Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) is slated to report its third-quarter 2018 results after the market close on Thursday, Oct. 25. 

Google's parent company is going into its report on a solid note. In the second quarter, revenue increased 26% year over year and earnings per share adjusted for one-time factors jumped 32% to $11.75, trouncing the $9.59 Wall Street was looking for. On a GAAP basis, however, EPS declined 9.4%, driven by a 4.34 billion euro -- approximately $5.1 billion at the time -- fine by the European Commission, which the company said it planned to appeal. The EC alleges Alphabet engaged in anticompetitive practices related to its mobile search business.

Alphabet Class C and A shares have gained 11.3% and 10.3%, respectively, over the one-year period through Oct. 19. For context, the S&P 500 returned 10.1% over this period.

Here's what to watch when Alphabet reports.

Overhead view of a person's hands holding a cell phone with Google's home page showing. Various desk-top items, such as a keyboard, shown.

Image source: Getty Images. 

Key numbers

Here are Alphabet's year-ago results and Wall Street's estimates to use as benchmarks.

Metric Q3 2017 Result Wall Street's Q3 2018 Consensus Wall Street's Projected Year-Over-Year Change

Revenue

$27.77 billion

$34.04 billion

22.6%

Adjusted earnings per share (EPS)

$9.57

$10.40

8.7%

Data sources: Alphabet and Yahoo! Finance.

For some perspective, last quarter Alphabet's revenue broke down as follows:

  • Google properties: 26% increase to $23.3 billion.
  • Google network members' properties: 14% increase to $4.8 billion.
  • Google "other revenue": 37% rise to $4.4 billion. 
  • Other Bets (formerly "Moonshots"): 49% rise to $145 million.

The first two categories comprise Alphabet's advertising business, which still accounts for the bulk of its revenue -- about 86% last quarter. But the core ad business is on track to slowly become less important over time, given how fast Google "other revenue" (comprised mainly of Google Cloud, hardware, and the Google Play store) is growing, along with the fact that the company's self-driving vehicle unit, Waymo, will soon be monetized. 

It's a given investors will be focused on Google's ad business revenue, but here's what else you should watch.

Google Cloud and hardware

Investors should home in on Google "other revenue" in Thursday's report. In the second quarter, this category jumped 37%, making it the fastest-growing Google line item. Growth was driven by Google's cloud computing business, Google Play, and hardware, management said on the earnings call. On the call, Alphabet CEO Sundar Pichai called out Google Cloud's momentum, noting big customer wins in the quarter included Domino's Pizza, SoundCloud, and PricewaterhouseCoopers.

While "other revenue" accounted for just about 13% of the company's total revenue, it should become more important over time. CFO Ruth Porat said on the first-quarter earnings call that the company predicts "extraordinary upside" in its newer markets, most notably cloud and hardware. Cloud should continue to benefit from the fast growth of the overall space, which is being heavily driven by the rapid adoption of artificial intelligence (AI) by entities of all sizes, while the tailwind for hardware is the burgeoning AI-powered smart-home space.

Waymo monetization plan update

Investors can surely expect Alphabet management to provide an update about Waymo's activities and plans on the earnings call. The company's self-driving vehicle unit plans to launch a commercial driverless vehicle service in Phoenix, Arizona. This service, which will be the company's first, is slated to roll out later this year. That's great news for investors, as Waymo should soon be bringing in revenue instead of simply costing the company money.

Since April 2017, Waymo's driverless fleet has been shuttling several hundred folks in Phoenix around as part of the company's "Early Rider" pilot program.

Costs 

In recent quarters, Alphabet's spending has been growing faster than its revenue. This fact has concerned some investors, though a large reason for this dynamic is that the company is investing heavily on initiatives aimed at fueling long-term growth. This spending should pay off in the future. That said, traffic acquisition costs (TAC) have also been rising and driving up total cost of revenue. This is the cost that bears monitoring.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Beth McKenna has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares) and Alphabet (C shares). The Motley Fool has a disclosure policy.