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Will Alphabet’s Q4 Revenue Beat Expectations?

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First report since Waymo went commercial

Alphabet (GOOGL) is scheduled to report its results for the fourth quarter of 2018 on February 4. It will be the first quarterly report for the company since its Waymo subsidiary launched a commercial taxi service using self-driving vehicles in parts of Arizona. The Wall Street consensus estimate for Alphabet’s fourth-quarter revenue is $39.1 billion, suggesting an increase of more than 21% YoY.

In the last two years, Alphabet has reported fourth-quarter revenues above consensus estimates. In the fourth quarter of 2017, Alphabet generated revenue of $32.3 billion, exceeding the consensus estimate by $440 million. In the fourth quarter of 2016, it generated revenue of $26.1 billion, beating consensus estimates by $410 million.

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Opportunities and challenges

The fourth quarter report is set to come at a time when Alphabet has sought to expand its revenue streams with new hardware products and cloud computing services. But the fourth quarter results are also set to come at a time when Alphabet has been under growing pressure to defend its share in the digital advertising market. According to eMarketer data, Alphabet’s Google captured 37.1% of the digital advertising revenue in the United States in 2018, down from 40.8% in 2016. Google’s share of the market is forecast to decline to 35.1% by 2020 at a time when Amazon’s (AMZN) share of the market is forecast to climb to 7.0% from 4.2% in 2018. Facebook (FB), Microsoft (MSFT), and Verizon’s (VZ) Oath subsidiary are estimated to have captured up to 20.6%, 4.1%, and 3.3% of the United States digital advertising market in 2018, respectively.

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