Alphabet (Google) Q2 FY2022 Earnings Preview: Key Insights and Expectations

Spotlight on GOOGL's Google Cloud Revenue

Essential Highlights

• Analysts forecast an EPS of $1.14, compared to $1.36 in Q2 FY2021.
• Google Cloud revenue is projected to increase year-over-year, but at its slowest rate in over four years.
• Overall revenue growth is expected to continue, albeit at a decelerated pace relative to recent quarters.

Over the past six fiscal years, Alphabet Inc. (GOOGL) has nearly tripled its revenue, largely fueled by significant expansion in its Cloud division. However, the tech titan now faces mounting challenges, including a sharp slowdown in growth and an ongoing U.S. Department of Justice antitrust investigation that could compel it to divest certain assets or restructure operations.

As Alphabet prepares to release its Q2 FY2022 earnings on July 26, 2022, investors are keenly watching whether it can sustain robust growth amid these hurdles. Market analysts anticipate a potential slowdown, with earnings per share (EPS) expected to decline at an accelerating rate and revenue growth predicted to be the slowest in eight quarters. Note: EPS figures account for Alphabet's recent 20-for-1 stock split in July 2022.

Particular attention will be on Google Cloud, a core segment offering developers a scalable cloud platform and workplace productivity tools such as Gmail, Docs, Drive, Calendar, and Meet. While Google Cloud revenue is forecasted to grow substantially, this increase is expected to be the slowest in at least four years.

Alphabet’s stock performance has lagged behind the broader market over the past year. After outpacing the market in the latter half of 2021, shares plunged sharply in January 2022. Despite a brief rally post-Q4 2021 earnings, the stock declined again, followed by another spike in early April before resuming a pattern mirroring overall market volatility. As of July 23, Alphabet’s one-year total return stands at -15.0%, trailing the S&P 500’s -9.3%.

Alphabet (Google) Earnings Performance Overview

Between Q2 FY2018 and Q2 FY2020, Alphabet's quarterly EPS showed volatility, with about half the quarters experiencing year-over-year declines, including three quarters with drops exceeding 20%. Starting Q3 FY2021, the company embarked on a consistent EPS growth trajectory, with four of the next six quarters posting gains of at least 62%, and EPS more than doubling year-over-year in Q1 and Q2 FY2021. However, momentum has slowed recently, with a 6.7% EPS decline in Q1 FY2022 and analysts projecting a sharper 16.1% drop in Q2 FY2022.

Revenue growth has been steadier, with only Q2 FY2020—during the onset of the COVID-19 pandemic—recording a year-over-year decline in the past four and a half years. Prior to the pandemic, FY2018 and FY2019 saw quarterly revenue increases ranging from 16.7% to 25.8% year-over-year. Revenue surged 61.6% in Q2 FY2021, marking the peak, but growth has tapered since. Analysts expect revenue growth to slow to 12.9% year-over-year in Q2 FY2022, the slowest in nearly two years.

Source: Visible Alpha

Critical Focus: Google Cloud Revenue

Investors will closely monitor Google Cloud, one of Alphabet’s key segments. This division delivers a scalable, reliable platform for application development, testing, and deployment, alongside collaboration tools like Gmail, Docs, Drive, Calendar, and Meet. Revenue derives from subscription and usage fees for these services. By the end of Q4 2021, Google Cloud held an estimated 9% share of the global cloud market, ranking third behind Microsoft Azure and Amazon Web Services.

Google Cloud’s revenue growth has outpaced Alphabet's overall revenue growth in recent years, posting annual increases of 52.8%, 46.4%, and 47.1% in FY2019, FY2020, and FY2021, respectively. Although it represents a smaller portion of total revenue, Google Cloud's expansion has significantly supported Alphabet’s overall financial performance. Still, growth is decelerating, with analysts forecasting a 38.6% increase for FY2022 and a 37.9% rise in Q2 FY2022, down from 53.9% in the prior-year quarter.

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