Though Alphabet/Google (GOOGL) kept reporting healthy top-line growth in 2018, its stock is going into earnings close to where it traded a year ago.
That could make it easier for the search giant's shares to move higher following its Q4 report. Excluding traffic acquisition costs (TAC, or ad revenue-sharing payments made to partners), the consensus among analysts polled by FactSet is for Q4 revenue of $31.3 billion (up 21% annually) and GAAP EPS of $10.86 (up 12% excluding a year-ago tax charge).
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I'll be live-blogging Alphabet's earnings report (due after the close on Monday) and earnings call (set for 4:30 P.M. Eastern Time); please visit our home page then for more details. Here are some important things for investors to keep an eye on:
1. Revenue Growth for Google's Own Sites and Apps
Mobile search and YouTube ad sales have been Google's biggest growth engines in recent quarters, and that likely didn't change in Q4. Including TAC expenses, the consensus is for as sales on Google's own properties (believed to be dominated by search and YouTube ads) to be up 20% in Q4 to $26.75 billion. Fellow online ad giant Facebook's (FB) solid Q4 numbers could be a positive sign for Google's report.
Also keep an eye how paid ad clicks and average ad prices (referred to by Google as cost per click, or CPC) trended in the quarter. In Q3, paid clicks on Google properties rose 62% thanks to surging mobile activity, but (due to the fact that smartphone ad prices are lower on average than PC ad prices) CPC fell by 28%.
2. The 'Google Other' Segment's Growth
This segment covers non-advertising businesses such as Google and Nest-branded hardware, Google Play transactions, the G Suite (formerly Google Apps) and the Google Cloud Platform (GCP). The consensus is for Google Other revenue to be up 37% in Q4 to $6.43 billion.
Likely giving the segment a lift in Q4: GCP and Google Play growth, growing sales for the Google Home smart speaker/display line and the fact that the Pixel 3 and 3 XL (launched in October) was available in more markets than the Pixel 2 and 2 XL were a year earlier.
3. Traffic Acquisition Cost (TAC) Trends
TAC grew as a percentage of Google's total ad revenue in late 2017 and early 2018, thanks in part to a revised search ad revenue-sharing deal with Apple (AAPL) . However, in Q3, as Google passed the 1-year anniversary of the new Apple deal, TAC remained steady at 23% of ad revenue.
For Q4, the consensus is for TAC to total $7.62 billion -- up 18% but slightly below expected ad revenue growth of 19%. Going forward, the EU's demand (currently being appealed) that Google stop requiring the bundling its search app and the Chrome browser with Google's version of Android could increase its TAC expenses in the region, by giving Android phone makers more leverage in revenue-sharing negotiations. However, on the Q3 call, CEO Sundar Pichai downplayed the ruling's near-term impact.
4. Forex Pressures
A strong dollar has recently been a headwind for many U.S. multinationals. Facebook, for its part, reported its Q4 revenue growth was 33% in constant currency (CC) but only 30% in dollars.
Google, which got 54% of its revenue from international markets in Q3, undoubtedly felt the effects of a strong dollar as well in Q4. However, the company has had success over the years at using currency hedging programs to limit the damage done by forex swings.
5. Capital Spending
Like several other web/cloud giants, Google has been investing aggressively in its data center infrastructure in recent quarters. In Q3, the company's capital spending rose 49% annually to $5.28 billion.
Intel (INTC) , Western Digital (WDC) and others have signaled in recent weeks that major cloud clients are slowing down their spending on data center hardware and chips as they digest some of the recent capacity that they've built up, while generally forecasting spending will improve in the second half of 2019. However, the cloud giants' data center construction spending, which is also considerable, might not be affected much by such actions.
For Q4, the consensus is for Google's capex to be up 31% annually to $5.63 billion.
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