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Earnings Preview: GOOG Hits New Highs and Reports After the Bell

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April 27, 2017
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iStockphoto.com/TARIK KIZILKAYA

There are several heavy hitters reporting earnings in the tech sector after market close today. Microsoft (MSFT), Amazon (AMZN), Intel (INTC), and Alphabet (GOOG, GOOGL), are all releasing first-quarter results later today. GOOG has been in the spotlight as it launches YouTube TV and shares hit all-time highs in trading yesterday, joining Apple (AAPL) as the one of only two companies in the United States worth more than $600 billion.

GOOG recently started rolling out YouTube TV, the company’s direct competitor to monthly cable, in several major cities over the past several weeks. It costs $35 per month and gives subscribers access to channels such as ESPN, Bravo, ABC, and CBS to name a few. It’s still too new to have any sizable impact on its results in the near future, but the company has said it plans to expand it to more cities. In addition to GOOG, other tech companies are focused on the movie and TV business; AMZN offers Prime Video as a standalone service and AAPL has Apple TV. As competition grows, Netflix (NFLX) remains the leader in Internet TV with over 100 million subscribers, according to its recent earnings press release.

Another area of focus is GOOG’s Other Bets division, which includes companies Nest, Waymo and Verily. Like the name implies, these are its bets on companies with future growth potential. These companies are focused everything from home automation and autonomous driving to life sciences. This division is a smaller portion of GOOG and advertising still makes up the bulk of its earnings.

In the first quarter, GOOG is expected to report earnings of $7.48 per share, down slightly from the $7.50 earned in Q1 2016, on revenue of $19.65 billion, according to consensus third-party analyst estimates. Last quarter, revenues topped expectations, but earnings missed analysts’ estimates due to the company earning less per click across its advertising properties. Google’s costs-per-click, the amount it receives from advertisers, fell 16% year over year. 

FIGURE 1: GOOG VS. FB.

Advertising makes up a large portion of both company’s businesses, but Facebook (right) is more concentrated than Alphabet (left). TD Ameritrade clients can analyze potential revenue drivers of a stock on the Fundamentals tab on the thinkorswim® platformTrefis information and estimates used in Company Profile are provided by Insight Guru, a separate and unaffiliated firm. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

Alphabet Inc. Trading and Recent Options Activity

GOOG shares closed at $871.73 yesterday, just off the new all-time high of $876.05, potentially indicating high expectations for today’s earnings results. When expectations are high though, there can be more volatility if results disappoint. The stock is up almost 13% year-to-date, roughly in line with just under a 12% gain for the NASDAQ (COMP).              

The options market has priced in about a 3% potential stock move in either direction around GOOG’s earnings release, according to the Market Maker Move indicator on the thinkorswim® platform. In short-term options trading at the April 28 weekly expiration, calls were active at the 852.5 and 910 strike prices while puts were active at the 830 and 840 strikes. The implied volatility sits at the 61st percentile.

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.

FIGURE 2: GOOG YTD PERFORMANCE.

The year-to-date performance of Alphabet compared to Facebook (teal line) and the NASDAQ (purple line). YTD performance as a percentage is shown on the right side of the chart. Chart source: thinkorswim® by TD Ameritrade.  Data source: Standard & Poor’s. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

If you haven’t had a chance, check out what might be expected when Amazon (AMZN) reports Q1 earnings after the bell.

Good Trading,
JJ
@TDAJJKinahan

NC
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