Google's parent company, Alphabet, reported very disappointing and much weaker than expected third-quarter profits. The miss in earnings and revenue shocked the market at first. However, the stock only dropped 2% on the release after several analysts - surprisingly - raised their price target on the shares. What's going on and what does it mean for Alphabet's share price going forward? Let's find out!
Alphabet's shock earnings miss: The devils in the detail
After the closing bell on Monday 28 October, Alphabet reported earnings per share of $10.12. The market was expecting $12.32. The figure is also well below the $13.06 earnings per share achieved in the same quarter one year ago.
Many short-term traders reacted to the figures by pushing the stock lower by around 2%, when the market reopened for trading. However, the fall was subdued as many analysts and investors focused on the fact the loss in profit was due to some large - and unique - write-downs from the company's stakes in Uber Technologies, Lyft and Slack Technologies, among other investments.
In fact, looking into the detailed earnings report shows that Alphabet reported revenue of $40.5 billion - up 20% from the same quarter one year ago. Google ad revenue also improved 17% year on year, with Google properties leading the way in revenue with $28.65 billion - up 19% year on year. Not so bad after all.
Some of the weakness in Alphabet's share price has also been attributed to the company's acquisition offer to buy out Fitbit, whose stock surged as much as 42% on the news! A learning lesson for traders is to always do your homework first, rather than rely on just the headline statement. Let's take a look at Alphabet's share price.
How to Trade Alphabet Shares
With Admiral Markets you are able to speculate on Alphabet's share price by using a product called CFDs, or Contracts for Difference. Essentially, this enables traders to go long and short on an instrument, using leverage which you can learn more about in the 'What is leverage in Forex trading?' article.
Below is the long-term weekly chart of Alphabet's share price:
Source: Admiral Markets MetaTrader 5, GOOG, Weekly - Data range: from 21 Feb 2016 to 29 Oct 2019, accessed on 24 October 2019 at 7:42 pm GMT - Please note: Past performance is not a reliable indicator of future results.
In the long-term price chart above, we can see that the price of Alphabet shares has been rising in the long-term with some more wild swings in the market since 2018. However, before the earnings release Alphabet shares briefly made an all-time high before rejecting the $1,300 price level for the third time.
The black horizontal resistance line shows the price level in which buyers have struggled to break through historically. In fact, plotting the long-term trend line which has kept prices pushing higher shows Alphabet shares to be trading within a classical chart pattern called an ascending triangle formation, as shown in the chart below:
Source: Admiral Markets MetaTrader 5, GOOG, Weekly - Data range: from 21 Feb 2016 to 29 Oct 2019, accessed on 24 October 2019 at 7:52 pm GMT - Please note: Past performance is not a reliable indicator of future results.
In this type of chart pattern formation, the market tends to trade in between upper resistance and lower support lines (shown in black). In effect, Alphabet shares are still in a long-term consolidation with mini-trends forming in between. But now the share price is at a critical point. Will it continue to trade in between the ascending triangle and decline from the $1,300 level or is this time different and will the share price finally break above it?
Of 41 analysts polled by CNN Business, the median share price target for the Alphabet shares is $1,450 with the highest price target at $1,907 and the lowest price target at $1,250. While analyst price targets are subject to change, the median target represents the possibility of a significant push to the upside - if buyers can break above the horizontal resistance line just below $1,300.
While Alphabet's headline earnings report paints a bleak picture, the detail within it paints a very compelling one. How will you be trading it?
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