Alphabet (GOOG) to Report Q3 2023 Results: Earnings Preview and Expectations

Alphabet (NASDAQ: GOOG) is set to announce its fiscal Q3 2023 results on Tuesday, October 24, 2023. Analysts expect the company to surpass consensus estimates for both earnings and revenues. In the last quarter, Alphabet exceeded street expectations, with net revenues growing by 7% to $74.6 billion. This growth was primarily driven by the success of Google search, Google Cloud, and other Google units. It is anticipated that the Q3 results will follow a similar trend. For a more in-depth analysis, our interactive dashboard on Alphabet’s Earnings Preview provides further details.

Amid the current financial landscape, GOOG stock has experienced significant gains, increasing by 55% from $90 in early January 2021 to approximately $140 now. In comparison, the S&P 500 saw a 15% increase during the same period. However, the rise in GOOG stock has not been steady. Returns for the stock were 65% in 2021, -39% in 2022, and 59% in 2023. On the other hand, the S&P 500 experienced returns of 27% in 2021, -19% in 2022, and 14% in 2023, indicating that GOOG underperformed the index in 2022. In recent years, consistently outperforming the S&P 500 has been challenging for individual stocks, even for communication services heavyweights like META, CMCSA, and TMUS, as well as mega-cap stars TSLA, MSFT, and AMZN. In contrast, the Trefis High-Quality (HQ) Portfolio, composed of 30 stocks, has outperformed the S&P 500 every year during the same period. So, why is that? HQ Portfolio stocks, as a group, have delivered better returns with less risk compared to the benchmark index, resulting in a smoother performance. Given the current uncertain economic environment with high oil prices and elevated interest rates, it raises the question of whether GOOG could face a similar situation to 2022 and underperform the S&P over the next 12 months, or if it will experience a strong jump. According to our forecast, Alphabet’s valuation stands at $135 per share, which is 4% below the current market price of around $141.

Earnings Estimates for FY2023Q3:
1) Revenues expected to surpass estimates:
Alphabet’s revenues grew by 5% year-over-year to $144.4 billion in the first two quarters of FY2023. Trefis estimates that Alphabet’s net revenues for fiscal Q3 2023 will be approximately $73.85 billion, slightly above the consensus estimate of $72.12 billion.

2) EPS expected to exceed consensus estimates:
According to Trefis analysis, Alphabet’s adjusted earnings per share for Q3 2023 are projected to be $1.41, which is 3% higher than the consensus estimate of $1.37. The adjusted net income increased by 3% year-over-year to $33.4 billion in the first half of FY 2023. However, the growth rate was lower than the increase in the top line due to a rise in operating expenses as a percentage of revenues, from 71.3% to 72.8%. We anticipate that the Q3 results will follow a similar pattern. Overall, Alphabet is expected to report an annual GAAP EPS of $5.30 for the full year 2023.

3) Stock price estimate:
By utilizing an EPS estimate of $5.30 and a price-to-earnings (P/E) ratio slightly above 25x in fiscal 2023, we arrive at Alphabet’s valuation of $135 per share, which is 4% below the current market price.

Please note that P/E multiples are based on the share price at the year-end and reported or expected adjusted earnings for the entire year.

When comparing GOOG’s returns to the Trefis Reinforced Portfolio, it is evident that the latter has consistently outperformed the S&P 500 over the same period. For individuals looking to invest, Trefis offers market-beating portfolios.

In conclusion, with expectations of surpassing consensus estimates for both revenue and earnings, Alphabet’s Q3 2023 results are anticipated to showcase the company’s continued growth in key areas such as search, Google Cloud, and other divisions. However, given the current economic uncertainties, it remains to be seen how GOOG will perform in relation to the S&P 500 over the next 12 months.