The online advertising market is dominated by two companies -- Alphabet (GOOGL) - Get Reportand Facebook (FB) - Get Report . With Alphabet increasingly cutting back on its moonshot projects, investors will begin to place more emphasis on how profitable the advertising business is and whether it's gaining market share, particularly in mobile advertising.
"Mobile search and YouTube are the two primary drivers of this [website revenue growth], and we believe this dynamic has not run its course just yet," Canaccord Genuity analyst Michael Graham wrote in a note to clients. "Additionally, other parts of the non-core business (including Play, Cloud, and programmatic) should provide growth tailwinds beyond 2017."
Emboldened by its Android operating system and YouTube, Alphabet's Google unit has become an advertising behemoth. That trend is likely to continue, as research firm eMarketer suggests digital ad spend will surpass television ad spending in 2017 for the first time. In 2017, total digital ad spend will equal $77.37 billion, compared to $72.01 billion for TV ad spending, according to eMarketer.
Those factors are likely to help keep Alphabet's revenue growth from its Google unit (which houses its advertising business among others) strong, Canaccord's Graham noted.
Investors will also be looking to hear how the company's burgeoning hardware business is going, when it reports fourth-quarter results after the close of trading on January 26.
In the quarter, Google introduced both its smart speaker, Google Home, as well as its new Google Pixel smartphone. Wedbush Securities analyst James Dix expects sales to be strong for both products, due in part to popularity surrounding the Amazon (AMZN) - Get Report Echo speaker (a competitor for Google Home) as well as a heavy advertising spend surrounding the Pixel.
Analysts surveyed by Yahoo! Finance expect the company to earn $9.63 a share on $25.18 billion in revenue for the fourth quarter.
Over the past 12 months, shares of Alphabet gained nearly 11%, compared to the near 19% gain in the S&P 500.
Here are three ETFs that may benefit if investors like Alphabet's fourth-quarter results.
iShares U.S. Technology ETF
BMO Capital Markets analyst Daniel Salmon noted that the company's recent announcement about using search data to target ads better could help improve marketer's returns. "As we noted in our July 2015 upgrade, Google has traditionally not used search data to target ads on YouTube or anywhere else; we believe this change could provide a material boost to YouTube ROI," Salmon wrote in a note to clients.
Technology Select Sector SPDR Fund
Pacific Crest Securities analyst Andy Hargreaves highlighted the company's "dominance" in search, while adding "its potential to gain share in other large markets like pay-TV and cloud computing through its data and machine-learning capabilities" are reasons to own the stock.
"In 2017, we expect Google to get more aggressive within two major markets: (1) TV, with the launch of YouTube "Unplugged" and (2) cloud computing, with the expansion into new regions," Hargreaves wrote in a research note, previewing Alphabet's earnings. "Momentum in other businesses with large opportunities will likely be important to maintaining sentiment around GOOGL as the core search business slowly decelerates over the near to medium term."
Vanguard Information Technology ETF
Canaccord Genuity's Graham, who has a buy rating and a $925 price target on Alphabet, believes that the company's other businesses, including Google Play, Cloud programmatic advertising can help with revenue growth. "Additionally, other parts of the non-core business (including Play, Cloud, and programmatic), should provide growth tailwinds beyond 2017," Graham penned in a note to clients.