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Alphabet Seen Riding Strong Mobile Ad Sales To ‘Stellar’ Q1

When Google parent firm Alphabet ( GOOGL ) reports Q1 earnings on Thursday, analysts are expecting the search giant to deliver what one of them terms “stellar” top-line results, riding strong mobile advertising sales. But Wall Street also wants to see that the sultan of search is serious about monetizing its various so-called “moonshot” initiatives. The diverse group that Alphabet calls its “Other Bets” range from self-driving cars to smart home device maker Nest to a life sciences division that developed a glucose-monitoring contact lens for diabetics. Capital expenditures for the “Other Bets” segment are expected to increase this year, although no details have been offered yet. When Alphabet released Q4 earnings in February , the tech giant revealed that it logged an operating loss of $3.6 billion on such moonshot projects in 2015. The company broke out its spending on its search core and “Other Bets” for the first time in Q4 2015. Far-out innovations aside, “it will be interesting to see if they can continue growing their business-oriented solutions, such as Google Drive and Google Docs, which also have correlation with their monetization capabilities,” Hannu Verkasalo, CEO of Verto Analytics, told IBD via email. For Q1, analysts polled by Thomson Reuters expect Alphabet to see total sales — including TAC (“traffic acquisition costs” or fees paid to bring traffic to its site) — rise 18% year over year to $20.36 billion. They are modeling EPS ex items of $7.97, compared with EPS ex items of $6.47 in Q1 2015. Subtracting out TAC, revenue will rise to $16.54 billion, up nearly 19% year over year, according to FactSet. Alphabet subsidiary Google saw a double-digit increase in ad spending on its site last year, led by mobile gains and new offerings that let shoppers buy directly by clicking ads, according to a research report from Cowen analyst John Blackledge in January. “Overall, Google’s core search business appears strong, with room for further innovation,” Blackledge wrote. Google, which dominates the global digital ad market, will see its net ad revenue rise 9% this year, while No. 2 Facebook ‘s ( FB ) net ad revenue will jump 31%, says eMarketer’s latest ad spending forecast , released in March. Google CEO Sundar Pichai said in February that seven of the company’s products, including YouTube and Gmail, each have more than 1 billion monthly active users around the globe. In March, 243.1 million users accessed one of Google’s online services in the U.S. at least once, which puts Google’s net reach in the U.S. at 98.2%, Verto Analytics said. The company is looking to make headway into the $27.4 billion cloud computing market with Google’s Cloud Platform, which now trails Amazon.com ( AMZN ) unit Amazon Web Services, with approximately 37% market share, and Microsoft ‘s ( MSFT ) Azure. But Google’s cloud service may get a boost from Apple ( AAPL ), which in March signed a deal worth between $400 million and $600 million to use Google’s Cloud Platform for its iCloud service. The Google unit of Alphabet also sells high-speed Internet and TV services in four markets and has trumpeted expansion plans. Google Fiber bundles video and gigabit-per-second broadband service for $130 monthly and also sells stand-alone Internet for $70 monthly. “Foreign-exchange headwinds should continue to damper the company’s otherwise stellar top-line results, but to a lesser degree than in recent quarters,” said Pivotal Research analyst Brian Wieser in a pre-earnings research note on April 11. “Current-quarter results for Alphabet and core Google business trends should be positive overall.” Wieser said he estimates the company will show 16% revenue growth and 18% revenue ex-TAC growth year-over-year. “The company’s hegemonic position in digital advertising alongside Facebook is fundamentally unchanged, and we continue to expect Google to sustain double digit growth rates in advertising on an ongoing basis,” said Wieser. “The factors which were cited as supporting growth last quarter — including YouTube and programmatic display-related revenues associated with Google Display Network (collection of Google-run websites) will undoubtedly continue.” Alphabet stock was up 1% in afternoon trading in the stock market today , near 787. Alphabet stock has risen 45% compared to this time last year. The company’s stock is trading 3% below its all-time high of 810.35, brushed on Feb. 2.

