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The Valley

Alphabet Earnings Preview: Ads, Moonshots, And Poop Chutes

Google's parent company is expected to post strong ad sales Thursday, but some of its ambitious side projects are struggling.

Alphabet Earnings Preview: Ads, Moonshots, And Poop Chutes

[Photo: NASA via Wikimedia Commons]

When it comes to the large and ungainly Alphabet, we only care about two things this quarter: Is Google's ad business being eaten by Facebook and are its ambitious "moonshot" projects paying off?

Analysts are optimistic, projecting earnings per share of $8.64 on sales of $22.05 billion—up from around $18.68 billion a year ago. Alphabet will report third-quarter financial results on Thursday after the closing bell. When it does, Google's traditionally strong search-and-display ad business is expected to show that it has maintained its growth; the same goes for mobile and video advertising. But investors will be looking especially hard at YouTube ads and opportunities for expansion there.

Google is the number-one generator of digital ad dollars worldwide, but when it comes to display advertising, there is another king. Facebook commands the most annual revenue for its banner ads. And in the fastest-growing ad segment, mobile, there's still no clear winner. Facebook has invested heavily in mobile advertising, so much so that mobile makes up 82% of its revenues, according to eMarketer. And in a forecast from last year, the market-analysis firm estimated that Google's share of the market would maintain at around 31.7% between 2016 and 2017, while Facebook would continue to grow its slice of the overall market in the same period. We'll be paying attention to Google's mobile segment to see if it can outperform the eMarketer projection.

Then we'll get to the fun stuff. We'll be looking for inklings that Alphabet's other bets are more than just a waste of cash. The holding company has shown that its ready to rein in its costly projects and we're hoping to suss out which projects are heading for the can.

Google Hardware: This quarter, Google launched its first-ever mobile phone hardware: Pixel. The iPhone lookalike may open up a compelling new source of revenue for the company, but obviously it's still too soon to tell. What we'd love to see are some early indications that people want this phone and we're hopping to see figures around pre-orders. In general we're interested in any tidbits we can get about Alphabet's hardware products, like its Amazon Echo competitor, Google Home.

Google Cloud Platform: Given Amazon's success with AWS and Microsoft's promising financials for Azure, investors are hungry for stats on Google's cloud business. We want to see if there's a glimmer of hope that the cloud platform can break up the AWS-Azure duel.

Google's self-driving car project seems to be stuck in neutral. Despite working on developing a self-driving car since 2009, the division has yet to launch a product. Last year, the project's head left to pursue his own startup. And already Otto, a self-driving truck company founded by former members of Google's autonomous vehicle project, has made its first successful shipment. We're hoping Alphabet will shed light on what's next for this project and if an autonomous Google car is anywhere near commercial ready.

Nest: Earlier this year, Alphabet's connected-home head, Tony Fadell, left the nest. The departure followed reports that Nest was underperforming. A Nest spokesperson told us in June that "revenue has grown in excess of 50% year-over-year since it began shipping products 4.5 years ago" with the third-generation thermostat hitting one million units sold in half the amount of time as its predecessor. Still, the smart-home industry is expected to worth $121.73 billion globally by 2022, according to marketsandmarkets. We're interested in hearing about the success of its recently launched outdoor camera and possible new products.

Verily: A report from earlier this year says all may not be well at Alphabet's future-of-medicine company, with roughly a dozen high-level employees departing under CEO Andrew Conrad, according to Stat News. But Verily has developed products this year, including a microscope that track activity under skin, a platform for managing diabetes, and a foray into bioelectric devices. In this earnings statement we'll be looking mostly for new products and possibly staff changes.

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