Google’s parent company Alphabet (GOOG, GOOGL) is set to report first-quarter earnings results after market close on Tuesday, with investors looking for resilience in search and YouTube ad revenue in the wake of a slide in Big Tech stocks this year.
Here are the main metrics Alphabet is expected to report, based on consensus estimates compiled by Bloomberg:
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Revenue, excluding traffic-acquisition costs: $56.66 billion expected, $45.60 billion Y/Y
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Earnings per share: $25.71 vs. $21.46 Y/Y
Focus in Alphabet’s latest quarterly report will center on the strength of its core search advertising business. This unit has been boosted over the past year as mobility ramped back up and businesses increased their marketing spend. However, that pickup last year has also created tougher comparisons for Alphabet to exceed this year in its top-line results, and rising expenses from heightened labor costs are expected to pressure the company’s profitability .
“We do acknowledge risks to the downside given macroeconomic challenges, partly reflecting Russia/Ukraine events, as well as margin pressures related to inflationary pressures/wage growth,” Angelo Zino, senior equity analyst at CFRA Research, wrote in a note published last week. “Comparisons do get more challenging as we progress through the calendar year (we see sales growth of 23% in Q1, decelerating to 15% by Q4), but Y/Y operating expense increases are seen being most intense in the first half.”
Based on Bloomberg consensus data, Google Search ad sales alone are expected to rise 23% to reach $39.1 billion, slowing from a 30% growth rate in the same quarter last year. And a similar trend is likely for YouTube’s ad business, which is also expected to post a deceleration in sales growth. Analysts are looking for a 23% increase in YouTube’s ad business to bring sales to about $7.4 billion, with this rise slowing from an almost 49% gain for the first quarter of 2021.
“Alphabet benefited from ad revenue growth coming out of the pandemic, but questions remain about the rate of future growth,” George Ball, chairman of Sanders Morris Harris, said in an email Tuesday morning. “There is also uncertainty about governmental and regulatory crackdowns on Alphabet, which can limit further stock growth. Alphabet is a great company, but is facing a new set of worries that didn’t exist even a few years ago.”
For YouTube specifically, increased competition from social media companies and a bevy of new streaming platforms has further created risks to future growth. In a note published ahead of Tuesday’s earnings results, a Cowen survey found that ByteDance-owned TikTok has been picking up share from YouTube among 18- to 24-year-olds.
“YouTube led all platforms in 1Q22 when respondents were asked which platform they used ‘most often’ for mobile video, but YouTube dropped to 35% of respondents vs. 45% in 1Q21, while TikTok was #2 with 22%,” John Blackledge, a Cowen analyst, wrote in a note.
Still, Alphabet has been expanding its efforts in the cloud to offset slowing growth elsewhere. Google Cloud, while still smaller than incumbents like Amazon Web Services and Microsoft Azure, has been growing quickly, but still remains unprofitable. The unit is expected to grow sales 43% for the first quarter to reach $5.8 billion and post an operating loss of $893 million.
Big Tech and other once high-flying growth stocks have been pressured so far this year amid prospects of higher interest rates from the Federal Reserve, which would raise borrowing costs and weigh on the valuations of those companies. Alphabet shares have fallen 15% year-to-date through Monday’s close, while the S&P 500 has declined 10% over the same period.
This post will be updated with the results of Alphabet’s first-quarter results Tuesday after market close. Check back for updates.
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Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter.
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