Alphabet Earnings Preview: Revenues From Search Ads, YouTube, Mobile Set To Grow

Alphabet Inc. (NASDAQ: GOOG) is set to announce its Q3 2017 earnings on October 26th. We believe that Google’s search ads revenues improved in Q3 as ad volumes increased, offsetting the likely declines in cost per click. Additionally, Google continued to sell more ad inventory through its programmatic platform, which is driving aggregate paid clicks and revenues across both the PC and mobile verticals. We also expect TrueView video ads, which power YouTube, to continue to report growth as advertisers continue to leverage the platform to market their products. This should boost revenues for the YouTube platform. During this earnings announcement, we expect:

• The programmatic platform has impacted CPCs, as has the DoubleClick Bid Manager, which monetizes at lower rates than ad clicks on Google.com. Furthermore, search ad revenues are also facing headwinds from changing geographical mix, device mix, currency fluctuations and property mix. Nevertheless, search queries have increased steadily due to the growth in search queries from the smartphone. As a result, the search ad revenues have improved despite the decline in CPCs across both mobile and PCs.
• The company has ventured into various over-the-top (OTT) streaming services such as YouTube Red and YouTube TV for its YouTube platform. As a result, more than 1 billion monthly users are watching hundreds of millions of hours of videos every day on YouTube. As a result, we expect that revenues from YouTube will be a key revenue driver for the company in Q3.
• In the smartphone industry, Android remains an extremely popular OS, which should drive Google Play store content revenues in Q3.
• The company’s Other Bets segment, which includes Fiber, Verily, Calico, Nest, self-driving cars, and other businesses, reported growth in revenues in the first half of 2017. Nevertheless, these ventures are unprofitable and continue to bleed cash. Over the past few quarters, Alphabet has scaled back its investments in these money-losing “moonshot” ventures to rein in costs and make these businesses accountable for their operations. Despite these efforts, we believe that the segment will continue to lose money in Q3, albeit at a slower rate.
• Google recently launched a host of hardware devices to bolster its ecosystem of Android devices, and services such as YouTube, Search and Assistant. During this earnings announcement, we expect the company to disclose more information on how these releases have fared in recent weeks.

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