Nasdaq 100 Outlook: Alphabet stock in play ahead of Q1 earnings

When will Alphabet release Q1 earnings?

Alphabet will release first quarter earnings after US markets close on Tuesday April 25. A conference call is scheduled on the same day at 1400 PT (1700 ET).

Alphabet Q1 earnings consensus

Alphabet is forecast to report a 1.4% year-on-year rise in revenue in the first quarter to $68.96 billion while diluted EPS is expected to drop 11.3% to $1.09.

Alphabet Q1 earnings preview

Alphabet makes the vast majority of its revenue from advertising and conditions remain soft. Having slowed throughout 2022 as the pandemic-fuelled boom in ads unwound, we saw advertising sales drop for the first time in 10 quarters in the last three months of 2022 as businesses started to pullback on spending and tougher comparatives began to bite.

This trend is expected to have continued in the first quarter of 2023, with Wall Street forecasting a 1.7% year-on-year drop in ad sales to $53.8 billion. That will be driven by a mild 0.6% decline for its core Google search engine, a 3.2% fall on YouTube and a sharper 5.9% from Google Network, where it displays ads across a number of other services and apps.

Fortunately, that will be countered by Google Cloud. Revenue from its cloud-computing arm is expected to rise 28% to $7.5 billion, although that would represent the seventh consecutive quarter of slower growth as businesses continue to be more stringent with their IT spending.

However, that will not help earnings considering Google Cloud remains in the red, with operating losses expected to come in at $581.9 million. That would be a much narrower loss than what we saw the year before, but Wall Street thinks there is still a long way to go before it becomes profitable considering consensus numbers suggest it won’t escape the red until 2025! Any signs this can be achieved sooner thanks to cost control and job cuts would be a welcome and supportive surprise.

Slower ad growth, the drag from Google Cloud and rising costs and spending (forecast to jump 9.4% in Q1) is pressuring profitability and set to see Alphabet’s operating margin tighten to 24% from 30% the year before. That is set to see Alphabet’s EPS deteriorate for a fourth consecutive quarter.

The key focus will be on the outlook as investors gauge when margins and earnings will bottom-out. Currently, markets believe the first quarter will be the trough and that virtually everything will begin to improve from the second quarter onwards, although we have seen Wall Street proven wrong in and push these expectations further out in recent quarters. Analysts hope advertising sales will return to growth and that margin pressure will ease in the second quarter as its sharpened focus on costs, aided by ongoing reductions in headcount following the 12,000 job cuts announced in January, start to make an impact. Importantly, Alphabet’s workforce has doubled in size since the start of the pandemic but its headcount is expected to peak in the first quarter before starting to drop in the second as it implements those job cuts.

That is significant as Wall Street believes EPS will increase for the first time in over a year in the second quarter and then accelerate to double-digit growth in the second half to restore its growth prospects. Any signal that this will take longer would be negative for the stock.

With that in mind, it is important to note that Alphabet’s revenue remains highly sensitive to the challenging economic conditions and that expectations of a recession later this year, albeit a mild and shallow one, threatens estimates for the remainder of the year. If the outlook weakens further, then Alphabet may be forced to lower prices further to drum-up demand while simultaneously increasing spending on the likes of artificial intelligence and other tools to improve its offering and keep customers on board. Plus, that could heighten the need to use the levers on what it can control, such as costs, and there is plenty of potential here considering Alphabet’s workforce remains bloated and still has plenty of fat to cut. It will be a tough choice if it has to decide between pulling back on capital spending to preserve cashflow or splashing out more in search of new catalysts.

There will be added pressure now that competition is intensifying amid the eruption of AI in 2023, with Microsoft having declared war on Google as it tries to revive its Bing search engine with the help of OpenAI’s ChatGPT – which UBS estimated in January is the fastest-growing consumer application of all time after securing 100 million users within the first two months of being launched! We heard reports just this month that Samsung, the world’s largest producer of smartphones, has considered dumping Google as the default search engine on its devices and turning to AI-powered Bing, which threatens billions of dollars in annual revenue for Google every year.

Microsoft is willing to accept any demonsetisation and margin to destabilise Google’s monopoly over internet search, but that could place Alphabet in a very difficult position because it has to simultaneously protect profitability of its core business while ensuring it doesn’t lose business to it competitor. So far, Microsoft has gained the upper hand after Alphabet’s Bard failed to impress the markets after making a factual error in its first public demo, but we are still in the very early stages of the race for AI supremacy and Alphabet has been working for years, powered by its unrivalled access to data, on creating a market-leading tool.

Where next for GOOGL stock?

Alphabet shares are currently testing the floor that held firm over the three months to the end of July 2022 at $105, which then remerged as the peak we saw last October. It now needs to eye a move above the $107.50 and $109 range, representing the closing and intraday highs that have provided resistance on multiple occasions since early February.

Any move above that range would see it hit new seven month highs and bring the next upside target of over $110 into view before $119.50 comes back into play. The peak seen last August of $122 would then be back on the radar. Notably, the 50 brokers that cover the stock see slightly more upside potential considering the average target price sits at $124.50.

On the downside, we should see the 200-day moving average at $101, aligned with the bottom of the dip we saw in late March, should provide some support with the short-term moving averages there to provide a safety net if it fails. If they fail, then we could see it slide toward the February trough of $89.

Traders should also keep an eye on the Nasdaq 100 considering Alphabet’s two share classes (GOOGL and GOOG) make up just under 7.5% of the index. Alphabet has underperformed since the start of 2023, and currently trades at a discount to the Nasdaq 100 and most of its Big Tech peers.

Take advantage of extended hours trading

Alphabet will release earnings after markets close and most traders must wait until they reopen the before being able to trade. But by then, the news has already been digested and the instant reaction in share price has happened in after-hours trading. To react immediately, traders should take their positions in pre-and post-market sessions.

With this in mind, you can take advantage of our service that allows you to trade Alphabet and other tech stocks using our extended hours offering.

While trading before and after hours creates opportunities for traders, it also creates risk, particularly due to the lower liquidity levels. Find out more about Extended Hours Trading.

How to trade Alphabet stock

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