Alphabet Q3 Earnings Preview: Can Alphabet Stock (GOOG) go higher?

Alphabet (GOOGL) is scheduled to release its third-quarter 2024 results on October 29.
For this quarter, the Zacks Consensus Estimate projects earnings of $1.83 per share, remaining unchanged over the last 30 days. This figure represents an 18.06% increase compared to the same period last year.

Alphabet Q3 Earnings Estimates

Analysts anticipate that Alphabet will report revenues of $86.3 billion for Q3, representing a year-over-year increase of 12.4%. However, these estimates indicate that GOOG's revenue growth is expected to hit its lowest level in a year. Brokerages predict that the company’s topline growth will further decline to 10.9% in Q4.

The company’s earnings per share are projected to increase by 18.1% year-over-year in Q3 and 23.2% in Q4.

In addition to these headline figures, attention should be paid to management's commentary on several key areas:

1. Digital Ad Market Outlook: Management's insights on the digital advertising landscape will be crucial, as any slowdown in this core business could negatively affect earnings.

2. YouTube Earnings: One significant factor in GOOG's stock decline following the Q2 earnings report was YouTube's underperformance. The company has increased the maximum length of Shorts from 1 minute to 3 minutes, which may enhance monetization. During the Q3 earnings call, it will be important to hear how Alphabet plans to improve YouTube's monetization.

3. Cloud Business: The cloud segment is one of Alphabet's fastest-growing areas, making its growth trajectory a vital point of interest.

4. AI Monetization: While many tech companies are investing heavily in AI, few have demonstrated meaningful returns. During the Q3 earnings call, I will be looking for management's comments on how they plan to monetize their AI investments and any advancements in their AI models.

Alphabet stock performance in Q3 2024

With a year-to-date gain of 17%, Alphabet ranks as the third worst-performing stock among the Magnificent 7, trailing only Tesla, which has been fluctuating between gains and losses, and Microsoft, up about 13%. Notably, Alphabet stock is now the cheapest stock in the group, a title that previously belonged to Meta Platforms, the parent company of Facebook.

Despite these challenges, including regulatory scrutiny that is largely beyond its control, there are growing concerns regarding Alphabet's core advertising business and its evolving artificial intelligence (AI) initiatives. The upcoming Q3 earnings report presents a key opportunity for Alphabet's management to address this skepticism and clarify their strategies moving forward.

GOOG Stock Forecast

Alphabet holds a consensus rating of “Strong Buy” among the 47 analysts covering the stock. Of these, 36 analysts classify it as a “Strong Buy,” while 3 others designate it as a “Moderate Buy.” The remaining 8 analysts rate the stock as a “Hold” or an equivalent.

The average target price for GOOG is $202.33, suggesting a potential upside of 23% from Wednesday's closing price. Meanwhile, the highest target price on the Street is $225, indicating an upside of nearly 37%. Notably, the stock is currently trading below the lowest target price of $170, highlighting the prevailing pessimism surrounding the company.

Consensus estimates suggest that GOOG stock could surpass $200 within the next 12 months. While the likelihood of reaching that price level in Q4 seems low, it is expected to hit that mark by 2025, supported by its modest valuations and favorable growth outlook.

Despite facing regulatory scrutiny, including discussions about a potential breakup, the stock’s current valuations appear to account for these challenges. GOOG is trading at a projected 12-month price-to-earnings (P/E) multiple of 20.2x, which is lower than that of the S&P 500 Index.

Alphabet has several growth initiatives that have yet to impact its bottom line, such as the Waymo self-driving unit, which has partnered with Uber to provide driverless ride-hailing services in Atlanta and Austin. Additionally, the cloud segment is emerging as another growth driver, having reported quarterly revenues of $10 billion in Q2, along with an operating profit of $1 billion for the first time.

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Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.