Google (Alphabet) Earnings: What to Look ForFocus on Google cloud revenue
By NATHAN REIFF
Updated Feb 1, 2021
KEY TAKEAWAYS
-- Analysts estimate EPS of $15.50 vs. $15.35 in Q4 2019.
-- Cloud revenue is expected to rise sharply amid the pandemic, but at a slower pace than Q4 2019.
-- Revenue is expected to show healthy growth, but slightly slower than the same quarter a year earlier.
Google parent Alphabet Inc. ( GOOGL) has seen its stock rise at nearly double the market in the past year, seemingly unfazed by global disruptions due to the COVID-19 pandemic. This performance comes despite uneven earnings and revenue performance even as Google users sharply boost their time online while confined at home, At the same time, Google also faces a mounting list of antitrust lawsuits, including cases alleging that the company abuses its dominance in advertising.
It is for all these reasons that investors will watch particularly closely Google's Q4 FY 2020 earnings report after market close on February 2. Analysts predict that the company will report a meager gain in earnings per share ( EPS) even as it posts strong revenue growth, the fastest growth in four quarters.
Investors also will look at another key metric reflecting Google's performance: cloud revenue. The company's cloud operations have grown quickly, particularly during the pandemic as the work-from-home economy has flourished. Analysts estimate that cloud revenue will have healthy growth, but at a slower pace relative to Q4 FY 2019.
Google stock has traded in line or outpaced the broader market for nearly all of the past year. Google fell starting in February of 2020 as the larger market plummeted at the start of the pandemic. It then traded in line through April, and started to outperform for most of the next nine months with the exception of a brief pullback in October. As a result, Google has outperformed the broader market in the past 12 months as of January 31, 2021, fueled in part by a strong Q3 FY 2020 earnings report. The company has posted a total return of 25.5% compared to the S&P 500's total return of 13.5%.
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Source: TradingView.
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Google's quarterly earnings per share have fluctuated dramatically in the past three years. The company's best EPS performance in that time was Q4 FY 2018, when earnings per share grew by nearly 400% YOY. At the same time, four quarters in the past three years have brought YOY declines, including a decline of nearly 30% in Q2 FY 2020. Analysts expect Q4 FY 2020 EPS to grow by a scant 1.0% YOY, significantly below the 20.2% YOY growth for Q4 FY 2019.1???
The company's quarterly revenue has been much more consistent, although Google did post its first quarterly decline in nearly three years in Q2 FY 2020. Aside from that aberration, Google quarterly revenue has grown steadily in the past three years. Still, the pace of growth has slowed, with Q1 and Q3 FY 2020 marking the smallest YOY increases during that period. Analysts predict revenue growth of 15.7% YOY for Q4 FY 2020, the best performance during FY 2020 but less than 17.3% YOY growth from Q4 FY 2019.1???
Google Key Metrics|
| | Estimate for Q4 FY 2020 | Q4 FY 2019 | Q4 FY 2018 | | Earnings Per Share ($) | 15.50 | 15.35 | 12.77 | | Revenue ($B) | 53.3 | 46.1 | 39.3 | | Cloud Revenue ($B) | 3.8 | 2.6 | 1.7 |
As mentioned, investors will pay particular attention to Google's cloud revenue. This metric reflects the Story Linksize of the company's cloud business, which has been growing quickly as Google aims to expand. The cloud market is highly competitive, with large rivals including Amazon.com Inc. ( AMZN), Microsoft Corp. ( MSFT) and Alibaba Group Holdings Ltd. ( BABA) all vying for cloud customers. Google's cloud business is providing the company with a major vehicle for growth during the COVID-19 pandemic as more people around the world work remotely, increasing demand for cloud services.
Analysts do expect that Google' cloud revenue will continue its recent rapid upward trajectory. In the past two years, Google' quarterly cloud revenue has grown by at least 43.2% and as much as 60.3% YOY. Analysts predict that Q4 FY 2020 will be toward the low end of that range at 45.2% YOY. While strong, this rate is slower than the 53.0% YOY for Q4 FY 2019. For full-year FY 2020, analysts expect cloud sales to rise by 45.8% compared to 52.8% a year earlier.
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