No Slouch, But Manhattan Associates’ EPS Growth May Have Eased To 15%

Investors are hoping fast-growing supply-chain software developer Manhattan Associates ( MANH ) will say something Tuesday to help re-accelerate growth. Not that Manhattan is any slouch, but the 15% improvement in first-quarter earnings that it’s expected to disclose after Tuesday’s market close would be its slowest year-to-year growth rate in 15 quarters. Six of those 15 quarters have topped 30% earnings growth, including Q3 and Q4 2015, and all but two of the last 15 topped 20%. While still 25% off a record high 77.75 set Dec. 7, Manhattan Associates stock was up more than 1.5% in afternoon trading in the stock market today , near 58 and 31% above its 44.27 nadir hit Feb. 8 during this year’s software slump. Most of its bigger enterprise-software rivals have been faring better, with the biggest, Oracle ( ORCL ) up fractionally, 9% off recent highs. Enterprise software maker SAP ( SAP ) was also up fractionally and just 2% off a recent high, while Salesforce.com ( CRM ) was up more than 1%, just 7% off its recent high. The entire IBD Computer Software-Enterprise industry group, which does not include Oracle as a member, is about 9% off its Nov. 9 high. Oracle is a member of IBD’s Computer Software-Database group, which is 22% off an August high. Among the re-accelerants that management might discuss Tuesday is just how much its new distribution management (DM) tools announced last week might contribute to revenue. Its new DM Mobile platform gives users “the ability to address any operational issues, including inventory issues, directly from the floor via their tablet devices, increasing mobility and driving productivity and efficiency,” the company announced at the MODEX supply-chain management show in Atlanta. On Feb. 3, just before Manhattan stock tanked more than 20% in three trading sessions, William Blair analyst Matthew Pfau said in a research note that “the 2016 EPS guidance that management provided is conservative, and through a combination of revenue growth, operating expense leverage and share repurchases we expect Manhattan to continue to increase its EPS in excess of 15% over the next several years. “We recommend shares to long-term investors looking for a midcap software company with a strong record of execution and sustainable earnings growth opportunity.” By consensus, Pfau and four other Wall Street analysts polled by Thomson Reuters expect Manhattan to deliver Q1 earnings up 15% to 39 cents per share minus items, on revenue up 8.9% to $145.5 million. That would be a record quarter in hard dollars, but the year-over-year rate would be only slightly better than Q4’s 8% growth to $141 million and only the third time in 15 quarters that its sales growth had slipped into single digits. Over the past five years, it’s averaged 14% sales growth annually and 15% earnings growth. Manhattan guided full 2016 non-GAAP EPS to a range of $1.69 to $1.72, the midpoint slightly below analysts’ $1.71 consensus, or up 12.5% from 2015. It guided 2016 sales to a range of $609 million to $615 million, its midpoint coinciding with analysts’ $612 million consensus, up 10% from 2015. “Although the retail environment remains challenging, Manhattan has not seen a material change in IT purchasing trends from retails and the pipeline is still strong,” Pfau said. “However, we believe that management’s guidance takes into account a cautious retail IT spending environment for 2016.” While Manhattan’s core software manages warehouse inventory, its visualization tools allow users to see everything from the manufacturer’s supplies to the consumer’s purchase at the checkout counter. Pfau noted that 70% of its total license revenue comes from its basic warehouse management systems (WMS) license revenue, so WMS is a “leading indicator for sales of Manhattan’s other solutions.” License revenue, however, amounts to only 14% of its total revenue. Most of its sales, 77%, come from services related to its software licenses. “We will continue to be a serial investor in innovation,” Manhattan CEO Eddie Capel said in February.

Google Books Copyright Suit Ends As Supreme Court Rejects Challenge

The U.S. Supreme Court on Monday declined to take up a case focused on whether Alphabet ( GOOGL ) unit Google carried out copyright infringement when it scanned millions of books and made them searchable online for free, dealing a final blow to a group of book authors who had first sued the search giant more than a decade ago. In a brief written order, the justices said they won’t take up an appeal by the Authors Guild and individual writers who argued Google engaged in copyright infringement “on an epic scale,” the Wall Street Journal said on Monday. Lower courts had sided with the company, ruling that the search giant engaged in “fair use” of the writers’ works for its Google Books digital database, which allows individuals to search for specified terms in more than 20 million works and view excerpts of many of the books that appear in the search results. In the most recent court decision, the Second U.S. Circuit Court of Appeals in New York last October ruled Google’s actions were legal. Because the Supreme Court declined a review, those rulings are the final word in the matter, and it’s the end of the road for the authors’ legal push. The authors in their court petition argued that the lower-court decisions represented “an unprecedented judicial expansion” of the concept of fair use and threatened copyright protections in the digital age. They said Google copied the books for profit and shouldn’t be excused “based upon the perceived social benefit” of its search product. Google said its books database gives readers a new way to find books and advances the interests of authors. “We’re pleased the court has confirmed that the project is fair use, acting like a card catalog for the digital age,” Google said in a statement to IBD in October, when the circuit court in New York rejected the infringement claims against Google, initially filed in 2005. The three-judge panel had affirmed a 2013 District Court judgment that the online-search service does not violate intellectual property law because it provides “several important educational purposes.” Google had said it could face billions of dollars in potential damages if the authors prevailed. The Authors Guild had said that Google makes 78% of the books, including those under copyright, available for display to its users for free, through the use of “snippets” — short bits — of the books online. The Guild had asked for “fair compensation for Google’s commercial use of their books and for Google’s distribution of their e-books to libraries.” The Google Books project began in 2004, when some of the world’s leading research libraries started to allow Google to scan books in their collections. The company gave the libraries digital copies of the books it scanned. Many of the books in the Google database are out of print. A sizable number of them are in the public domain, no longer eligible for copyright protection. But millions of other books are under copyright protection, and Google didn’t seek permission from the copyright holders for its scanning activity. The individual plaintiffs who filed the proposed class action against Google included, among others, former New York Yankees pitcher Jim Bouton, the author of the acclaimed memoir, “Ball Four.” Alphabet stock was up a fraction in midday trading in the stock market today , near 787.