Alphabet (Google) Q2 2021 Earnings Preview: Revenue Growth and Cloud Expansion Insights

Focus on Alphabet's Google Cloud Revenue Growth

Key Highlights

• Analysts forecast earnings per share (EPS) of $18.92, a significant rise from $10.13 in Q2 2020.
• Google Cloud is projected to maintain robust year-over-year revenue growth.
• Overall revenue growth expected to be the fastest in at least four years, driven by accelerated digital transformation amid the pandemic.

Alphabet Inc. (GOOGL), Google's parent company, continues to experience impressive earnings and revenue growth. However, this momentum faces challenges from recent antitrust lawsuits. In July 2021, over thirty states and the District of Columbia filed a lawsuit accusing Google Play of monopolizing app distribution on Android devices. This marks the fourth major legal challenge Google has faced in the past year.

Investors are eager to understand how these legal battles might affect Alphabet's financial outlook, alongside the company's Q2 FY 2021 earnings report scheduled for July 27, 2021. Analysts anticipate strong growth in both EPS and overall revenue, with revenue expanding at its fastest rate in years.

Google Cloud remains a critical focus area. As a leading cloud service provider, Google Cloud offers scalable developer tools and workplace collaboration applications such as Gmail, Docs, Drive, Calendar, and Meet. Analysts expect Google Cloud to continue its strong revenue trajectory.

Over the past year, Alphabet's stock has significantly outperformed the broader market. After aligning with market trends in early 2020, the stock surged ahead starting January 2021, delivering a 75.4% total return compared to the S&P 500's 36.4%.

Alphabet's Earnings Performance Overview

Alphabet's Q1 FY 2021 earnings surpassed analyst expectations, with EPS increasing by 166.2% year-over-year—the fastest growth since Q2 FY 2019. Revenue grew 34.4%, marking the strongest pace since Q2 FY 2017, driven by heightened online activity and broad ad revenue growth.

In Q4 FY 2020, Alphabet also exceeded forecasts, with EPS up 45.3% and revenue rising 23.5%, the fastest growth since Q2 FY 2018. This growth was fueled by increased demand for online and cloud services amid the COVID-19 pandemic.

For Q2 FY 2021, analysts predict EPS growth of 86.8%, the second-fastest since Q2 FY 2019, and revenue growth of 46.4%, continuing an acceleration trend that began in Q3 FY 2020. Full-year FY 2021 forecasts include a 49.1% EPS increase and 29.7% revenue growth—the highest in at least five years.

Source: Visible Alpha

Focus on Google Cloud Revenue

Google Cloud is a vital segment for Alphabet, providing developers with a scalable platform for application development and offering collaboration tools like Gmail, Docs, Drive, Calendar, and Meet. Revenue is generated through subscription fees for these services. As of Q1 2021, Google Cloud held approximately 9% of the $150 billion global cloud market, ranking third behind Microsoft Azure and Amazon Web Services.

While Google Cloud’s annual revenue growth has slowed from 75.7% in FY 2017 to 46.4% in FY 2020, Q1 FY 2021 maintained a strong 45.7% year-over-year increase. Analysts expect a slight acceleration to 46.2% growth in Q2 FY 2021, with full-year FY 2021 growth forecasted at 42.8%, the slowest pace in five years but still robust.

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