What Wall Street is saying about Alphabet ahead of earnings

Alphabet (GOOGL), the parent company of Google, is scheduled to report second quarter 2024 results after the market close on Tuesday, July 23, with a conference call scheduled for 4:30 pm Eastern Time. What to watch for:

GEMINI AI: Along with Alphabet’s Q1 report on April 25, Sundar Pichai, CEO of Alphabet and Google, said: “Our results in the first quarter reflect strong performance from Search, YouTube and Cloud. We are well under way with our Gemini era and there’s great momentum across the company. Our leadership in AI research and infrastructure, and our global product footprint, position us well for the next wave of AI innovation.”

In addition, Alphabet’s board of directors authorized the company to repurchase up to an additional $70.0B of its Class A and Class C shares and approved the initiation of a cash dividend program. Alphabet declared a cash dividend of 20c per share and said the company intends to pay quarterly cash dividends in the future, subject to review and approval by the company’s board.

In mid-May, Google kicked off its developer conference with a series of announcements and mentioned “AI” 121 times during the keynote address, Google CEO Sundar Pichai said at the end of his I/O keynote. Among Google’s announcements was a brand-new AI model called Gemini 1.5 Flash, optimized for speed and efficiency.

Google’s I/O keynote was packed with news featuring Gemini integration across Google’s ecosystem from Search, Workspace, Android and Assistant, BofA told investors. The event also included the launch of a variety of improved LLMs and sixth generation TPUs. The firm thinks I/O supported its thesis that Google has industry leading AI/ML capabilities and pace of AI innovation has accelerated. BofA continues to see Google as a net AI beneficiary and believes growing Gen-AI integrations should likely help drive higher usage and incremental spend across Search, Cloud and Workspace. The firm maintains a Buy rating on the shares.

In mid-June, following Apple’s (AAPL) WWDC keynote event and release of Apple Intelligence, Morgan Stanley analyst Brian Nowak argued that the use cases presented by Apple did not appear to present a disintermediation threat to broad-based internet Search, which highlights Alphabet’s time to develop and roll out more of its own products. In addition, Apple intends to add support for more AI models, which the firm believes leaves the door open for Google’s Gemini. The analyst, who said the start of WWDC made the firm more confident in Alphabet’s GenAI leadership and argues that the next Android GenAI offerings seem superior to those on iOS, keeps an Overweight rating on Alphabet shares.

On June 28, Rosenblatt downgraded Alphabet to Neutral from Buy with an $181 price target. The analyst sees “multiple areas of transitional risk” for Alphabet and recommends “stepping back for a little while to see how the company handles it.” Areas of risk include the artificial intelligence’s impact on search, including the likely at least transitionally negative impact on search ad revenues of layering in AI Overviews, the analyst told investors. The firm says there is also nascent evidence of Google search share loss to Microsoft’s (MSFT) Bing and the transitioning of search ad revenue to retail media networks seems set to accelerate as other retailers such as Walmart (WMT) follow Amazon’s (AMZN) lead and push into this arena.

More recently, Wedbush said it thinks the setup remains positive heading into earnings, with its ad survey and agency commentary pointing to continued strength for Google Search. The firm is increasing its Google Search estimate for Q2 and now expects growth of 12.8% from 12.0%, previously. Wedbush expects a more modest sequential deceleration in Search growth and has increased conviction in spending intent for the full year, supported by its survey results, broadly positive data points from agencies in recent months, and commentary from Skai earlier this week. Further, the firm now expects Google Search revenue of $48.1B from $47.7B previously. Wedbush also expects consolidated Q2 revenue growth of 13.1% year-over-year, slightly ahead of consensus. The firm has an Outperform rating on the shares with a price target of $205.

