- Analysts Expect Adjusted EPS of $14.30 vs. $11.90 in Q1 2019.
- Paid clicks are expected to grow but at a slower rate.
- Revenue growth many slow sharply in coming year amid COVID-19 pandemic.
Alphabet Inc. (GOOGL), parent of search giant Google, is one of a select group of large companies that may benefit from a global recession sparked by the COVID-19 pandemic. Due to exploding Internet traffic as millions of people worldwide shelter at home, Google's traffic is soaring in key areas. Investors will focus intently on the opportunities – and risks – facing Alphabet when it reports earnings on April 28, 2020 for Q1 2020. Analysts expect strong growth in both adjusted earnings per share (EPS) and paid clicks, even as revenue decelerates.
Investors will look closely at the performance of two key metrics: paid clicks, which measures online traffic; and cost per click, which measures how much money the company gets per click. Paid clicks have been rising, but costs per click have been falling.
This mixed performance may be why Alphabet has mostly performed on par with the rest of the market over the past year. The company's shares have posted a total return of 0.6% over the past 12 months compared to the S&P 500's total return of -2.9%.
Alphabet's shares continued their upward momentum following the company's Q4 2019 earnings report, the first report issued by the company under new Chief Executive Officer (CEO) Sundar Pichai. The company posted adjusted EPS growth of 42.1% compared to the same quarter a year ago, a definite improvement from the 22.5% decline reported in Q3. Revenue continued to grow, rising 20.0% in Q3 and 17.3% in Q4 year over year (YOY).
But the company's shares began to crash along with the rest of the market in the latter half of February on mounting fears over the spread of COVID-19. The stock has rebounded somewhat, but it's still well below its all-time high, and the company's market value is still below the coveted $1-trillion mark it reached earlier this year. The rebound could falter if upcoming earnings results fail to meet expectations.
Analysts are forecasting Alphabet will post adjusted EPS growth of 20.2% and revenue growth of 13.0% for Q1 2020. That would be the slowest-reported revenue growth in at least three years.
|Alphabet Key Metrics|
|Estimate for Q1 2020 (FY)||Actual for Q1 2019 (FY)||Actual for Q1 2018 (FY)|
|Adjusted Earnings Per Share ($)||14.30||11.90||16.04|
|YOY Growth in Paid Clicks (%)||25.6||39.0||59.0|
Source: Visible Alpha
Aside from earnings and revenue, investors will be focusing on growth in paid clicks, as well as a related metric, cost-per-click. Paid clicks represent clicks on advertisements by users of the Google search engine and other platforms owned by Alphabet, including Gmail, Google Maps, and Google Play. The metric also includes views of advertisements on YouTube. Cost-per-click represents the average amount Alphabet charges advertisers for each paid click by users, and is calculated by dividing click-driven revenue by the total number of paid clicks.
Analysts are expecting Alphabet to deliver Q1 growth in paid-clicks of 25.6%, which would be a significant notch faster than the 18.4% and 18.0% growth rates reported in Q4 and Q3 of 2019, respectively. The higher forecast for Q1 may have something to do with the recent surge in Internet traffic. However, that rate of growth is still more than 13 percentage points below the rate reported in Q1 2019 and is considerably lower than any growth rate reported during either 2018 or 2017.
Analysts are expecting a much gloomier result for cost-per-click, forecasting a decline of 7.9% compared to the same quarter a year ago. That means less revenue is expected to be generated per click. While cost-per-click has declined in every quarter going back to at least Q4 2016, the rate of decline slowed sharply, falling only 2.0% in Q3 and Q4 of 2019. The much steeper decline in Q1 may be a sign that advertisers have begun to pull back their ad spending. Alphabet will need to continue to boost Internet traffic in order to offset any declines in ad-spending budgets.
New York Times. "The Virus Changed the Way We Internet," Accessed Apr. 21, 2020.
Bloomberg. "Internet Traffic is Surging But The Pipes Aren’t Bursting Yet," Accessed Apr. 20, 2020.
Alphabet Inc. "Alphabet Announces Date of First Quarter 2020 Financial Results Conference Call," Accessed Apr. 20, 2020.
Yahoo! Finance. "Alphabet Inc. (GOOGL) Chart," Accessed Apr. 20, 2020.
U.S. Securities and Exchange Commission. "Alphabet Inc's Form 10-Q for the quarterly period ended September 30, 2019," Page 34. Accessed Jan. 23, 2020.
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