Google owner Alphabet Inc (NASDAQ:GOOG) is expected to report stable first quarter results, with macroeconomic uncertainty and potential tariff impacts casting a shadow over the outlook for Q2 and Q3, analysts at Jefferies believe.
Q1 earnings per share are expected to increase 7% year-over-year to $2.02, while revenue growth of 11% is expected at $89.18 billion.
Jefferies noted that Q1 comparisons are tougher by 1 to 5 basis points with projected revenue growth of 7% to 8% is below prior Q1 levels that ranged from 15% to 24% between 2016 and 2019.
Advertising, which represents about 75% of Alphabet’s revenue, is facing near-term headwinds, the analysts noted.
They highlighted weakness in brand spending and a pullback from China-based sellers in performance advertising. However, analysts believe the segment should be "somewhat resilient as advertisers favor scaled platforms."
Cloud remains a relative bright spot. Jefferies believes Google Cloud is gaining traction following the Wiz acquisition and wrote it is “well positioned to benefit from Gemini AI advances,” as management reiterates its $75 billion Capex plan for cloud and AI in fiscal year 2025.
Analysts expect Q1 Google Cloud revenue of $11.97 billion, up 25% year-over-year, slightly below the Street’s $12.3 billion estimate and Q4’s 30% growth rate.
Tariffs ‘cast haze’ over coming quarters
Despite lowering their revenue estimates for Q2 and fiscal 2025 by 3% and 2% respectively to reflect tariff-related risks, Jefferies continues to see a compelling long-term setup for Alphabet.
“While we expect stable Q1 results, macro/tariffs cast a haze over Q2 to Q3,” but the “risk/reward is favorable long-term.”
Alphabet shares have declined 27% since Q4 earnings, compared to a 13% drop in the S&P 500, with the stock now trading at 10x its next 12 months (NTM) enterprise value (EV)/earnings before interest, taxes, depreciation and amortization (EBITDA), an 18% discount to the 10-year average of 12.2x and near the trough multiple of 8.9x.
The analysts awarded Alphabet a ‘Buy’ rating and $200 price target.
Shares traded hands at $158 on Thursday afternoon ahead of the release of Alphabet's report, due after US markets close.
- Updated with share price movement -