29 April 2020

Alphabet’s Shares Soar Despite Earnings Miss

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What’s happening: Shares of Google parent Alphabet Inc spiked in extended trading on Tuesday, despite the search giant missing earnings expectations for the first quarter.

What happened: The Mountain View, California-based company’s profits suffered more than was anticipated as the coronavirus outbreak caused a steep slowdown in advertising sales.

Google’s ad and search businesses faced a tough quarter, with companies across the globe changing their advertisement strategies and cutting their ad spending amid the pandemic. Investors chose, however, to ignore this important matrix and focus on the quarter’s positives, sending the stock surging by 8% in after-hours trading yesterday.

How were the results: Although missing expectations, Alphabet’s profits grew at a time when most companies are suffering a massive contraction. The company also achieved strong revenue growth, beating expectations.

  • Alphabet’s earnings rose to $6.84 billion, or $9.87 per share, from $6.66 billion, or $9.50 per share, in the same quarter last year. This, however, missed expectations of $10.71 per share.
  • Overall revenue climbed 13% to $41.2 billion, exceeding the consensus estimate of $40.29 billion.

Why it matters: A decline in advertising was widely expected with the pandemic putting a halt to businesses worldwide. Google’s major source of revenue comes from travel and entertainment ads. With travel restrictions and stay-at-home orders, both these segments have slashed their marketing budgets, a trend that is expected to continue for the rest of the year. Even as these sectors plunged and other sectors suffers a massive setback, Google’s ad sales grew by around 10% to $33.8 billion in the first quarter.

The company’s cloud business exhibited robust growth with people working from home. Its cloud business, which includes its G Suite and cloud-computing platform, generated revenue of $2.4 billion for the quarter, up by a whopping 52%.

YouTube generated growth too, with revenue exploding a healthy 33% during the quarter with people looking towards online entertainment during the lockdowns.

At a time when mostly companies are halting their buyback programs, Alphabet intends to continue with its earlier announced stock repurchase plan.

What to watch: Given the slow easing of lockdown restrictions, Google’s ad revenues are expected to continue to decline. Investors are now focusing on the company’s major growth drivers in the current quarter, including its cloud business and YouTube, and hoping the positive trends continue.

The Markets Today

     

European stocks will be in focus today, ahead of various economic reports scheduled for later in the day.

Context: European stocks closed higher on Tuesday, with investors assessing various corporate earnings. Markets continued to recover from their lowest levels on the COVID-19 crisis.

Details: Recent data pointed towards a further slowdown in the growth rate of the coronavirus pandemic and various European countries are now taking steps to ease their restrictions.

Global markets are assessing oil prices, with the US crude oil paring losses by the end of the day. WTI crude oil had plunged around 20% earlier in the day but closed lower by merely 3.4% in the prior session.

In earnings news, shares of UBS gained over 7% after the Swiss firm reported a strong rise in its first-quarter profit. Meanwhile, Europe’s largest bank, HSBC, reported a massive 48% decline in its pretax profit for the first quarter. The oil giant, BP, reported weaker-than-expected quarterly profits.

The pan-European Stoxx 600 index closed higher by 1.68%, with most sectors closing in positive territory. Banking shares were the top performers, gaining over 4% in the previous session. The German 30 index rose 1.27%, while French 40 closed higher by 1.43% on Tuesday.

Investors shrugged off disappointing economic data, with Spain’s unemployment rate climbing to a one-year high in the first quarter and a record decline in France’s consumer confidence indicator to 95 in April, from a reading of 103 in March.

What to watch: Investors continue to assess the daily coronavirus figures, with the total number of cases worldwide exceeding 3,116,390. The number of positive COVID-19 cases in Spain has surpassed 232,120 with around 23,820 deaths, while Italy has confirmed over 201,500 cases.

Investors await a basket of economic reports from the Eurozone, including household credit growth, money supply M3, loans to private sector, business climate indicator, consumer confidence indicator, economic sentiment indicator, industrial sentiment, services sentiment and consumer confidence. Eurozone’s consumer confidence indicator is expected to decline 11.1 points to a reading of -22.7 in April. The economic sentiment indicator is likely to tumble to 74.7 in April, from 94.5 in March. Analysts expect Eurozone’s industry confidence indicator to dip again to -25.7, from a prior reading of -10.8. The services confidence indicator is expected to plunge to -27 in April, from March’s reading of -2.2.

Other Markets: US indices closed lower on Tuesday, with the Dow, S&P 500 and Nasdaq down by 0.13%, 0.52% and 1.4%, respectively.

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What else to watch today

     

Germany’s import prices and inflation rate, Spain’s retail sales and business confidence, Turkey’s economic confidence index, Italy’s producer prices, Canada’s foreign stock investment as well as the US MBA mortgage applications, GDP growth rate, pending home sales, crude oil stocks change and Fed interest rate decision.

 

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