Alphabet (GOOGL), the parent company of Google, will report first-quarter earnings after market close on Tuesday, with the tech giant's results likely to get a boost from a pick-up in its advertising business amid the vaccine-led recovery.
Here's what Wall Street expects to see from Alphabet's results:
Q1 Revenue, excluding traffic acquisitions costs:$42.54 billion expected vs. $33.71 billion year-over-year
Q1 GAAP earnings per share:$15.64 expected vs. $10.79 year-over-year
Of all of the Big Tech "FAANG" stocks, Alphabet's shares posted the least impressive gain during 2020, despite the broader trend toward tech outperformance last year. The company's results have been viewed as closely tied to the pace of the post-pandemic economic reopening. Alphabet's core advertising revenue through search and YouTube is exposed to marketers in travel and other high-contact industries, as well as small businesses deeply impacted by the pandemic.
Overall, Google advertising revenues are expected to jump 25% over last year, comprising the vast majority of overall sales. YouTube ads likely grew by 42% to $5.8 billion.
"Google Search and YouTube ads could see meaningful upside from advertisers heavily impacted by COVID-19 returning to Search (travel advertisers) and YouTube (brand advertisers)," JPMorgan analyst Doug Anmuth wrote in a note last week.
Against this improving backdrop, Alphabet's stock underperformance against Big Tech peers last year has reversed in 2021 to-date. Shares have risen 32% through Monday's close, far outperforming the S&P 500's 11.5% gain over that time period.
Some, however, have noted that since the company is a known beneficiary of the "reopening trade," it may have a difficult hurdle to clear in delivering first-quarter results that manage to impress Wall Street. Others suggested the opposite.
"We think expectations are actually the lowest for Alphabet, partially because it's been the most obvious reopening stock," Jason Helstein,Oppenheimer senior analyst, told Yahoo Finance on Monday."They have the most exposure to travel. They have the most exposure to local. And so we think, you know, to the extent you would think expectation would be higher, when we've done kind of our own work, we actually think within the tech group, it's actually the best setup into earnings."
"A lot of people have looked at kind of Alphabet and said, this company's just so big, can it keep up hyper-growth? And they just have this kind of ability to surprise. We think their advertising is going to be up 26% this year, which is two points above the Street. And we're looking for 17% next year, which is five points above the Street."
Other, smaller areas of Google's business are expected to have continued growing strongly in the first three months of the year. Google Cloud's revenue will likely top $4 billion for the first quarter, according to consensus estimates, to mark a growth rate of 44% over last year. While still a smaller cloud platform than those of competitors like Microsoft Azure and Amazon Web Services, the company's platform has maintained an impressive run of year-over-year growth topping 40%, continuing to gain market share in the cloud computing space.
This post will be updated with the results of Alphabet's second-quarter results Tuesday after market close. Check back for updates.