Alphabet Q1 Earnings Preview: What To Expect From The Next FANG Stock To Report

Alphabet Inc GOOG GOOGL is on deck to report first-quarter earnings Monday, April 23. Here's what what some of Wall Street's top analysts are looking out for.

The Analysts

• Bank of America's Justin Post maintains a Buy rating on Alphabet's stock with an unchanged $1,360 price target.
• KeyBanc Capital Markets' Andy Hargreaves maintains an Overweight rating on Alphabet's stock with an unchanged $1,280 price target.
• Credit Suisse's Stephen Ju maintains an Outperform rating on Alphabet's stock with a price target lowered from $1,400 to $1,350.

Bank Of America

Post is modeling for Alphabet to earn $9.25 per share in the quarter on revenue of $24.9 billion, which is mixed versus the Street's estimate of $9.30 per share on revenue of $24.3 billion. Expectations for a beat on the revenue side are due to strong core search and other revenue growth, but higher operating expenditure assumptions, an employee comp refresh, HTC-related costs and investments ahead of Europe's General Data Protection Regulation could result in a shortfall in earnings, the analyst said. 

Investors should pay attention to seven items during the post-earnings conference call, Post said:

• Commentary on search trends, given the analyst's checks, which found a modest deceleration.
• The expense trajectory after a fourth-quarter miss.
• Traffic acquisition cost growth trends and commentary.
• Commentary on GDPR and its impact on revenue.
• New ad products.
• Progress in the Cloud business.
• Progress on Waymo.

KeyBanc Capital Markets 

Hargreaves' quarterly checks with multiple ad agencies point to "stable growth" in both Search and YouTube, the analyst said in a research report. Checks with ad agencies also found that brand safety concerns in YouTube "continue to recede" and YouTube remains well-positioned to win ad dollars from traditional TV. The checks also found "little risk" to spending on Google's platforms from GPDR and general data privacy concerns, the analyst said. 

Alphabet is expected to show a lower mix of hardware sales in the quarter, while stability in TAC should help lift gross margins from 56 percent in the fourth quarter to 59 percent, Hargreaves said. A solid gross margin reading should help drive Alphabet's EBITDA margin to 32.7 percent, which is roughly in line with last year's report, the analyst said. 

Alphabet's estimates appear to be "achievable" — if not beatable — in terms of revenue and profit in the quarter, according to KeyBanc. 

Related Link: Morgan Stanley Cautious On Alphabet Ahead Of Q1 Earnings

Credit Suisse

Ju's checks and conversations with advertisers suggest decelerating budget growth in search and YouTube during the quarter. In comparison, checks during the third and fourth quarters of 2017 pointed to "robust levels" of spend and in some instances budget growth acceleration, the analyst said. Investors shouldn't be surprised if Alphabet shows a 100-200-basis point deceleration in Web Sites, Ju said. 

The analyst's revised price target is due to an increase in the specificity of Credit Suisse's projections, Ju said. 

"We do admit that given the lack of more detailed revenue disclosure, investors may criticize the effort as garbage-in-garbage out, but on the other hand we feel that to NOT model Google on a business-by-business basis runs the risk of underestimating long-term revenue growth and hence arriving at perhaps the wrong investment conclusion." 

Price Action

Shares of Alphabet were trading lower by 1.5 percent at $1,071.50 Friday afternoon.