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When Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) reports quarterly results on Wednesday, the focus would be on the tech giant’s advertising sales, amid rising threat to its search business and a key antitrust ruling next month.
Wall Street expects the Google-parent to post EPS of $2.19 on revenue of $93.96 billion, implying a rise of nearly 11% during the quarter.
Throughout the years, Alphabet has placed itself in a dominant position as one of the world’s most valuable companies, thanks to its advertisement and online search business. However, the rise of AI rivals, including OpenAI, ChatGPT, and Perplexity, is challenging this dominance, leading to reduced reliance on traditional search engines and creating a threat to the advertising dollars.
To counter these problems, Alphabet has launched several tools, including new Gemini models and the integration of AI Overviews into Google Search, helping the company to attract more users as well as to build on its advertising revenue.
Alphabet has also been embroiled in an antitrust challenge after court ruled that the company illegally operated a monopoly in online search. The DOJ has argued that Google should be forced to sell its Chrome browser as a result of the ruling last year.
Despite the issues, analysts are mostly bullish on the California-based company. Seeking Alpha analysts and Wall Street rated the stock a Buy, while Seeking Alpha’s Quant ratings consider it a Hold.
“Stronger search trends, favorable FX trends, and cost controls should drive a 2Q beat, while we also expect paid click growth alongside improved monetization. We remain positive around Gemini, AI integration in Workspace, and YouTube performance,” said Scotiabank analyst Nat Schindler.
Schindler added that “Search displacement fears from ChatGPT are overblown, and Google should weather any tariff-induced recession better than others.”
According to Needham, Google’s current strategic position is strong because of its digital advertising dominance.
On the contrary, Seeking Alpha analyst Johnny Zhang believes that due to the trade war uncertainty, policy risk remains elevated and could impact ad spending outlook, as many companies shifted to “wait and see mode while awaiting more clarity from the White House.”
“The lagging effect would likely impact GOOGL’s advertising revenue starting in 2Q FY2025, and I expect a sequential growth slowdown in advertising revenue,” Zhang said. However, he added that the impact could be offset by a strong performance from the Cloud segment.
Over the last three months, EPS estimates have seen 19 upward revisions, compared to 10 downward revisions. Revenue estimates have been revised upwards 18 times versus 15 downward moves.
The stock is almost flat so far this year, underperforming the over 7% rise in the broader S&P 500 Index.