Alphabet earnings checklist: 3 things to watch for

Yahoo

21-07-2025

Baird investment strategist Ross Mayfield, Yahoo Finance Senior Reporter Allie Canal, and IG North America Interim CEO Pete Mulmat join Opening Bid host Brian Sozzi to discuss Alphabet (GOOG, GOOGL) ahead of the company's earnings release on Wednesday.
To watch more expert insights and analysis on the latest market action, check out more Opening Bid here.
our stock of the day alphabet ahead of the tech giants earnings release on Wednesday, alphabets stock is entering earnings day strong gaining about 7% in the past month, but you wouldn't get this bullish vibe looking at alphabets price to earnings ratio. Check out this chart from Evercore ISI tech analyst mark behehani which shows alphabets four p ratio trading at nearly trough levels. Now hop onto the yahoo finance platform and you'll see alphabets four p ratio of about 19.3 times below the s&p 500s 24 times. Ultimately alphabet must deliver on three fronts to appease the bulls. First the ads on the core search platform need to be above estimates as to alleviate competitive concerns, whether that's from AI agents or open AI. YouTube has to be strong again from top to bottom. That is Netflix earnings last week showed streaming domination, and lastly alphabet must show reasonable cost controls even as it spends aggressively to build AI infrastructure. Still with me is my round table Ross Mayfield, bear investment strategist and Yahoo Finance senior reporter, Ally Canal. Ally let me get over to you here, uh the Netflix numbers were strong. And I want to mention Netflix because they have a direct tie into YouTube. Now YouTube arguably has been the the story narrative on alphabet for the better part of the year in my humble view.
And sources tell me that when it comes to Netflix's biggest competition, it is YouTube. It's the creator economy. It's where people are plopping on their couch and they're turning on YouTube more than they have in the past. So for Netflix and competing for those eyeballs, YouTube is a top focus, and they were asked about this on the call whether or not they would consider similar deals with content creators that we've seen from YouTube, and they said that they're open to everything but that they have a different model, a different uh content proposition to consumers, but it's still top of mind for executives at Netflix. They are watching YouTube closely, and we have seen that share tick up. So I think you're absolutely right, YouTube needs to be perfect for alphabet too. I'm also looking closely at the search engine business because there has been talk that chatbots like open AI is chat GPT that they could be taking some market share away, and even anecdotally, sometimes I'll go on Chat GPT and ask chat a question and not Google it. So there are some longer term questions about whether we could see that weigh on alphabet in in the future, but in the near term analysts say that some of those concerns have been appropriately priced into the valuation and that their first party access to to some of that data along with YouTube and those other initiatives like its cloud business that that already gives it the edge over some of those AI chatbots and those competitors there, but like we've been saying, first of the hyperscalers to report, it's really going to set the tone for the rest of this earning season and the rest of big tech still yet to come.
Ross, we just showed a chart uh showing uh alphabets p ratio, four p ratio trading really at trough levels going back over the past five years, and my question to you is, is that deserved? Now this is discounted to the s&p 500, but you heard Ally, you have Netflix maybe taking share from YouTube. You have that challenge to their search dominance, uh whether it's from agents or uh an open AI or even or even something like perplexity.
Does that valuation make sense to you?
I I think it does because as you all have mentioned, this is kind of an existential crisis or question facing Google, right? I mean Google is is chapstick Kleenex. It's synonymous synonymous with uh search to the point that it's it's got such a big moat around it, and now there are um you know, chips being put in that armor, and so I I do think that the multiple it's trading at is reflective of that existential question about its core business. Um now I Google has has done very well over the last 20 years. Um I I think there's a lot of reason to think it'll come out of the other side with, you know, a very strong position, but it reflects to me that that core question about what it does best, what is so central to to you know, fueling all of its other bets from Waymo to YouTube many years ago, um is that core search business and and it's under threat both from AI, but also from antitrust and regulatory issues as we've seen over the last couple of years. So there are multiple avenues with which that is being challenged.
Pete, let me get over to you. Um if Alphabet comes out here and says we're going to spend just even more billions than than investors thought on AI infrastructure, what tone would that set for the MAG 7 trade?
You know I I think the I think we're at a point now where if they double triple down um it's what is the what's what is the ROI we're going to be able to expect from uh these kinds of investments. Um the other questions too is uh you know are are they actually starting to lose this race? And I I think at that point, they're going to have to demonstrate some ability to um uh have this investment uh yield a return for them at some point. So I think it's going to be a struggle right now. Uh ad revenue being one, the other is the the AI piece and how what is their plan to actually bring that into the revenue stream?