Should You Buy Alphabet Shares Before Thursday?

The market’s knee-jerk reaction last time was a wrong decision. Investors are not inclined to make the same mistake again.

For the record, it’s usually a bad idea to try to perfectly time the entries and exits of your trades. Predicting the short-term ebbs and flows of a stock (or the broader market) simply cannot be done with any consistency.

As a way to optimize the balance between risk and reward, sometimes it makes sense to hurry up or delay a new position.

Google parent Alphabet (GOOG -1.10%) (GOOGL -1.23%) currently forces such a choice on interested investors. While this Thursday’s earnings report isn’t a reason in itself to buy or sell the stock, if you’re considering buying Alphabet stock, you might still want to take the plunge. This is why.

There’s a reason the previous post-earnings decline didn’t last

Don’t misread the message: If you choose to get into a new Alphabet stake after the first quarter numbers are released after Thursday’s close on April 25, you’ll be fine. A year from now you probably won’t care, or even remember if it mattered.

However, there’s a pretty good chance that Alphabet stock will move higher rather than lower in response to its first-quarter numbers.

That was not the case a quarter earlier. Although the company exceeded both revenue and profit expectations, advertising revenue of $65.5 billion fell slightly short of the $65.9 billion analysts had expected. Because this is Alphabet’s largest business, the stock plunged more than 7% on the news.

Then a funny thing happened. Although shares wobbled a bit in subsequent trading days, they were well above their post-earnings trough within a few weeks. Now, nearly three months later, Alphabet shares are above their previous pre-earnings peak.

What gives? It’s not a difficult thing to figure out. After having some time to think about all the numbers, investors decided that Alphabet’s fourth quarter results were positive after all.

And they should. Total revenue rose 13% year over year, with YouTube revenue growth of 15.5% offsetting slowdown on other fronts. The operating result for all its advertising activities collectively increased by 32%.

In fact, ad revenue that fell short of expectations still rose 11% year-over-year. In the meantime, all key metrics came in better than expected, maintaining the company’s reignited earnings streak and continuing uninterrupted growth (except for the second quarter of 2020, when the COVID-19 pandemic was in full swing). multi-year series of annualized quarterly sales growth.

GOOGL Earnings Chart (Quarterly).

GOOGL earnings (quarterly) data by YCharts

It’s unlikely the market will make the same mistake again with this stock, at least not so soon. It’s possible that investors are underestimating Alphabet now, paving the way for a post-earnings pop.

Two major catalysts for Alphabet stock

Forecasters clearly misunderstood the company’s fourth-quarter ad revenue; they’ve probably adjusted their future calls accordingly in the meantime. Analysts may even have overcorrected them, to ensure they don’t make the more serious mistake of overestimating how well a company is doing. (Underestimating a company’s performance is considerably more forgivable, especially if you at least correctly predict the direction the numbers are moving.)

However, there are a number of potential catalysts lurking in the upcoming first quarter report that will likely light a fire under this stock. The first of these catalysts is YouTube’s advertising revenue.

As noted, YouTube’s ad sales are up a healthy 15.5% in the final quarter of 2023. However, the online video platform has continued to expand its reach. Home for video ratings Nielsen reports that YouTube and Netflix are the only two major streaming platforms to grow their share of total US viewing time in the first quarter of 2024. That being said, YouTube ultimately takes top honors here because it generates more total watch time than Netflix.

Alphabet’s cloud computing business could also inspire watching investors. This branch made a profit in the first quarter of last year, and although it remained negative and has even increased its profit figures since then, the profitability of this young company also remains difficult to predict.

In the meantime, that was a source of short-lived setbacks for Alphabet’s shares. However, as time goes by, the company’s cloud computing operations become more predictable, reducing the risk of unpleasant surprises.

Alphabet also recently unveiled its own artificial intelligence (AI) processor that could legitimately compete with the AI ​​hardware powerhouse Nvidia. This revelation took place in conjunction with the launch of new updated encryption options for AI-focused users of the chat-based personal assistant app Gemini. If the upcoming earnings conference can successfully demonstrate the potential of this new technology and these new tools, that could also be bullish for the stock.

In fact, analysts are already starting to see this potential, to the extent that it could help the stock after Thursday’s first quarter report. For example, JPMorgan believes the new and improved version of Google’s Gemini could accelerate the company’s cloud revenue growth to a 20% pace, if not more.

Taking action now is a lower risk step here, but…

Is this a guarantee that the shares will fight their way up after Alphabet’s first-quarter earnings release on Thursday afternoon? Of course not. There are always potential pitfalls. It is also possible that the market itself is sinking, dragging this stock down despite a healthy quarterly report.

It’s also worth reiterating that such short-term volatility doesn’t really matter to long-term investors. However, if you’re inclined to squeeze at least a few dollars of extra profit out of a position, the greater calculated risk here is in waiting rather than trading before Thursday’s close. And if for some reason you don’t act before Thursday and the shares fall after the earnings release, Alphabet shares are definitely worth buying during that dip. Remember, the fall after the fourth quarter results was certainly a great entry opportunity.

Besides, the analyst community expects Alphabet to report revenue of nearly $74 billion and earnings of $1.42 per share. Both figures are measurably above year-ago comparisons.