Earnings Preview: Alphabet (GOOGL)

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Martin Pyykkonen, Consulting Analyst

GOOGL reports 4Q16 results (typically the strongest seasonal quarter) after the market close today, with a consensus total gross revenue estimate currently at $25.4B and a nearly 10% range between the high and low street estimates. While newer products like the Pixel phone and Google Home draw media attention, investors will still pay attention to GOOGL’s core Search Advertising business. Search Advertising is still the company’s highest margin business and forms ~68% of total gross revenue.

According to Visible Alpha Consensus, Search advertising revenue is projected to decline to 65% of total segment revenue by 2018, from 68% today. However, there are no concerns over subsequent margin deterioration from the loss of such a high margin business, as estimates for EBITDA margin consensus are set to increase by 120 bps to 41.7% by 2018 and then by another 80bp to 42.5% in 2020.

GOOGL ebitda estimates chart

For illustrative purposes only.

The street consensus for GOOGL’s total segment revenue has steadily increased in recent months (especially since GOOGL reported 2Q16 results last July) and is currently 3.1% and 4.06% higher than it was six months ago, for full year 2017 and 2018, respectively.

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