Bated Breath for Alphabet’s Earnings Soup

Just a few hours to go until we find out if Alphabet (Google) has done right by investors by sinking tons of money into new, unproven and, at times, seemingly fanciful ventures. The earnings report slated for this afternoon has Wall Street waiting with bated breath to see how things have panned out.

And, fickle creature that it is, the Street has not much patience for results “on the come.” They’ll likely want to see when losses are likely to translate into big business, which means (eventually) profits. But beyond that sea of red ink, noted the Financial Times recently, the Internet operations, which is the bread and butter for Alphabet and which is the source of funding for all these disparate ventures, will look good by comparison. Some analysts estimate the core profit margin on the core business at more than 50 percent. 

The devil may be in the details, but there’s a reward in the offing as the company, for the first time, presents both “Google” and “Other Bets” and corporate segments, each with their own sets of data for the parsing. If the company beats consensus, then the shares in Alphabet may reach lofty heights, surpassing even Apple in terms of market cap.  The hurdle is a low one, at a 3 percent jump to make that a reality, for Alphabet’s overtaking of Apple. The FT noted that most analysts are looking for the company to show losses from the new business (aka “Other Bets”) at about $3 billion to $5 billion, annually, and that is nicely offset by the $19 billion that had been seen in operating earnings just last year for the Internet business. 

Analysts want to see the results from the Bets biz so they can start to value that segment as a separate entity, which in turn may make them tweak their estimates for enterprise value, and thus market cap and stock prices by extension. 

There’ll be a broad swath of data, but at least, aggregated into revenues and costs, analysts can begin to assign value. In large part the new business standouts will be Nest Labs and Google Fiber, which may be the only segments showing top line traction at all – for now, forget about X and the pharma operation Calico. 

But then again, self-driving cars may be the wave of the future, as YouTube once was for streaming media. For now, attention must be paid to cost per click, too, and the ever important move toward mobile as a way of life for media and advertising. Consensus has the whole company logging revenue growth of about 15 percent in the fourth quarter to $20.8 billion, and earnings per share of $8.09, up from last year’s $6.88. In between those top and bottom lines may be an Alphabet soup, but we’ll see if it’s savory or sour.