On October 26, Alphabet Inc. (NASDAQ: GOOG), the parent company of Google, reported its fiscal 2017 third-quarter results that crushed analysts estimate. Following the results, the stock hit a new all time high of $1048.39.
However, the stock has receded to $1020 levels in the past few trading sessions. A deeper-than- anticipated decline in the amount paid by advertisers (Cost Per Click) and an increase in the traffic acquisition costs (TAC) is the main reason for the slight correction in the share price. Still, considering the stupendous quarterly results and a higher than anticipated aggregate-paid- clicks data, we anticipate the rally to resume soon. The stock of Google closed at $1025.90 on Monday.
The company, which owns YouTube, reported Q3 2017 net income of $6.732 billion, or $9.57 per share, on revenues of $27.772 billion. A year before, the company recorded a net income of $5.061 billion, or $7.25 per share, on revenues of $22.451 billion. The Wall Street Consensus called for earnings of $8.33 per share on revenues of $27.20 billion.
Segment wise, advertising revenues increased about $4.20 billion y-o-y to $24.005 billion in Q3 2017. Other revenues, which includes hardware sales, jumped to $3.405 billion in the recent quarter, from $2.433 billion in the similar period last year. The hardware division launched Pixel 2 mobile phone earlier this year and is preparing to launch Google Home and Google ear buds. The company has also entered into an agreement with HTC to acquire its mobile division for $1.10 billion. Alphabet’s other bets include Self-driving cars under the banner Waymo, Verily life sciences research, start-up investing arm, and Nest smart-home devices. That division generated revenues of $302 million in the third-quarter and exceeded Street Account estimates of $263.40 million. The other bets division generates revenue through Fiber internet sales, Verily licensing, and Nest products.
Aggregate CPC declined 18% on a y-o-y basis in the third-quarter, but increased 1% from the previous quarter. Traffic acquisition costs increased to $5.502 billion in July-September quarter 2017, from $4.182 billion in the same period last year, and missed Street Account estimates of $5.24 billion. However, aggregate paid clicks jumped 47% from last year’s similar quarter and topped Street Account estimate of 46.1% growth.
Alphabet ended September quarter with cash, cash equivalents, and marketable securities of $100.143 billion, up from $86.333 billion in the prior-year’s similar quarter. Thus, robust earnings, improvement in aggregate paid clicks, and growth in other revenues is expected to keep Google bullish in the short-term. The stock is trading above a major support level of 1013. Further, the underlying bullishness in the stock is indicated by the ascending momentum indicator. The MACD indicator is also moving above the zero level. Thus, we can expect the stock to reach the next probable resistance level of 1112.
We may invest in a call option to capitalize on the probable uptrend. The option will be bought when the stock trades near $1025 in the NASDAQ. Further, the contract should be valid for a week.