EARNINGS PRIMER: Alphabet (GOOGL) earnings due 23rd July, 2025, at 21:00BST/16:00EDT

Analysis details (14:55)

Alphabet (GOOGL) EPS (exp. 2.16), Revenue (exp. 93.85bln), Next Qtr. EPS (exp. 2.25), Next Qtr. Rev. (exp. 97.31bln), Current FY EPS (exp. 9.64), Current FY Rev. (exp. 387.73bln), Next FY EPS (exp. 10.16), Next FY Rev. (exp. 428.99bln)

COMMENTARY:

• Potential positives for the quarter, according to BofA, include increasing ad spending, AI helping to power revenue, and strong cloud performance. Overall, they remain constructive on Google's ability to drive AI usage despite cautious sentiment, and see Gemini improvements, AI Mode integration in search and Workspace price increases as key YTD positives.


• Barron’s says two AI-related issues will be under the microscope - Google’s heavy data center investments and the performance of its search business, which is under attack for the first time in years. As a reminder, Google is expected to spend USD 75bln to expand its AI capabilities, including on massive data centers running on both its own home-grown chips and Nvidia's processors.


• Analysts are expecting the cloud segment to grow 27% Y/Y, leading all of the other segments, but Barron’s suggest a miss here could weigh heavily on the market’s reaction to the earnings release.


• On CapEx, Q1 saw USD 17bln, and St. consensus is for a further USD 18bln this quarter, and Barron’s thinks any slippage here could lead to more general questions about the AI data centre investment boom.


• On a different footing, one wild card is Waymo, which has the most advanced autonomous technology, and the service is operational in five US cities. Barron’s note while it is part of Alphabet’s “Other Bets” segment that lost USD 4.4bln in 2024, Waymo could become an important contributor to future revenue and profit.


• Analysts note at 20x forward earnings, it trades well below its 10yr median of 25.8x, offering an opportune valuation discount in a market saturated with AI-driven premiums. However, many investors remain sceptical, with bears raising concerns about search cannibalisation from AI tools like ChatGPT and Claude. While this narrative dominates headlines, the data has yet to confirm any material erosion in Alphabet's search business, though it will be a key metric to watch in Wednesday’s report.


• Overall, sentiment for Google is very mixed - bears are worried about the secular outlook for search as AI chatbots capture share and regulatory/legal pressures while bulls emphasize compelling secular tailwinds in many key markets and a relatively cheap valuation.


• Overall earnings estimates have been revised higher since Cos. last earnings release. Option Traders are pricing in a 6.3% move, and the stock has averaged a 5.8% move in recent quarters.

REVENUE BREAKDOWN:

• Google Cloud (exp. 13.10bln, +26.55% Y/Y).


• Google Advertising (exp. 69.64bln).


• Google Subscriptions, Platforms and Devices (exp. 10.69bln).


• Other Bets (exp. 436mln).

KEY METRICS:

• CapEx (exp. 18.2bln).


• Free cash flow (exp. 17.87bln).


• Gross profit margin (exp. 59.00%).

Q3 GUIDANCE 2025:

• EPS (exp. 2.25).


• Revenue (exp. 97.31bln).


• Google Cloud (exp. 14.30bln).


• Google Advertising (exp. 70.45bln).


• Google Subscriptions, Platforms and Devices (exp. 11.97bln).


• CapEx (exp. 19.00bln).

FY25 GUIDANCE:

• EPS (exp. 9.64).


• Revenue (exp. 387.73bln).


• Google Cloud (exp. 54.79bln).


• Google Advertising (exp. 284.89bln).


• Google Subscriptions, Platforms and Devices (exp. 46.29bln).


• CapEx (exp. 74.88bln).

CURRENT BROKER RECOMMENDATIONS:

• Strong Buy: 15.


• Buy: 28.


• Hold: 12.

PRICING:

• Current share price: 190.32.


• Median share price target: 205.

23 Jul 2025 - 20:20- ForexData- Source: Newsquawk