NEW CFO: On June 5, Alphabet announced the appointment of Anat Ashkenazi as the new Chief Financial Officer and Senior Vice President of Alphabet and Google, effective July 31. Ms. Ashkenazi served as Executive Vice President and CFO of Eli Lilly (LLY), where she worked for over 23 years, the company noted. The next day, Jefferies said it believed that following a wait of more than 10 months, investors would “look positively” on Alphabet’s appointment of the former Lilly executive as CFO. Lilly’s shares delivered a 300%-plus return during Anat’s tenure as CFO, noted the firm, which sees potential for Anat to bring “much needed disclosures” to Alphabet, such as revenue, margin and EPS guidance. The analyst believes this would “allow investors to underwrite a higher multiple,” added Jefferies, which has a Buy rating on shares of Google’s parent.

NO DEAL: In May, Bloomberg’s Ryan Gould, Michelle Davis and Dinesh Nair reported, citing people familiar with the matter, that Alphabet had been moving forward in talks to buy marketing software provider HubSpot (HUBS) and had discussed terms. Reuters had reported in the prior month that Alphabet had met with bankers to discuss the possibility of an offer.

However, on July 10, Gould, citing sources, reported that Alphabet had shelved efforts to acquire the company. The parties didn’t get to the due-diligence stage in deal talks on an acquisition that would have been among the biggest this year, Bloomberg added.

On July 14, Reuters’ Milana Vinn and Steven Scheer reported, citing a person familiar with the matter, that Alphabet was in advanced talks to acquire cybersecurity startup Wiz for roughly $23B in a deal that would represent the technology giant’s biggest acquisition ever. The deal, being funded mostly in cash, could come together soon, the source added at that time.

A bit over a week later, The Wall Street Journal’s Miles Kruppa reported that Google’s talks to buy Wiz for $23B had fallen apart. The cybersecurity company is now aiming for an IPO, according to an email to employees sent Monday from Wiz CEO Assaf Rappaport and viewed by The Wall Street Journal. “While we are flattered by offers we have received, we have chosen to continue on our path to building Wiz,” Rappaport wrote, adding that Wiz intends to reach $1B in annual recurring revenue ahead of the IPO. A $23B purchase of Wiz would have been Google’s largest acquisition, Kruppa noted in a report published on July 23.

KEEPING COOKIES IN CHROME: Earlier this week, Alphabet’s Google stated in a blog post that it has decided not to get rid of third-party cookies in its Chrome web browser, catching many by surprise, even after three delays.

The company will instead introduce a new prompt for users to choose how they would like to be tracked across its search engine. Macquarie calls the news “a major twist on a years-long saga,” while Morgan Stanley says that while it still expects the industry to continue to move away from third-party cookies and towards first-party data and authenticated traffic, the pace of change is likely slower without the depreciation catalyst and sees this lengthening the timeline for benefits to accrue to LiveRamp (RAMP).

Macquarie believes this presumably means Chrome users will be able to select whether they prefer to be tracked with cookies or placed into contextual interest groups for the purposes of being served relevant ads. While Chrome users may or may not care much about this, regulators will likely acknowledge Google backing away from the heavy-handed Sandbox efforts, Macquarie says.

The firm also notes that “not surprisingly,” Criteo (CTRO) stock jumped 9% following the news on Monday. Criteo has long been viewed by investors as most at risk from cookie deprecation, and has called out $140M-$160M in likely potential lost revenue in 2025 from the loss of cookies that help its retargeting business, the firm noted.

EXPECTATIONS: Current consensus EPS and revenue forecasts for Alphabet’s June-end quarter stand at $1.84 and $84.19B, respectively, according to data provided by LSEG Data and Analytics. That $1.84 EPS estimate for the second quarter is up over the past 90 days ago, from $1.68, according to LSEG.

Among analysts tracked by Bloomberg that have updated their views on Alphabet within the last twelve months, 55 have Buy or equivalent ratings, 12 have Hold or equivalent ratings and the average twelve month price target of 57 of those analysts is $201.46.

SENTIMENT: Check out recent Media Buzz Sentiment on Alphabet as measured by TipRanks.