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Earnings Outlook: Alphabet earnings: What to expect from the Google parent company

Alphabet Inc. investors are probably breathing a little easier ahead of the company’s Thursday afternoon earnings report, all thanks to Facebook.

There was some anxiety about the state of digital advertising heading into this earnings season, and Snap Inc.
SNAP,
-10.29%

didn’t help matters by delivering a gloomy forecast Tuesday. But Facebook parent Meta Platforms Inc.
META,
+2.79%

took a less downbeat view of the future Wednesday, signaling that bigger ad-driven companies could weather the economic storm better and see benefits from their cost-cutting pushes.

Don’t miss: Meta’s ‘meteoric’ shift could power stock to its best day since 2013

Alphabet’s
GOOG,
+1.56%

GOOGL,
+1.61%

story is about more than advertising, however, and the company’s report will also show how the company’s cloud business has held up. Microsoft Corp.
MSFT,
+1.99%

indicated sluggish cloud spending trends in its own report in late January.

See more: Microsoft could be the cloud sector’s ‘canary in the coal mine’

Here’s what to expect when Alphabet posts numbers.

What to expect

Earnings: Analysts tracked by FactSet expected Alphabet to post $1.18 a share in adjusted earnings, down from $1.53 a share a year prior. According to Estimize, which crowdsources projections from hedge funds, academics, and others, the average estimate was $1.19 a share in adjusted earnings.

Revenue: The FactSet consensus called for Alphabet to post revenue of $76.2 billion for its fourth quarter, up from $75.3 billion a year prior. Revenue excluding traffic-acquisition costs was projected to clock in at $63.2 billion, up from $61.9 billion a year earlier. Those contributing to Estimize were looking for $63.5 billion on that metric.

Stock movement: Shares of Alphabet have gained after seven of the company’s last 10 earnings reports, though they declined 9% after the most recent one. The stock has lost 27% over the past 12 months, while the S&P 500
SPX,
+1.05%

has lost 9%.

Of the 51 analysts tracked by FactSet who cover Alphabet’s stock, 47 had buy ratings and four had hold ratings, with an average target price of $123.22.

See more: The ‘return of the DOJ’ hangs over Google as online ads decline

What else to watch for

Evercore ISI analyst Mark Mahaney expressed some caution about the ad industry in a preview of Alphabet’s earnings that came out before Meta’s report.

“Our channel checks with ad agencies also point to signs that the Ad Winter is extending into Q1, before stabilization and (hopefully) recovery later in the year,” he wrote. Alphabet’s ad spending “should be among the most resilient to this belt-tightening,” though he noted that the company is up against a tough year-ago period in which it likely benefitted from Apple Inc.’s
AAPL,
+0.79%

privacy changes and their ripple effects on the ad ecosystem.

Baird’s Colin Sebastian looked at conditions from a slightly different perspective.

“We expect core Search to remain relatively healthy vs. the broader advertising ecosystem, although we’ve noted some downward pricing pressure,” he wrote.

In his view, the earnings call should include information on “updates to core search, increasing competition, contributions from Google Shopping, developments in online video,” as well as cloud growth and the spending outlook.

Brian White of Monness, Crespi, Hardt & Co. wrote that he expects a 3% decline in the Google Advertising business during the fourth quarter.

“After Alphabet’s Advertising revenue cycle reached peak growth” in the second quarter of 2021, revenue for this part of the business is set to decelerate for the sixth quarter in a row, by his estimates.

Alphabet’s report could also bring more context on the company’s recently announced layoffs and its approach to expenses going forward.

“We also see the layoff as less of a pullback in investment, but more of a re-focus,” Mahaney wrote.

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