What to expect from Alphabet’s fourth-quarter earnings

Image: Reuters/Beck Diefenbach
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Alphabet will be reporting its fourth-quarter earnings Jan. 26 at 4.30pm ET, and there’s little reason to expect that they’re going to be anything other than another strong quarter for Google. The rest of Alphabet, however, may be a different story.

Since reforming itself as Alphabet, a collection of “moonshot” ideas meant to change the world, which the company refers to as “Other bets”, and Google, the company has continued to thrive, but has put into even starker contrast that its core businesses within Google remain the main revenue drivers for the company.

Some analysts think Alphabet’s share price could exceed $1,000 by the end of 2017. But that will likely require a few more quarters of solid performance, such as last quarter, where net income shot up 27% quarter-over-quarter to break $5 billion in a quarter for the first time ever. Here are a few things to look out for on tomorrow’s earnings call, to see if anything has changed at Alphabet:

Mobile revenue

Google’s core business is its advertising platforms, and in 2016, the majority of its advertising revenue comes from mobile. It dominates mobile search, with roughly a 95% of the market share. But in recent quarters, its search revenue growth has started to slow, with analysts expecting the slack to be picked up from new offerings, such as the company’s expanding cloud services business, and original programming and subscription models on YouTube. Look for mobile revenue to be the canary in the coal mine about how stable Google’s long-term advertising business is.

Hardware revenue

Google has made products on and off for years, but last year saw the release of a concerted effort to leverage the Google brand to sell a range of products, as the company looks to diversify its revenue streams and keep users locked into its services wherever they are. This quarter will be the first that Google’s Pixel smartphones and Home smart-home hubs will have been on sale. While it’s unlikely that they will have sold in large enough quantities to make a massive impact on the company’s bottom line, look for any indication on the health of the company’s growing hardware company. Alphabet will probably not share any sales figures for the new devices—given that they’re so new—but may give some hints about the health of its new “Made By Google” line.

“Other Bets”

The majority of Alphabet’s longer-term ideas on diversifying its revenue (and possibly, revolutionizing the world) reside in the “other bets” section of the company. These range from more established businesses like Nest, its internet-of-things hardware company, and Fiber, its fiber-optic internet company, to more radical ideals, like self-driving cars at Waymo; drone deliveries and internet-beaming balloons in its research lab X; and curing death at Verily. All of these grand visions are very expensive to research, and haven’t really started to generate any meaningful revenue. Look to see if this has changed at all over the last quarter, or if Alphabet’s flights of fancy are still bleeding cash.