Alphabet Earnings Preview: Strength In Core Advertising To Continue To Drive Revenues, Profits

by Trefis Team
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Alphabet (NASDAQ:GOOG) is scheduled to announce its Q1 earnings on Monday, April 23. The company has reported strong growth in revenues in recent years, driven by Google’s core search advertisement business. Advertising on Google’s own platforms, or Google Properties revenues, have made up 70% of Alphabet’s net revenues in recent years, and have grown at around 20% annually in the same period. We expect this trend to continue through Q1 and for the full year.

On the other hand, revenues generated by advertising on partner websites, or Google Network Members’ Properties revenues, have shown mixed trends in recent years. This happened primarily due to three factors: First, the increase in paid clicks on Network Members’ Properties has not been as high as on Google Properties. Secondly, the average cost per click has been on a decline (a trend consistent even on Google Properties). And thirdly, the decline in Google’s traditional AdSense business. While this was offset by a solid increase in both programmatic ad buying and AdMob revenues. Going forward, we expect Network Members’ Properties revenues to continue to grow, albeit at a slower pace than core ad revenues on Google owned and operated properties.

The company’s revenue growth has been complemented by a slight improvement in margins, with the exception of 2017 when profits plummeted. We expect Alphabet to maintain its revenue growth trajectory, and forecast the company’s margins to return to 2015 and 2016 levels. We have summarized our expectations for Alphabet’s first quarter results on our interactive dashboard platform. You can change expected segment revenue and net margin figures for Alphabet to gauge how changes will impact its expected EPS for the quarter. Our forecast for the EPS for Q1 is slightly higher than consensus estimates.

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