Google (Alphabet) Q3 FY2021 Earnings Report Preview: What to Look For

Focus on GOOGL Google Cloud revenue

Key Takeaways

  • Analysts estimate EPS of $23.12 vs. $16.40 in Q3 FY 2020.
  • Google Cloud revenue is expected to rise YOY.
  • Revenue is expected to increase, but at a decelerating pace compared to last quarter's exceptionally rapid growth.

Google parent Alphabet Inc. (GOOGL) has enjoyed exceptionally rapid profit and revenue growth in recent quarters. But amid those gains, the company is facing major antitrust lawsuits that threaten to slow the company's pace of growth. In the U.S. alone, Google faces four different antitrust complaints from states and regulators that cover issues related to the company's market power in online advertising, its search engine, and its Android mobile operating system.

Investors will be watching to see if Google can maintain its rapid pace of growth in earnings and revenue when the company reports earnings on Oct. 26, 2021 for Q3 FY 2021. Analysts expected earnings per share (EPS) and revenue to rise, but at a slower pace than in the previous quarter.

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 expand at a robust pace, albeit slower than in the previous quarter.

Shares of Alphabet have outperformed the broader market over the past year. The stock's performance gap with the rest of the market began to widen dramatically in early February and that gap continued to expand until about the start of September. The stock has recently lost some of its gains. Alphabet's shares have provided a total return of 71.3% over the past year, well above the S&P 500's total return of 31.6%.

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

Google (Alphabet) Earnings History

Google reported Q2 FY 2021 earnings and revenue that beat analysts' expectations. EPS rose 169.1% compared to the year-ago quarter, the fastest pace of growth since the second quarter of FY 2019. Revenue grew 61.6% year over year (YOY), the fastest pace out of any quarter in at least the past four years. Google said that its strong revenue results reflected an increase in consumer online activity and broad-based strength in spending from advertisers.

In Q1 FY 2021, the company's earnings and revenue exceeded consensus estimates. EPS increased 166.2% compared to the year-ago quarter, accelerating from the final quarter of FY 2020. Revenue grew 34.4%, continuing an acceleration trend that began in the third quarter of FY 2020. Revenue growth was driven by consumer online activity and broad-based growth in ad revenue.

Analysts are expecting robust earnings and revenue growth in Q3 FY 2021, albeit slower than in recent quarters. EPS is expected to rise 41.0% YOY, its slowest pace since Q2 FY 2020. Revenue is expected to expand 37.2% YOY. For full-year FY 2021, analysts are forecasting EPS to rise 73.3%, which would be the fastest pace since FY 2018. Annual revenue is expected to increase 37.8%, which would be the fastest pace in at least the past five years.

Google (Alphabet) Key Stats
  Estimate for Q3 FY 2021 Q3 FY 2020 Q3 FY 2019
Earnings Per Share ($) 23.12 16.40 9.95
Revenue ($B) 63.4 46.2 40.4
Google Cloud Revenue ($B) 5.1 3.4 2.4

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 second quarter of 2021, Google Cloud had an estimated 8% of the global cloud market, ranking it third behind Microsoft Corp.'s (MSFT) Azure and top-ranked Inc.'s (AMZN) Amazon Web Services.

Google's Google Cloud Revenue has grown rapidly over the past five years, rising from $4.1 billion in FY 2017 to a total of $13.1 billion in FY 2020. Last year in the second quarter, growth in Google Cloud revenue hit its slowest pace out of any quarter in at least the previous three years. However, it accelerated throughout the last two quarters of the year, reaching a YOY pace of 46.6% in Q4 FY 2020. Growth slowed to 45.7% YOY in the first quarter of FY 2021 and then sped up again to 53.9% YOY in the second quarter, marking the fastest pace of growth since Q3 FY 2019. Analysts expect Google Cloud revenue to slow to a pace of 47.9% YOY in Q3 FY 2021. For full-year FY 2021, analysts are forecasting revenue for the cloud segment to rise 47.9%, accelerating slightly from last year's pace.

Article Sources
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