Article / 29 January 2016 at 13:39 GMT

Earnings Watch: Alphabet to beat estimates on Google mobile and video

Head of Equity Strategy / Saxo Bank
  • Q4 earnings reports are due from 242 companies in the S&P 1200 Global index
  • Analysts on average expect Alphabet EPS of $8.10, revenue up 17% y/y
  • We expect Alphabet to beat estimates when it reports Q4 results Monday
  • Alphabet's Google seen with strong revenue from mobile and video network
  • Facebook's blowout Q4 results point to strong revenue for Google
  • We have been long Alphabet shares since October 2 and remain upbeat on the stock

Alphabet logo from website
 The Google founders' holding company Alphabet reports fourth-quarter results 
on Monday. Image: Alphabet's website

By Peter Garnry

Fourth-quarter earnings are hitting the market this week and next week, with 242 earnings releases due from companies in the S&P 1200 Global index. Importantly among those companies is Alphabet (Google's parent company) which reports on Monday, so today's earnings update focuses on it.

Mobile and video to drive Google Q4 earnings

Alphabet reports fourth-quarter earnings on Monday, with analysts looking for EPS of $8.10, up from $6.88 a year ago, and revenue growth growth of 17% year-on-year, driven by strong advertising revenue from search giant Google's mobile and video network. 

For the past two quarters Alphabet has delivered strong results beating analysts' estimates as prices of mobile paid clicks have risen and YouTube has finally begun generating meaningful cashflow to the overall group. Facebook's blowout fourth-quarter results point to strong mobile and video numbers for Google.

Another tailwind for the share price is management's decision to return capital to shareholders with the authorisation of a $5.1 billion share repurchase programme (only 1% of market capitalisation), but this programme could easily be expanded.

Alphabet weekly share price since 2011
Google share price
Source: Saxo Bank 

We have been long Alphabet shares since October 2, with an open price of $638.01 and maintain a positive view on the stock. Ideally we would like to see Alphabet begin achieving better cost discipline to reinvigorate cashflow, which has run below 20% of assets since 2012 (see chart), which is too low for a business like Alphabet's with a Google asset that should be yield higher returns on capital deployed.

Cash flow generation
Source: Bloomberg, Saxo Bank

Next week's most important earnings releases:

Monday: BT Group, Mitsubishi UFJ, Alphabet, Aetna

Tuesday: UBS, Danske Bank, LVMH, BP, Swedbank, Exxon Mobil, Pfizer, Gilead Sciences, UPS, Dow Chemical

Wednesday: ABB, Syngenta, Novo Nordisk, BBVA, GlaxoSmithKline, Denso, Takeda Pharmaceutical, Merck, Comcast, Mondelez, MetLife, GM, Yum! Brands

Thursday: Suncor Energy, Credit Suisse, Daimler, Munich Re, Vinci, AstraZeneca, Japan Tobacco, Royal Dutch Shell, ING Groep, Statoil, Philips Morris, Occidental Petroleum, ConocoPhillips

Friday: BNP Paribas, BG Group, Intesa Sanpaolo, Toyota, NTT, Volvo, Estee Lauder 

— Edited by John Acher

Peter Garnry is head of equity strategy at Saxo Bank

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Earnings Watch - 2016-02-01

This week Italian banks "popolari" will publish Fy 2015 results. Time to go short again!!
Still missing earnings watch for this week!


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