Alphabet Q1 Earnings Preview: Ad Sales Strong Despite Economic Headwinds

When Google’s parent company Alphabet (NASDAQ:GOOGL) reports its latest quarterly earnings tomorrow after the close, investors will be paying close attention to signs of any slowdown in ad spending by businesses, at a time when the economy is entering an uncertain phase, hurt by four-decade high inflation.

When the Mountain View, California-based search engine giant released its last report in February, the tech mega-cap was firing on all cylinders even in the face of economic upheaval.

Alphabet has continued to profit from the major shift that emerged during the pandemic, as people increasingly turned to online shopping and companies drastically increased their digital marketing budgets.

During the past two years, the company’s flagship search business thrived, while its cloud computing unit and YouTube segment provided additional depth to its earnings. Furthermore, unlike Meta Platforms (NASDAQ:FB) and Snap (NYSE:SNAP), Google’s ad sales were barely affected by the most recent privacy changes to Apple's (NASDAQ:AAPL) iOS, mainly because the company relies on its own Android operating system.

Despite a variety of headwinds gathering pace on the macro front, many analysts still forecast robust sales growth for Alphabet and continue recommending the stock as a buy.

Multi-Year Value Creation /h2

In a recent note, Credit Suisse reiterated Alphabet shares as outperform, saying it sees “ongoing signs of [a] multiyear AI-driven value creation cycle.” The note adds:

“We maintain our Outperform rating based on: 1) ongoing monetization improvements in Search through product-/AI-driven updates; 2) greater-than-expected revenue contribution from non-Search businesses; and 3) optionality/shareholder value creation from new monetization initiatives such as Maps, Discover tab, as well as the eventual commercialization of Other Bets.”

Canaccord analysts, in their own note, also rated Alphabet as a buy, saying they expect healthy digital advertising demand despite the near-term macro uncertainty. Their note said:

“GOOGL’s momentum appears poised to persist as Search is a core channel for eCommerce advertising and integrations within Search are driving an enhanced user experience.”

“These dynamics, coupled with continued momentum in verticals like retail, media & entertainment, and travel, should drive another quarter of robust results for Search, and Google is also leaning into AI investments to enhance the user experience.”

In an Investing.com survey of 50 analysts, Google stock—which is down 17% this year—received 48 buy ratings earning it an assessment of 'outperform.'

According to their consensus price target, the stock has over 42% 12-month upside potential from its $2,392.71 closing price on Friday.

Bottom Line

Google is one of the best mega-cap stocks currently available. GOOGL shares are well-positioned to perform well, even during any potential economic downturn due to the company's vast reach in the digital ad market and its strong growth momentum in other areas of the digital economy. Tomorrow's earnings report will likely reflect that optimism.