A month has gone by since the last earnings report for Alphabet (GOOGL). Shares have added about 0.9% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Alphabet due for a pullback? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Alphabet Earnings Crush Q1 Estimates, Revenues Rise Y/Y
Alphabet’s first-quarter 2021 non-GAAP earnings of $26.29 per share crushed the Zacks Consensus Estimate by 68% and surged 166.4% year over year.
Revenues increased 34.4% year over year (32% at constant currency) to $55.31 billion.
Net revenues — excluding total traffic acquisition cost or TAC (TAC is the portion of revenues shared with Google’s partners, and amounts paid to distribution partners and others who direct traffic to the Google website) — came in at $45.60 billion that outpaced the consensus mark by 7.4%. TAC was up 30.3% year over year to $9.71 billion.
The solid top line was driven by strength in the company’s search, cloud and YouTube businesses.
Top-Line Details
Alphabet reports under three segments – Google Services, Google Cloud and Other Bets.
Revenues from the Google Services business increased 34% year over year to $51.18 billion, accounting for 92.5% of quarterly revenues.
The year-over-year growth benefited from elevated consumer online activity and broad-based strength in advertiser spending.
Under the services business, search revenues from Google-owned sites increased 30.1% year over year to $31.88 billion. Top-line growth was led by growth across most categories, including retail, technology and CPG.
Google Services is expected to benefit from easy year-over-year comparisons in the second quarter of 2021.
YouTube advertising revenues grew 48.7% year over year to $6 billion, while Network advertising revenues increased 30.2% to $6.80 billion.
Network advertising’s top line was driven by AdMob and Ad Manager, with particular strength in app campaigns.
Google Other revenues — which consist of Google Play and YouTube non-advertising revenues — were $6.49 billion for the first quarter, up 46.4% year over year.
Google advertising revenues grew 32.3% year over year to $44.68 billion and accounted for 80.8% of total revenues.
Google Cloud revenues surged 45.7% year over year to $4.05 billion, accounting for 7.3% of the quarterly revenues. The top-line growth was driven by robust performances from GCP and Google Workspace revenues. Google Workspace revenues were driven by growth in both seats and average revenue per seat.
Other Bets revenues were $198 million, up 46.7% year over year, accounting for 0.4% of total first-quarter revenues.
Operating Details
Cost and operating expenses were $38.88 billion, up 17.2% year over year.
Operating margin was 29.7% compared with 19.4% in the year-ago quarter. Segment wise, Google Services operating margin contracted 800 bps year over year to 38.2%.
Google Cloud and Other Bets reported losses of $974 million and $1.15 billion, respectively.
Balance Sheet
As of Mar 31, 2021, cash & cash equivalents and marketable securities were $135.10 billion, down from $136.69 billion as of Dec 31, 2020.
The company generated $19.29 billion cash from operations for the first quarter and spent $5.95 billion on capex, netting a free cash flow of $13.35 billion.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 23.75% due to these changes.
VGM Scores
Currently, Alphabet has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren’t focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Alphabet has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.
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