Alphabet Q2 Earnings: AI, Cloud, and Acquisitions
22-07-2024
Big tech earnings week continues as Google’s parent company, Alphabet Inc., approaches its next earnings release on July 23rd. Its latest quarterly earnings report will provide a detailed look at how the Alphabet group has fared amid the rapidly evolving and highly competitive AI environment.
Alphabet Inc. has demonstrated robust growth and resilience in recent quarters, with its core businesses Google, YouTube, and Google Cloud computing division continuing to perform strongly. Previous Q1 earnings figures reported revenues of $80.5 billion, a 15% year-over-year increase, surpassing estimates of $78.59 billion. Earnings Per Share (EPS) came in strong at $1.89, above the $1.51 consensus forecast. Alphabet’s dominance of global internet advertising drove up to 90% its revenues, and following this robust quarterly performance, Alphabet authorised a $70 billion stock repurchase programme and announced its first dividend – demonstrating the board’s confidence in the company’s growth prospects and current financial stability.
Despite their strong performance, Alphabet’s Google Cloud division faces increasing competitive pressure from rival tech heavyweights Amazon Web Services and Microsoft Azure. Investors will be looking at the division’s latest revenue growth rate as well as any strategic developments to ensure they capture a larger share of this emerging market. Recent regulatory scrutiny and potential antitrust action from the US Justice Department remain ongoing concerns that may impact Alphabet’s performance moving forward.
Last week, Alphabet announced it is closing in on a deal to buy Wiz, a cloud cybersecurity start-up for approximately $23 billion which would mark its largest acquisition to date. The business, which was founded in March 2020, offers security to companies that use cloud computing providers including competitors such as Amazon Web Services, and has been adopted by 10% of the Fortune 500. This potential acquisition may present an excellent opportunity as businesses seek alternative and more reliable cybersecurity providers following the global IT outage last Friday after a faulty software update from industry leader CrowdStrike.
As with other major tech companies, Alphabet’s quarterly earnings calls this year have been periods of high volatility – Q4 figures announced on January 30th prompted a 7% intra-day dive in the GOOG share price and their latest Q1 results published on April 25th sent shares up 10% on the day.
GOOG YEAR-TO-DATE EARNING CALLS 2024
Options offer investors a cost-effective way to gain leveraged exposure to volatility. If you think that the upcoming Q2 earnings call on the 23rd July will lead to a further spike in Google volatility, then you could consider buying a Long Straddle.
Long Straddle
Trade Idea
Long Straddle
GOOG Cash Price = $181 (as of 22/07/2024 at time of writing)
Total consideration of $1,120 (excl. fees + commissions) which will equate to the maximum loss
Defined risk profile – maximum loss is equal to the net option premium paid (+ fees and commissions)
This strategy requires a 6.33% move in either direction in order to break even.
A swing of 10% to either the $198 or $162 level by 26th July 2024 expiry would yield a 160% return on the initial investment, valuing the call or the put leg of the straddle @ $1,800 ((198-180) x 100)) or ((180-162) x 100)) and yielding a maximum profit of $680 per 1 lot ($1,800 – $1,120) (excl. fees + commissions)
Maximum loss $1,120 (excl. fees + commissions)
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