Alphabet targets record highs ahead of Q3 earnings

When does Alphabet report earnings?

Alphabet reports its fiscal third quarter (Q3) earnings on 26 October, after the market close.

Alphabet earnings – what to expect

Revenue growth for the search engine giant is expected to be 37%, to $63 billion dollars. Meanwhile, earnings per share (EPS) are expected to rise 43% to $23.44.

Alphabet is up by two-thirds for the year, and is closing on the record high seen in late August and early September. Like many of the big tech firms, it has enjoyed an excellent year, and aside from the shakeout of September it has done so without much of the volatility of the Nasdaq 100. Cash flow from operating activities has yet to return to the highs of the fourth quarter (Q4) 2020 but it has recovered from first quarter (Q1) 2021’s dip, moving back to $21 billion for the second quarter (Q2).

It’s not hard to work out where this comes from. Alphabet has nearly 30% of the globe’s digital ad spending, ahead of Facebook’s 25%. Meanwhile, rivals like Alibaba and Amazon only have shares in single digit percentages. Ad revenues have rebounded even as problems related to the Covid-19 pandemic and reduced ad spending have waned.

Google Cloud’s revenues are growing as a segment too. Some firms have opted for Microsoft, but others who might have plumped for those of Amazon have swerved the temptations of Bezos, since they compete with him in the retail space. With the ad business providing the financial muscle, Alphabet can afford to give its cloud division the resources to exploit the expanding cloud market.

Alphabet earnings – valuation and broker views

Alphabet trades at 30 times earnings, which, looking at it over the past ten years, is quite reasonable. Google’s valuation has peaked at 66 times, and fallen to a low of 16 over that period. For a business that made over $36 billion for the first two quarters of the year, that does not seem too demanding.

49 analysts currently cover Alphabet stock. Of these, 17 have a ‘strong buy’, with 30 ‘buys’. One has a ‘hold’ and one lone soul views the stocks as a ‘sell’. The median target price is $3195, an 11% premium to the current price.

Alphabet stock – technical analysis

It is hard to fault the consistency of Alphabet’s performance this year. Until late September the 50-day simple moving average (SMA), current $2812, acted as support in any selloff, and even the September dop found support soon after the break below this indicator. The price hit the 100-day SMA (currently $2700) and then began to rally once again.

The year has seen higher highs and higher lows, and with the price now back above the 50-day SMA a move back towards the September highs at $2940 seems likely.

Solid performer poised for further gains

It’s hard to find much to dislike about Alphabet, at least from a pure investing perspective. Whatever concerns about its dominance in the search engine space, it continues to be defined by its strong position and its remarkable ability, like Amazon and Facebook, to produce plenty of cash.