Google faced lots of challenges in 2nd quarter but Wall Street is confident earnings are unaffected

  • Google faced an antitrust investigation in Europe and saw thousands of employees protest the company’s AI work with the military and even saw a woman shoot up YouTube’s headquarters during the second quarter.
  • Wall Street analysts expect that none of it harmed the company’s financial performance.
  • Analysts expect the company to report net revenue of to $US25.6 billion, a 22 per cent increase from the same period last year.

The way Wall Street analysts see things, Google has shrugged off most of the significant hurdles faced in the past quarter.

Alphabet Inc., Google’s parent company, is due to report second-quarter earnings after the bell on Monday.

Excluding traffic acquisition costs (TAC), a poll of analysts showed that on average most are expecting Google to report revenue of $US25.6 billion, a 22-per cent increase from last year, according to TheStreet.com. On a GAAP basis, analysts expect the company’s earnings per share to come in at around $US9.66.

This would indicate that the European Commission’s antitrust investigation into Google’s business practices, and an employee protest over Google’s agreement to supply artificial intelligence tools to the military, and even a shooting at YouTube’s headquarters, haven’t slowed down the Google colossus one bit. Google is one of the world’s most influential companies and operates a highly diverse group of businesses across the globe.

One possible reason for that is Google did a good job during the quarter of selling the idea that some of the company’s side bets are on track to pay off big.

Management wowed journalists and developers with demonstrations of Duplex, the new iteration of Google Assistant that can speak and understand natural language well enough to converse briefly with humans. So far, all the technology can do little more than book restaurant reservations but computer systems that can speak is the scifi-esque stuff that captures imaginations and drives share prices up.

The same goes for Waymo, Alphabet’s self-driving car company. Ahead of earnings on Monday, Morgan Stanley analysts released yet another glowing report on Waymo’s progress.

“Waymo announced it has now logged 8 million miles on public roads, up from 5 million in February,” wrote Brian Nowak, a Morgan Stanley analyst. “The addition of 3 million real-world miles in just 5 months represents a significant step change in Waymo’s pace of testing…since it took 8 years to drive its first 3 million miles and 9 months to drive another 2 million. Said another way, Waymo’s pace of real world data gathering has (tripled).”

This supports the thesis that Google holds a big lead in the emerging autonomous transportation sector. Two weeks ago, RBC Capital analyst Mark Mahaney wrote that he estimates Waymo stands to generate as much as $US35 billion in operating profits by the year 2030.

Still, Waymo hasn’t even launch commercial operations. That isn’t expected to start until later this year, with a limited rollout in Phoenix. Innovative technology like Waymo and Duplex may not be contributing to the bottom line yet, but it hasn’t stopped investors from bidding up Alphabet shares, which are up 17% in the past three months.

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