Alphabet turns bearish as Earnings Miss Estimates

Alphabet turns bearish as Earnings Miss Estimates

 
Alphabet, Inc (NASDAQ:GOOG), the parent company of Google, has missed the earnings estimate of analysts in eight out of twelve past earnings reports. It was no different this time. The company missed the fiscal 2016 first-quarter revenue and earnings estimate of analysts. Ultimately, the share price of the Alphabet plunged almost 6% to $714.20 in the aftermarket hours. However, the optimists argue that considering the past history, the share price would bounce back very soon. An assessment of the fundamentals of the company would reveal the probable trend.

The California based company reported fiscal first quarter 2016 revenue of $20.26 billion, compared to $17.26 billion in the prior year similar period. The consensus estimate of analysts was $20.37 billion. The first-quarter net profit of $5.25 billion or $7.50 per share was way below the analysts’ estimates of $5.54 billion or $7.96 per share. Alphabet stated attributed the strong US dollar for the decline in the net income.

Segment wise, the revenue of Google (search engine, YouTube, Android, etc.) increased 17% to $20.09 billion on a y-o-y basis. The company’s other ventures, which include Nest, Google X and life science division, saw the first-quarter revenue double up to $166 million on a y-o-y basis. However, operating losses widened 3% to $802 million, from $633 million in the prior year corresponding period. This is a matter of concern to the analysts as these ventures may or may not succeed.

Another concern for the analysts is that in the transition from the desktop advertisements to mobile advertisements, the aggregate cost per click has declined 9% from a year earlier. In the meanwhile, the anti-trust authorities in the Europe cautioned that Alphabet is inappropriately using its Android mobile software to push its line of products. As far as cloud business is concerned, the company is far behind Amazon, Microsoft and even IBM. If the Fed increases the interest rate then it would put further pressure on the margins as evident in the first-quarter results. Thus, considering these factors, it can be understood that the share price would remain range bound with bearish bias in the short term.

The stock, as the chart clearly indicates, faces a major hurdle at 756. Support exists at 691. The RSI has turned down and is on the verge of breaking below the 50-mark. Thus, it is imperative that the share price would see further lows in the coming weeks.

Alphabet Technical Analysis - 25th April 2016

The probable downtrend can be capitalized through the purchase of a one touch put options contract. The trader should also ensure that the strike price is greater than or equal to $550, while the contract expiry time is in the third week of May.


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