What To Expect From Alphabet’s Q2

by Trefis Team
Alphabet Inc.
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Alphabet (NASDAQ:GOOG) is scheduled to announce its Q2 earnings on Monday, July 23. The company has consistently reported solid growth in revenues in recent years, driven by Google’s core search advertisement business. Advertising revenues on Google’s own platforms, or Google Properties revenues, make up over 70% of Alphabet’s net revenues in recent years, and have grown at around 20% annually in the same period. This trend is likely to continue through the current year. In addition, Alphabet’s other revenues (apps, in-app purchases, digital content, Pixel smartphones, licensing, Google Cloud offerings such as Docs) have grown massively at over 40% in recent years. We expect this trend to continue in the current year as well.

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 mainly due to two 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). 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.

In recent years, the company’s revenue growth has been complemented by a slight improvement in margins. However, the trend reversed in 2017 when profits plummeted. In the most recent quarter, Alphabet’s cost of revenues and operating expenses were up significantly, due to which its operating profit margin compressed slightly. We expect this trend to continue in the June quarter as well. We have summarized our second quarter expectations on our interactive earnings preview dashboard for Alphabet. 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 Q2 is slightly higher than consensus estimates.

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