Google parent Alphabet could declare dividend in earnings call
SAN FRANCISCO — Alphabet, the parent company of Google, is scheduled to report third-quarter results after the close of trading Thursday.
Earnings forecast: Analysts expect it to earn $7.20 a share excluding certain expenses, up 13% from $6.35 a share a year ago.
Revenue forecast: Analysts expect revenue of $18.54 billion, up 12% from $16.52 billion a year ago.
What to watch:
Alphabet: Alphabet is the new parent company of Google. Google still retains most of the largest divisions, including search and YouTube. Smaller operations such as Nest, Google Fiber, venture capital investments and life sciences fall under the Alphabet umbrella. Google co-founder Larry Page oversees Alphabet while Sundar Pichai is now the chief executive of Google.
The reorganization may give investors a clearer picture of how much it is spending on some of its newer and more speculative ventures such as its effort to build self-driving cars or develop a glucose-sensing contact lens. But don't expect a breakdown of Alphabet's businesses just yet. Alphabet will begin reporting on segments in its fourth-quarter report. The third quarter will be the last in which the company reports as it has for years.
Alphabet shares, which still trade under GOOGLGOOG, are up more than 20% this year.
Dividend or buyback: New Chief Financial Officer Ruth Porat hinted during last quarter's call that the company might distribute some of its cash to shareholders by paying a dividend or repurchasing stock, which would be a first for Google. Google had $69.7 billion in cash in June and Bernstein Research analysts project the company will have stocked away more than $100 billion by the end of 2016.
Mobile: Investors have been worried for some time that Google's search advertising business would not translate to the smaller screens of smartphones. The price of search ads on mobile are still lower than on personal computers, but Google says that gap is narrowing and searches on mobile devices now outnumber those on personal computers in 10 countries including the USA. BGC Financial analyst Colin Gillis says he considers mobile a "meaningful source of acceleration on the horizon." Mobile revenue is expected to overtake desktop search revenue next year, Evercore ISI said in a recent report.
YouTube: Google announced this week a long-anticipated monthly subscription service, YouTube Red, a paid version of its free video-sharing service. YouTube Red could generate more revenue for Google and fend off competition from Netflix. The new service, which has no advertising and allows viewers to save videos for offline viewing, costs $10 a month and will be available starting Oct. 28. The new service is not expected to be a big boost to revenue. "We believe this will lead to incremental revenue," said RBC Capital Markets analyst Mark Mahaney.
Expenses: Porat, who spoke to investors for the first time on the second-quarter earnings conference call, pledged that Google would watch expenses while investing in growth. "A key focus is on the levers within our control to manage the pace of expenses," she said. Google for years has spent billions on data centers, research and development, acquisitions and hiring to grow search and other businesses and to branch out into new areas. But it has been curbing spending after operating expenses grew faster than revenue last year.
BGC Financial's Gillis says Google has "improved cost controls and transparency" under Porat and he expects Google is going to continue to "manage costs," but expenses likely grew in the third quarter due to a seasonal increase in hiring.
Follow Paste BN senior technology writer Jessica Guynn @jguynn