A handful of major tech stocks will report their latest quarterly results around the end of January and the beginning of February. One of the reports I'll be watching closely is the one from Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL) -- the parent company of Google. The company has seen impressive growth in revenue and earnings per share recently even as the stock price has tumbled from highs close to $1,300 per share last summer to about $1,090 at the time of this writing.
Alphabet's fourth-quarter earnings release, scheduled for Feb. 4, will give investors a chance to look over the company's latest results and assess whether the stock's recent sell-off has gone too far, potentially making the search giant a buy.
Ahead of Alphabet's fourth-quarter update, here's a preview of three areas that investors will want to watch.
Image source: Alphabet.
1. Revenue growth
Though Alphabet stock is trading significantly lower than it was last summer, shares still trade at a premium. The stock currently has a price-to-sales ratio of about six and a price-to-earnings ratio of 26. With valuations like these, Alphabet needs to keep delivering strong, steady growth for years to come. This is why investors should keep an eye on Alphabet's revenue growth, to be sure the company's growth trajectory remains healthy.
In Alphabet's third quarter of 2018, revenue increased 22% year over year in constant currency. This was a slight deceleration from constant-currency revenue growth of 23% in both the first and second quarters of 2018. While this deceleration is small enough that it shouldn't concern investors, a more meaningful deceleration in the coming quarters could be a concern.
On the other hand, investors should be sure to zoom out and view trends over extended periods; too much attention on quarter-to-quarter fluctuations could lead investors to focus too much on the trees and not enough on the forest. If revenue decelerates meaningfully for three or more quarters in a row, however, it may be time to revisit growth expectations for the company.
On average, analysts expect Alphabet to report revenue of $39.15 billion, implying 21.1% year-over-year revenue growth. Investors should look for Alphabet's top-line growth to come in at this level or higher.
2. The Google Other segment
Most of Alphabet's top-line results are driven by the company's digital ad business, including ads on its own websites and the ads it serves on its network members' online properties. But Alphabet's Google Other segment is growing in importance to the company. The segment, which primarily consists of revenue from the cloud, the Android app store, and hardware, accounted for 13.8% of revenue in Q3, up from a 12.9% share in the year-ago quarter.