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Mobile, Video and Other Bets: Alphabet Reports After Close

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January 26, 2017
Technology sector earnings report from Microsoft and Intel.
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So far this year, the Information Technology sector is up just over 6% and has been the best performing sector in the S&P 500 (SPX). Tech giants Intel (INTC), Microsoft (MSFT) and Alphabet (GOOGL, GOOG) are scheduled to release earnings after market close today. Due to the size and global reach of these companies, their earnings may provide investors additional insight into the global economy and the Information Technology sector.

Investors are hoping for another strong performance from Alphabet in the fourth quarter following the company’s 20% revenue growth year-over-year. In its Q3 earnings press release,  CFO Ruth Porat said “mobile search and video are powering our core advertising business and we’re excited about the progress of newer businesses in Google and Other Bets.” When Alphabet reports after market close, investors will likely be analyzing these areas closely to gauge the company’s growth.

Hardware and Other Bets

This will also be the first quarterly results from Google’s major hardware push last quarter, when it released the Google Pixel smartphone, Google Home assistant, and its virtual reality Daydream View headset. Google doesn’t break out sales figures for its hardware business and it currently includes them in its “Other Revenues”. Another big focus is likely to be Alphabet’s “Other Bets” division, which are companies that focus on developing new, innovative products and services like self-driving cars. “Other Bets” had an operating loss of $865 million last quarter so investors will likely want to see if there has been progress in some of these businesses and what plans the division has  for the future.

Focusing On The Cloud

Many tech companies appear to be increasing their focus on cloud computing. Today’s earnings reports from Alphabet and Microsoft (MSFT) could provide additional details on these divisions. MSFT’s fastest-growing product is reported to be Azure, what MSFT calls a “growing collection of integrated cloud services—analytics, computing, database, mobile, networking, storage, and web.” Azure revenue has grown in triple digits over the last seven quarters, Chief executive Satya Nadella said, to help the commercial cloud division’s annualized revenue rate exceed $13 billion. “We remain on track to achieve our goal of $20 billion in fiscal ’18,” he added. Alphabet’s cloud division has also been growing at a rapid pace and may continue to become a bigger piece of its revenues.

The Q4 consensus earnings estimate from third-party Wall Street analysts is $9.63 a share, according to the Earnings Analysis tab on the thinkorswim® platform from TD Ameritrade. Revenue is projected to dip slightly to $20.57 billion from $21.32 billion last year.The options market has priced in an expected share price move of approximately 3.6% in either direction around the earnings release for both classes of stock, according to the Market Maker Move™ indicator on the thinkorswim® platform.

GOOGL call activity has been higher at the 850 and 860 strikes, while put activity has been concentrated at the 850 and 855 strikes. Both puts and calls at the 830 strike have been the most active for GOOG. The implied volatility for both sits at the 48th percentile (Please remember past performance is no guarantee of future results.)

Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price over a set period of time. Put options represent the right, but not the obligation, to sell the underlying security at a predetermined price over a set period of time.

More Tech Earnings Ahead

While a company’s results can provide a look into the business, it may be a good idea to keep your eye on its competitors to help get a macro view. Earnings from major tech companies Facebook (FB) and Apple (AAPL) are coming up in the next week. AAPL reports Q1 2017 results after market close on January 31 and FB reports after market close on February 1.  

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