Alphabet starts the week

Alphabet (Google)

Alphabet Inc., Google’s parent company, will be the last of the FAANG stocks to release its earnings reports for the fiscal quarter ending December 2018.

Alphabet reports after the US Market close today. The consensus recommendation once again is “buy”, according to a poll of analyst by Reuters, with 41 out of 44 analysts having a Buy to Strong Buy recommendation for the stock with a median target of around $1,365.00 and mean target at $1,353.86 as given by Thomson Reuters Eikon. (2018).

The information service is expected to have $10.82 in Earnings Per Share, which represents a yearly change of nearly 14%, since the reported EPS a year ago. Meanwhile, QTR Revenue is expected to be released at $38.9 billion, which will end the fiscal year with $136.4 billion.

Over the last 2 years, Alphabet has beaten EPS estimates 75% of the time and revenue estimates 100% of the time. According to Zacks investments, Alphabet’s search market share is a big positive, which along with its focus on innovation of its AI techniques, strategic acquisitions and Android OS should continue to generate strong cash flows for the company. Moreover, the growing momentum of Google Cloud and expanding data centres will continue to bolster the company’s presence in the cloud space.

From the negative perspective though, Alphabet is facing some downwards risks, as within the fourth quarter of 2018, it spent millions on digital ads. This along with the huge spending for opening data centres to extend its cloud footprint worldwide and for designing, developing and marketing Pixel phones, could raise concerns over whether the company can sustain its profitability.

Technically, the current Google price action has posted a reversal of more than 38.2% of the losses seen since July 2018. The price declined in 2018 due to data privacy scandals and the digital advertising threats from Amazon, as Google saw Amazon intervening into its core advertising business.

This rebound from $969 lows in December, has turned the medium term outlook to positive one. The stock is trading in the upper Bollinger Band pattern, a breath below the 50% Fib. level. A break of the latter, along with the increasingly improving Momentum indicators, suggest that there is plenty of underlying demand to protect the asset.

RSI is plateauing a shade above 50, while MACD lines have crossed higher indicating a decreasing negative momentum. Immediate Support for the asset is set at the $1,080 (20-week SMA). Immediate Resistance is set at latest high at $1,123, while the next one is at $1,175.40 (Dec.17 – Jul.18 Resistance).

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Andria Pichidi

Market Analyst

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