Google parent Alphabet’s (NASDAQ:GOOGL) share price has outperformed the S&P 500 and FAANG stocks year-to-date by a decent margin. But all eyes are on Q1 earnings to see if this can continue.
Google is widely known for its search engine, but it also earns money through YouTube, cloud computing, Google Play, Google Maps, its hardware division including Nest and various other offerings. These generate income from adverts, in-app purchases, app sales, licensing, and service fees.
In addition to its core offerings, Google has some other segments that are not yet generating company revenues. These include self-driving car division Waymo, its biotech company Calico and several more entities.
Will Q1 reach $42.3 billion?
Google’s Q1 earnings will be released on Tuesday April 27. The consensus among Wall Street analysts is for revenues to come in at around $42.3 billion.
The key metric analysts will be taking note of is revenue growth in search, because this is a significant money maker for the group. Upwards of 20-22% will be considered a reasonable result.
Advertising revenue from YouTube is generally expected to rebound. It rose a spectacular 46% in Q4, so the market will be happy for over 40% year-over-year in its Q1 calculations.
Google’s cloud computing arm is generally believed to be driving the most significant value creation across all its non-advertising segments. Therefore, improvement in this area is widely anticipated.
At the end of 2020 it was performing far behind Amazon’s (NASDAQ:AMZN) AWS and Microsoft (NASDAQ:MSFT) Azure, but with plenty of scope for increasing its market share. Nevertheless, this unit lost $5.61 billion during FY20.
The $1.5 Trillion company has a price-to-earnings ratio of 36 and today the Google share price is hovering close to its 52-week high.
Is Google’s share price set to fall?
Throughout 2020 the Google share price rose 28%. This wasn’t particularly impressive considering many tech stocks soared last year.
For shareholders, a risk to the share price falling is always present. This could be caused by the intensely competitive nature of the business. Or reduced spending by advertisers could hurt the top line.
This was evident as the pandemic struck and many advertisers had to cut their budgets. There are also regulatory fines, costs, and disruption to operations to consider. It may also be affected by supply chain problems.
Reasons for analysts to be wary of too bullish an outlook is rising expenses for the firm. In its Q4 earnings call the company executives warned a hike in investments along with accelerating jump in new hires, were likely to drag on margins.
Regulatory pressures continue
But the regulatory scrutiny Google is increasingly under is also putting its long-term strength in doubt. Along with big tech peers Amazon and Facebook (NASDAQ:FB), it’s under US senate investigation into its Competition Policy, Antitrust violations, and Consumer Rights.
Its fair play policy is being questioned as multiple lawsuits claim it engages in anticompetitive business practices within its search business. This follows on from the antitrust lawsuit the department of justice brought against Google six months ago.
One which TV stock pundit Jim Cramer derided as a “loser case.”
Back then Cramer said Alphabet would go from a “buy to a strong buy” if the government’s antitrust lawsuit against its Google unit were to lead to a breakup of the organisation.
With this enhanced scrutiny comes the high costs associated with litigation. In fact, Alphabet has reportedly spent over $2.7 million in federal lobbying costs in Q1 2021. Which is an increase of 49% year-over-year.
Analysts and investors will be taking a close look at the growth in company expenses and its future outlook. Because if any hint of margin pressures appears to be prominent, it will kill any momentum brought to the shares by good revenue numbers.