Online advertising is the primary source of revenue for Alphabet Inc.’s
GOOGL,
+1.37%
GOOG,
+1.47%
Google, Facebook parent company Meta Platforms Inc.
META,
-0.22%,
Twitter Inc.
TWTR,
+3.27%
and other big internet names. All of those will report third-quarter earnings in the days ahead and give crucial expectations for the holiday season, but Google will be the first, after a rough report from Snap Inc.
SNAP,
+7.09%,
to detail numbers, on Tuesday afternoon.

For more: Snap stock plummets as online advertising continues to struggle

Analysts are keenly focused on fiscal third-quarter search ad sales, cloud revenue and stronger growth from YouTube — all while keeping an eye on mounting regulatory pressures.Macroeconomic headwinds could become strong enough to force Google to slow hiring, pare back travel expenses or make other cutbacks.

The short term may bring strife and stumbling blocks — White is modeling the fifth consecutive quarter of decelerating ad growth for Google, with a 6% increase in the third quarter, down from 12% in the second quarter — but he and other Wall Street analysts remain convinced that Alphabet is still ideally positioned to capitalize on long-term digital ad trends and the shift of work to the cloud.

“Worsening market conditions will likely weigh on ad revenues,” Insider Intelligence analyst Evelyn Mitchell told MarketWatch, noting Snap’s woeful guidance on Thursday. “But Google’s foundation in search advertising, a tried-and-true lower funnel tactic, puts it in a strong position and [gives it] an edge over other ad-reliant competitors, like Meta, Snap and Twitter.”

Sales cycles have been extended by an average of 20% because of inflation and recession, yet cloud spending budgets are expected to remain unchanged for 2022 due to a long lead time for those projects, Mizuho Group analyst James Lee said on Oct. 12.

In an Oct. 21 note on Snap’s woes, Bernstein analyst Mark Shmulik said he believes ad buyers will “prioritize their larger, core platforms, namely Google and Meta, as they monitor consumer health while also reducing their own teams and spend.”

What to expect

Earnings: Analysts on average expect Alphabet to report earnings of $1.26 a share, up from $1.21 a share a year ago. Analysts were projecting $1.39 a share at the end of June.

Contributors to Estimize — a crowdsourcing platform that gathers estimates from Wall Street analysts as well as buy-side analysts, fund managers, company executives, academics and others — are projecting earnings of $1.29 a share on average.

Revenue: Analysts on average expect Alphabet to report $71.0 billion in total third-quarter revenue and $58.3 billion after removing traffic-acquisition costs, compared with $57.5 billion after those costs a year ago. Estimize contributors predict $58.9 billion in that revenue.

Stock movement: Alphabet’s stock has dropped 30% so far this year, while the S&P 500 index 
SPX,
+1.19%
 has declined 23%. Shares of Alphabet are down 11.5% since the company last announced quarterly results July 26.

What analysts are saying

The consensus on Wall Street is that Google is the best bet among tech companies to weather what Jefferies analyst Brent Thill calls a “worsening macro” that could affect some sectors for the rest of the year and especially in 2023. 

“We believe it highly likely that tougher market conditions are leading to a consolidation of ad spend with the largest platforms (Google and Facebook) and to those platforms that provide on-platform and highly measurable conversions (Google again and Amazon and a few other places),” Evercore ISI analyst Mark Mahaney said in a Oct. 20 note.

Circumspection is the wise course regardless, said MKM Partners analyst Rohit Kulkarni.

“We expect both companies [Google and Meta] to have a cautious tone on earnings calls, citing [foreign-exchange] headwinds and low visibility heading into the critical holiday shopping period,” Kulkarni said in an Oct. 19 note that maintained a buy rating but shaved the price target to $134 from $140.

Google’s dominance in search — which, ironically, continues to cause it headaches with regulators and lawmakers — and its diversified technology portfolio make it less susceptible to digital-ad disruption, according to RBC Capital Markets analyst Brad Erickson, who rates the stock as outperform, with a target price of $135.

Regulatory pressures continue to bedevil Google,which routinely faces actions in Europe and Asia and could become the target of a Department of Justice action any day now.

On Friday, Google called a decision by the Competition Commission of India to fine the company $161.95 million for anticompetitive practices a “major setback” for consumers and businesses in India.

A day earlier, Texas Attorney General Ken Paxton claimed in a lawsuit that Google collected biometric data for millions of Texans without obtaining proper consent.

Read: Google sued by Texas AG for handling of biometric data of millions

“For more than a decade, Texas has prohibited companies from capturing Texans’ biometric data — including the unique characteristics of an individual’s face and voice — without their informed, advance consent. In blatant defiance of that law, Google has, since at least 2015, collected biometric data from innumerable Texans and used their faces and their voices to serve Google’s commercial ends,” the lawsuit charges.