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3 Key Highlights before Alphabet’s Q1 Earnings Today

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Google parent Alphabet (NASDAQ:GOOG)(NASDAQ:GOOGL) will likely release its financial results for the first quarter of 2020 after the market close today. Notably, Alphabet’s earnings report will be the second from the FAANG group for the quarter ended in March. Last week, Netflix (NASDAQ:NFLX) was the first member of the FAANG group to report its first-quarter earnings. The company’s earnings beat the consensus estimates amid surprisingly strong subscriber growth. Pandemic lockdowns boosted video streaming.

Facebook (NASDAQ:FB) will likely release its earnings report on Wednesday. Apple and Amazon (NASDAQ:AMZN) both plan to report their earnings on Thursday.

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Alphabet’s earnings expectations

Currently, businesses around the world are grappling with the impact of the coronavirus pandemic. About 85% of Alphabet’s revenue comes from advertising. However, advertising demand has decreased. Businesses slashed their marketing budgets to cope with unexpected pandemic costs. Twitter and Baidu, which also rely on advertising budgets, cut their revenue outlook.

The consensus estimate calls for Alphabet’s earnings report to deliver $40.3 billion in revenue and an EPS of $10.99. In the first quarter of 2019, Alphabet reported revenue of $36.3 billion, which fell short of the consensus estimate at $37.3 billion. However, the EPS of $11.90 beat the consensus estimate at $10.61.

Video streaming and cloud services amid COVID-19

Although advertising is Alphabet’s main business, the company is also into video streaming and cloud computing businesses. As Netflix’s earnings report showed, the pandemic has increased demand for video streaming. Therefore, Alphabet’s YouTube business could also benefit from the pandemic-driven spike in video streaming. The demand for cloud computing services has also spiked amid the pandemic, which could drive gains in the company’s cloud division. The cloud business generated $2.6 billion in revenue for Alphabet in the fourth quarter.

A strong performance in the YouTube and cloud divisions could help cushion Alphabet’s earnings amid weak advertising demand.

Alphabet stock trades at discount after pandemic sell-off

Lately, the company has also turned to cost-cutting. Alphabet slashed its marketing spending and cut back on hiring since the pandemic has hit its core advertising business.

Alphabet stock has been recovering following the pandemic sell-off in the past few months. At $1,270 per share, the stock has risen 26% from its pandemic lows. However, the stock still trades at a 17% discount to its 52-week peak. Notably, Amazon stock has rallied in recent weeks. Investors have taken note of the pandemic-driven demand for online shopping and cloud services.

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