Alphabet (GOOG, GOOGL), the parent company of Google, is scheduled to report results of its third fiscal quarter after the market close on Thursday, October 29, with a conference call scheduled for 4:30 pm ET. What to watch for:
1. ADVERTISING: Alphabet topped consensus revenue and earnings expectations with its Q2 report. At that time, CFO Ruth Porat said: "In the second quarter our total revenues were $38.3B, driven by gradual improvement in our ads business and strong growth in Google Cloud and Other Revenues. We continue to navigate through a difficult global economic environment."
On October 20, Jefferies analyst Brent Thill raised the firm's price target on Alphabet to $1,850 from $1,800, telling investors that his checks pointed to strength in YouTube ad pricing, a return of brand ad spending, and continued strong bookings in Google Cloud. The analyst, who views Alphabet as "well-positioned to monetize secular shifts to online marketing, content and commerce," has a Buy rating on the shares.
On October 23, Cleveland Research analyst Chandler Converse upgraded Alphabet to Buy from Neutral, citing signs he sees of building momentum in its Search, YouTube, and Cloud businesses. His checks indicate that Search looks to have seen steady improvement through Q3 and end-demand in Cloud looks to have exceeded partner expectations in the quarter, Converse said. The analyst, who noted that he raised his Q3 estimates to be higher than consensus, sees upside potential to his second half assumptions, he added.
2. ANTITRUST: On October 20, the Attorney General of the United States and the respective Attorneys General of eleven states filed a legal action under Section 2 of the Sherman Act, seeking to "restrain Google LLC from unlawfully maintaining monopolies in the markets for general search services, search advertising, and general search text advertising in the United States through anticompetitive and exclusionary practices, and to remedy the effects of this conduct," in a complaint filed in the U.S. District Court for the District of Columbia.
Kent Walker, Google's SVP of Global Affairs, said in a blog post that the "lawsuit by the Department of Justice is deeply flawed. People use Google because they choose to, not because they're forced to, or because they can't find alternatives. This lawsuit would do nothing to help consumers."
Afterward, JPMorgan analyst Doug Anmuth said the lawsuit against Google lacks clarity around potential remedy and financial implications. He believes Google's arguments against the suit have merits and that the lawsuit likely will be heavily contested and require many years to reach a resolution. Anmuth keeps an Overweight rating on Alphabet.
Meanwhile, Jefferies' Thill reported in the wake of the government's suit that the firm surveyed 1,000+ consumers and found 71% of them would take the extra steps to use Google Search even if it was removed from all their mobile and desktop devices, which he sees as evidence of "the overwhelming preference" for and trust in the quality of Google Search results. The analyst sees little harm to consumers and limited impact to Google over time from antitrust investigations regarding its search dominance, Thill added.
On October 28, the CEOs of Alphabet, Twitter (TWTR) and Facebook (FB) testified to the Senate Commerce Committee on Section 230, a provision of the 1996 Communications Decency Act. Twitter's Jack Dorsey, Facebook's Mark Zuckerberg and Alphabet's Sundar Pichai have all urged lawmakers to protect the structure of Section 230, which gives protections to online platforms related to the postings of their users.
3. FITBIT DEAL: On October 16, Reuters reported that EU antitrust regulators extended their probe into Alphabet's proposed $2.1B takeover of Fitbit (FIT) to January 8 from December 23.
More recently, Fitbit co-founder and CEO James Park was quoted as having told The Wall Street Journal's John D. Stoll that Fitbit is in "active dialogue" with the European Commission and the U.S. Justice Department over its proposed acquisition by Google and still expects the transaction to close sometime in 2020. Park reportedly added that "Google has incredible resources. The combination of the two companies has the potential to have a profound impact on the course of health care."
4. NEW PRODUCTS: On September 30, Google announced the launch of Google TV, unveiled the Pixel 4a 5G and Pixel 5, and introduced what it called its "best Chromecast yet."
The next day, KeyBanc analyst Andy Hargreaves said that Google's hardware event was largely consistent with expectations, with updates to Pixel, its smart speaker, and Chromecast devices, and the debut of the anticipated Google TV service. Overall, the analyst views these devices as compelling upgrades to existing Google device users, and expects a continuation of Q4 marketing campaigns to attract new users. More broadly, Hargreaves views the Chromecast and Google TV announcements as furthering the "war of the living room" narrative between Apple (AAPL), Amazon (AMZN), Roku (ROKU), and Samsung (SSNLF). He views the 2020 holiday season as a "critical period" in determining which platforms are gaining ground. The analyst has an Overweight rating on Alphabet's shares.
