With earnings season just around the corner, many companies are putting dates to their earnings report. One of the latest tech companies to schedule its quarterly earnings release is digital advertising giant Alphabet (GOOGL 0.55%) (GOOG 0.74%). The company is reporting its first-quarter results on April 27.
When Alphabet reports first-quarter results, investors will be looking for strong growth. Indeed, it's reasonable to expect an acceleration in Alphabet's top-line year-over-year growth rate.
Here's why.
Image source: Alphabet.
Why analysts are modeling for 25% growth
On average, analysts expect Alphabet's top line to grow about 25% year over year in Q1. This would mark a slight acceleration from about 23% growth in Q4.
Intuitively, an acceleration in Q1 makes sense. Not only is the company up against an easy comparison, when first-quarter revenue increased only 13% year over year in the first quarter of 2020 as lockdowns led many marketers to pause or reduce advertising spend, but Alphabet management said it was seeing significant momentum with brand spending in the fourth quarter of 2020 as marketers started ramping their spending back up.
There was an "increase in advertiser activity" in Alphabet's fourth quarter, said Alphabet CFO Ruth Porat in the company's fourth-quarter earnings call. "And that was, in part, [the] unlocking [of advertising] budgets that they had paused earlier in the year, as well as really reflecting the increase in consumer online activity."
With the economy continuing to reopen since then, advertiser activity likely continued to pick up going into 2021, helping set the stage for a further acceleration in top-line growth.
Importantly, Alphabet is seeing strong momentum in its cloud business as well. "The past year also accelerated the shift to cloud," said Alphabet CEO Sundar Pichai in the company's fourth-quarter update. Fourth-quarter revenue for the cloud-computing segment soared 52% year over year, suggesting the key business had huge momentum going into 2021. This fast-growing segment should help bolster Alphabet's overall revenue growth.
Expect strong bottom-line growth, too
Equally important to Alphabet's top-line momentum is its bottom-line performance. Fortunately, analysts expect the online search and digital advertising company's robust top-line performance to fall down nicely to its earnings per share. On average, analysts expect Alphabet to report earnings per share of $15.79, up from $9.87 in the first quarter of 2020.
Achieving accelerated top-line growth and significant earnings momentum would set an upbeat tone for 2021, helping the company remind investors how relevant and effective its advertising products are.
Alphabet will release its first-quarter results after market close on Tuesday, April 27. Investors will be able to find a link to a live webcast of the company's earnings call and a copy of its quarterly earnings release on Alphabet's investor relations website.
