessler told clients in a note that he thinks investors might be underestimating the dilutive impact to margins of YouTube and Google Play store revenues. BGC Partners analyst Colin Gillis said Google is on track to be the first company valued at more than $1 trillion.
Apple currently is the world’s most valuable company with a market cap of $539.7 billion, but Alphabet has been zeroing in. Alphabet’s market cap stood at $517.3 billion at the close of Friday trading, and the company already owns the record for largest single-day market-cap gain, more than $65 billion, set last July after its mid-year earnings report.
Apple slid after releasing its earnings report Tuesday, which showed growth in its core product, the iPhone, fell to nearly nothing. The tech giant’s market cap has fallen 19.2% in the past three months and 18.1% in the past year as funds have begun treating it more as a value stock than a high-growth tech stock.
What to watch for: Alphabet’s core Google reporting segment will include results from its main Internet properties, such as ads, maps, YouTube, apps, cloud, Android, Chrome and Google Play. It will comprise the vast majority of Alphabet’s total revenue, and Kessler said analysts and investors will have a close eye on the core business’s profitability.
The “other bets” segment will include Alphabet’s experimental “moonshots” business lines, which have given birth to innovative ideas such as driverless cars and smart contact lenses. It will also include Google Capital, Google Ventures and smart-home product Nest. Raymond James estimated that area of the business could have a loss of up to $1 billion.