Alphabet Stock Earnings: GOOG misses forecasts but swells on advertising beat

• Alphabet (GOOG) is scheduled to release Q2 earnings on Tuesday, July 26.
• Wall Street puts consensus at $1.28 in GAAP EPS on revenue of $69.95 billion.
• S&P 500 companies are trailing behind the ratio of earnings beats from recent years.

UPDATE: GOOG shares added 3.8% afterhours on Tuesday to $109.45 after parent company Alphabet released the details of Q2 earnings. Though Alphabet missed Wall Street consensus on both revenue and earnings, the market applauded Google for meeting advertising revenue targets. Investors had been worried about the advertising segment, because Snap (SNAP) missed targets so badly the previous week that they decided not to issue guidance for Q3. Alphabet produced adjusted EPS of $1.21 compared to expectations for $1.32. Revenue of $69.69 billion missed forecasts by $112 million. Advertising revenue arrived at $56.29 billion, which was better than the $56.14 billion that was expected.

Google parent Alphabet's (GOOG) stock has advanced 0.7% in Monday's premarket ahead of second-quarter earnings slated to be released during the regular trading session on Tuesday. Shares are trading at $109.13 in anticipation as markets wonder if Snap's (SNAP) poor results last week will translate into Google's search ads for the second quarter.

Also read: Microsoft Stock Deep Dive: Price target at $230 with near-term risks due to strong US dollar

Alphabet (GOOG) stock earnings: The negative effects of a strong USD

Thus far in the earnings cycle, the market has been most impressed by those companies who have already reported results, though it should be said that earnings up until now are slightly below average. With about one-fifth of S&P 500 companies reporting already, 68% have served up earnings per share beats. That figure is well shy of the 77% average over the past half-decade, according to data from FactSet. The 3.6% average beat is also down from an average of nearly 9%. This year's cohort is also four percentage points off the five-year average for revenue beats of 69%.

This all goes to show that the much-prophesied recession may be affecting companies on the margin already, though, of course, it could just be stubbornly high inflation and exchange rate losses due to this year's highly valued US dollar. Snap's earnings miss on July 21 shook the market out of its daydream for sure, but whether this is a Snap-specific issue or related to the digital advertising market as a whole is less certain. Most observers see Google's search business as unrelated to social media advertising, which has suffered due to Apple iOS's new data privacy updates.

For GOOG earnings release, Wall Street is expecting GAAP earnings of $1.28 per share on revenue of $69.95 billion. Earnings per share of $1.23 in Q1 missed consensus by 5 cents though Alphabet beat on revenue. Before that miss, Alphabet had beaten earnings expectations for seven quarters in a row.

GOOG share price might also benefit from the recent 20-for-1 stock split. With Alphabet stock much more affordable at present, an earnings beat could lead to a much larger spike in the share price than normal.

As with other large tech behemoths, expect Alphabet CEO Sundar Pichai to point out the negative effect the strong US dollar is having on earnings. He will likely try to focus the market on constant currency revenue growth. A loss in the value of its equity ownership may also hit the bottom line as it did in Q1. Another point of focus will be on the operating income margin, which was 30% in Q1. Investors will also wait to see how the growth rate of Google Cloud pencils out. In Q1 that segment grew by just under 44% YoY and lost $931 million.

Of the earnings revisions over the last three months, 24 of 30 have been downward revisions.

Alphabet (GOOG) stock forecast: Consolidation period over?

GOOG stock is down 25% year-to-date but still trades above its sector on a forward price-to-earnings ratio (20x) and a forward enterprise value-to-EBITDA ratio (11x). 

Alphabet stock resistance on the weekly chart can be felt between $118.60 and $123.28. GOOG share price appears to be supported by a rising trend line beginning in late May at $102.22 and moving up through last week's low of $107.60. A break through either the low at $107.60 or the high at $120.28 will tell the market if the present period of consolidation is over. The Moving Average Convergence Divergence (MACD) indicator also needs to cross over as its been hinting at this move for a month now.

GOOG weekly chart

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