Alphabet Inc (GOOGL) Earnings: Should You Buy GOOGL Stock Now?

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Q4 Earnings Expectations

In the previous quarter, Alphabet Inc posted an EPS of $9.06, on revenues of $22.5B, up significantly from the $7.35 EPS and $18.7 billion revenue it posted in the year-ago quarter. Alphabet has average analyst EPS and revenue estimates of $9.63 and $25.1B for the year-ending fourth quarter. This represents a rise of 18% in revenue and 11% in EPS, year over year. However, the analyst estimates seem to be on the conservative side, following Alphabet CFO Ruth Porat’s word of caution during the company’s third-quarter earnings call where she stated that it will be a daunting task for the company to beat tough year-ago revenue comparisons in the fourth quarter.

One metric which investors need to watch closely in Alphabet’s latest earnings is the company’s operating margin, given that operating margins have fallen sharply from 35.4% in 2010 to 26.3%, as of the latest quarter. There has been a lot of pressure on the tech giant’s margins, and declining margins do not augur well. Tough competition from Facebook also has not hurt Google’s cause, and traffic acquisition costs are also on the rise. Alphabet investors have had a lukewarm response to Alphabet’s impressive growth metrics. Investors will be hoping that GOOGL stock can set the ball rolling in 2017 with a strong Q4 earnings display.

Alphabet Inc Reversing the 2016 Trend Going Into Q4 Earnings

It seems GOOGL stock is set to make amends in 2017, for its underperformance last year. GOOGL stock is already up by almost 7% YTD. Alphabet has turned more aggressive to make its ‘other bets’ deliver results. The commercialization of its self-driving cars, with its new subsidiary, Waymo, is one such example. That Alphabet Inc (NASDAQ:GOOGL) is tightening the screws on its ‘moonshot’ projects, is welcome news for investors. Alphabet Inc is poised for solid growth ahead, riding on the success of its cash cow, Google. However, any surprise success from its ‘other bets’ could drive the stock much higher. GOOGL stock looks set for far better returns in 2017 compared to 2016.

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Additional Links:

(1) http://www.barrons.com/articles/digital-ad-growth-youtube-will-lift-alphabet-20-1484976368?shareToken=st96a01b9a1e764ca4a91544561fe0ac6b

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