Key Takeaways

  • Analysts estimate EPS of $18.92 vs. $10.13 in Q2 FY 2020.
  • Google Cloud revenue is expected to show strong growth YOY.
  • Revenue is expected to rise at the fastest pace in at least four years amid the rapid digital transformation spurred by the COVID-19 pandemic.

Alphabet Inc. (GOOGL), parent of search giant Google, is enjoying some its highest earnings and revenue growth rates in recent years. But that growth may be slowed by significant anti-trust headwinds. Google this month was sued by three dozen states and the District of Columbia. The suit alleges that Google Play, the company's app store, abuses its market power by monopolizing the distribution of apps on mobile devices running Google's Android operating system. This lawsuit is the fourth brought by federal and state authorities against Google in the past year.

Investors will want to learn more about the future impact of these lawsuits, as well as Google's latest financial performance, when the company reports earnings on July 27, 2021 for Q2 FY 2021. Analysts expect rapid growth in both earnings per share (EPS) and revenue, with revenue growing at its fastest pace in at least four years.

Investors will also be focusing on revenue for Google Cloud, one of Google's main business segments. Google Cloud offers tools for developers through a cloud platform as well as other workplace collaboration tools. Analysts expect Google Cloud revenue to continue growing at a robust pace.

Alphabet's shares have outperformed the broader market over the past year. For the first part of the last year, the stock mostly kept pace with the rest of the market. But beginning around mid-January 2021, the stock began to break ahead of the market. The outperformance gap has gradually widened ever since. Shares of Alphabet have provided a total return of 75.4% over the past year, more than double the S&P 500's 36.4% total return.

One Year Total Return for S&P 500 and Alphabet
Source: TradingView.

Alphabet (Google) Earnings History

The stock jumped after reporting Q1 FY 2021 earnings and revenue that beat analysts' expectations. EPS rose 166.2% compared to the year-ago quarter, marking the fastest pace of growth since Q2 FY 2019. Revenue grew 34.4% year over year (YOY), accelerating to its fastest pace since at least the second quarter of FY 2017. The company said that its revenue reflected increased online consumer activity as well as broad-based growth in ad revenue.

Alphabet dramatically beat analysts' earnings and revenue estimates in Q4 FY 2020. EPS rose 45.3% compared to the year-ago quarter, though that marked a deceleration from Q3's 64.8% increase. Revenue rose 23.5% YOY, marking the fastest pace of growth since the second quarter of FY 2018. The company said its strong results for the quarter were partly driven by accelerating use of online and cloud services amid the COVID-19 pandemic.

Analysts expect Alphabet's strong financial performance to continue in Q2 FY 2021. EPS is expected to rise 86.8%, which would be the second fastest pace of growth since Q2 FY 2019. Revenue is expected to expand 46.4%, continuing an acceleration trend that began in the third quarter of FY 2020. In the second quarter of that year, revenue suffered its first decline in at least 13 quarters. For full-year FY 2021, analysts expect EPS to increase 49.1%, which would be the fastest pace since FY 2018. Annual revenue is expected to grow 29.7%, which would be the largest increase in at least five years.

Alphabet (Google) Key Stats
  Estimate for Q2 2021 (FY) Q2 2020 (FY) Q2 2019 (FY)
Earnings Per Share ($) 18.92 10.13 14.21
Revenue ($B) 56.1 38.3 38.9
Google Cloud Revenue ($B) 4.4 3.0 2.1

Source: Visible Alpha

The Key Metric

As mentioned above, investors will also be focused on Google Cloud revenue. Google Cloud is one of Alphabet's primary business segments. The cloud segment provides developers with a highly scalable and reliable platform for building, testing, and deploying applications. It also offers workspace collaboration tools, including apps like Gmail, Docs, Drive, Calendar, Meet, and more. Revenue is generated through the collection of fees related to those services. As of the end of the first quarter of 2021, Google Cloud had an estimated 9% of the $150-billion global cloud market, ranking it third behind Microsoft Corp.'s (MSFT) Azure and top-ranked Amazon.com Inc.'s (AMZN) Amazon Web Services. This is a relatively small share compared to the approximately 90%-control of the search engine market that Google holds, a major reason its search business is the target of antitrust lawsuits.

Alphabet's annual Google Cloud revenue has steadily grown over the past several years, but it has slowed from a rate of 75.7% in FY 2017 to 46.4% in FY 2020. In the first quarter of FY 2021, Google Cloud revenue has basically maintained last year's annual pace, rising 45.7% YOY. Analysts expect a slight acceleration to 46.2% YOY in Q2 FY 2021. For full-year FY 2021, analysts forecast that Google Cloud revenue will increase 42.8%, which would be the slowest pace of growth in at least the past five years.