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Alphabet Earnings on Deck: 3 Key Themes to Watch For

Alphabet's fourth-quarter earnings release next week marks the official kickoff of the Sundar Pichai era at the search and advertising giant. Investors are hoping for a more shareholder-friendly approach to disclosures.
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After a relatively muted performance in 2019, Alphabet  (GOOGL) - Get Alphabet Inc. Class A Report investors are hopeful for a major breakout this year.  

The search and advertising giant reports its fourth quarter earnings on Feb. 3 after market close, and its shares have gained about 7% so far in this year, fueled in part by a handful of analyst upgrades. Analysts polled by FactSet are expecting quarterly earnings of $12.49 per share on revenue of $46.93 billion. 

Here are a few themes to watch out for. 

1. The Pichai Regime

Alphabet’s recently appointed CEO, Sundar Pichai, has been leading the company’s earnings calls for awhile -- likely one reason why his surprise promotion in December didn’t have a major immediate impact on shares. Still, investors are hopeful that Pichai’s elevation to CEO of both Alphabet and Google will mean a more shareholder-friendly approach. In a recent note, Pivotal’s Michael Levine noted that increased disclosures, more buybacks and a “change in guidance philosophy” could spell multiple expansion for Alphabet investors, who have grown accustomed to its opaque approach. Investors will soon find out whether any of those possibilities are borne out in Alphabet’s fourth quarter release.

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2. YouTube, Cloud Prospects

No longer a spring chicken, Alphabet’s core ad business showed deceleration last year compared to 2018. Investors are looking for segments like YouTube and Google Cloud to drive growth in the quarters and years ahead. Alphabet doesn’t break out YouTube or Google Cloud revenues -- a source of frustration among investors -- but the company revealed last year that the latter segment carries an $8 billion run rate, and that YouTube is one of the largest drivers of revenue growth for Alphabet. The Information reported recently that Alphabet set an internal deadline of overtaking either Amazon or Microsoft in cloud computing by 2023, and is hiring and investing aggressively to make that happen. Investors are no doubt eager to hear more on Alphabet’s thinking.

3. Regulatory Impacts

The drumbeat of potentially stricter regulation isn’t going away for Alphabet. Signaling a new phase in the investigation, the DOJ and state AGs are expected to meet next week to swap information on a sweeping antitrust probe of the search and advertising firm -- and between the U.S. and Europe, that’s just one of several investigations or regulatory changes that may affect how Alphabet does business. Beyond headline risk, investors are trying to determine whether any of this will affect the Alphabet’s financial performance going forward. Tech investors may be a bit more skittish this year about the impacts of regulation -- for example, Facebook’s stock dropped more than 7% overnight when it cautioned that revenue growth could decelerate in Q1 owing in part to regulation. Alphabet, likewise, could drop hints next week on the potential for its ad business to be impacted.