Can Alphabet Inc (NASDAQ:GOOGL) earnings beat estimates again in Q4? Here’s why GOOGL stock looks set for a good 2017.
Google Inc (NASDAQ:GOOG)’s parent company, Alphabet Inc (NASDAQ:GOOGL) is scheduled to report its earnings on 26th January after the markets close. After 3 consecutive blockbuster quarters of double-digit YoY (Year-on-Year) revenue growth of 17%, 21%, and 20% respectively, there is a lot of pressure on Alphabet to end the year on a high note.
Further, the company exceeded expectations of both EPS and revenue in the previous quarter, which has raised the expectations of a repeat performance in Q4. Alphabet posted phenomenal Q3 results, thanks to Google’s increasing number of aggregate paid clicks, despite the declining average cost per click in its advertising business. Should you buy GOOGL stock going into Q4 earnings with heightened expectation?
Before deciding to buy Alphabet stock, one should be aware of few things. Even after posting impressive numbers in its previous quarters, GOOGL stock badly underperformed the market in 2016, finishing with a modest return of just 2%. GOOGL stock was also the underperformer among the FANG group of stocks. Given its size, Alphabet has still continued to grow in double-digits, which makes many believe GOOGL stock is undervalued, and 2017 may be the year when it outperforms.
Alphabet Inc Stock To Breach $1000 In 2017?
A recent Barron’s post stated that GOOGL stock would breach the $1000 mark by the end of 2017, which represents an upside potential of more than 18% from yesterday’s closing price. The post considers digital ad growth and YouTube as the primary drivers for GOOGL stock. The post highlights a study which states that digital ad spending continues to rise at a fast pace, and is set to capture 50% share of advertising spends by 2021, as TV ad-spends continue to shrink. The study also states that “mobile will reach 52% of digital ad spends this year and that by 2021, mobile’s share will balloon to 72%.”
The above two factors are seen as the catalysts for Alphabet’s growth going forward. Quoting from the Barrons post (1):
“It owns the world’s leading search business in Google, along with the top operating system for mobile phones, Android, which helps give Google a dominant share in mobile searches. YouTube, we have argued, is the world’s most valuable video streaming service”
Alphabet Inc (NASDAQ:GOOGL) cannot only rely on its search business to thrive, it’s high time the company’s “other bets” start to bear fruits. Investors would also be expecting some updates about Google’s other promising products, like its Pixel phone and its Google Home device. Though Google is playing catch up in the cloud business, it is expected to make significant progress from its present position, with a meager 5% market share. It is expected to win more market share by differentiating itself using its expertise in artificial intelligence and machine learning. There are threats from rivals like Facebook Inc (NASDAQ:FB) and Amazon.com, Inc. (NASDAQ:AMZN), but Alphabet is expected to fend off these threats.