Google: This FAANG Laggard Has Q2 Surprise Potential

Jul. 19, 2023 3:28 AM ET Alphabet Inc. (GOOG), GOOGL

Summary

• Alphabet could be set to crush earnings expectations for its Q2 2023 report due to a stabilization of its advertising segment and favorable AI trends.
• The EPS revision trend is very positive. Easing inflation could drive a recovery in the digital ad market.
• Google likely had a strong FCF quarter and a free cash flow margin of ~20%.
• Google’s shares are currently one of the cheapest in the group of FAANG stocks, with a P/E ratio of 20x and a price-to-revenue ratio of 4.7x.

Google is scheduled to report its second-quarter earnings on July 26, 2023. Analysts are expecting the company to report earnings of $27.61 per share on revenue of $75.33 billion. These numbers would represent year-over-year growth of 23% and 22%, respectively.

Google’s Cloud Computing Business

Google’s cloud computing business, Google Cloud Platform (GCP), is expected to be a key driver of earnings growth in the second quarter. GCP is gaining market share from Amazon Web Services (AWS) and Microsoft Azure. In the first quarter of 2023, GCP’s revenue grew by 45% year-over-year.

GCP is benefiting from the continued growth of the cloud computing market. The cloud computing market is expected to grow by 20% in 2023. GCP is well-positioned to capture a significant share of this growth.

Google’s Advertising Business

Google’s advertising business is also expected to be a key driver of earnings growth in the second quarter. The company is benefiting from the continued growth of online advertising. Google’s advertising business is the largest in the world, and it is expected to remain the leader in the years to come.

In the first quarter of 2023, Google’s advertising revenue grew by 22% year-over-year. This growth was driven by the continued growth of mobile advertising and the growth of new advertising formats, such as YouTube Shorts.

Google’s Stock Price

Google’s stock price has been under pressure in recent months. The stock is down about 20% since the beginning of the year. The decline in the stock price is likely due to concerns about the global economy and the potential for a recession.

However, despite the recent decline in the stock price, Google’s earnings are expected to surprise on the upside. The company is expected to report strong growth in its cloud computing and advertising businesses. This could lead to a significant earnings beat, which could boost the stock price.

Earnings Surprise Potential

Google’s cloud computing and advertising businesses are both expected to grow at a faster pace than the overall economy in the second quarter. This could lead to a significant earnings beat for the company.

In addition, Google is expected to benefit from the continued growth of its subscription businesses, such as YouTube Premium and Google One. These businesses are growing at a faster pace than the company’s advertising business.

Conclusion

Google’s earnings are expected to be strong in the second quarter. The company is benefiting from strong growth in its cloud computing and advertising businesses. This could lead to a significant earnings beat, which could boost the stock price.

Here are some additional points from the article:

• Google’s cloud computing business is gaining market share from Amazon Web Services (AWS) and Microsoft Azure.
• Google’s advertising business is the largest in the world, and it is expected to remain the leader in the years to come.
• Google’s stock price has been under pressure in recent months, but it is expected to surprise on the upside in the second quarter.

Conclusion

Google is a leading technology company with strong growth prospects. The company is expected to report strong earnings in the second quarter, and the stock price could benefit from a significant earnings beat.

Investment Considerations

Investors who are interested in investing in Google should consider the following factors:

• The company’s strong growth prospects.
• The company’s dominant position in the cloud computing and advertising markets.
• The company’s exposure to the global economy.
• The company’s valuation.

Risks to Consider

Investors should also consider the following risks before investing in Google:

• The company’s exposure to the global economy.
• The company’s dependence on advertising revenue.
• The company’s competition from Amazon and Microsoft.
• The company’s regulatory environment.

Conclusion

Google is a leading technology company with strong growth prospects. However, there are some risks to consider before investing in the company. Investors should carefully consider their investment objectives and risk tolerance before investing in Google.

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