The ABCs of FAANG earnings
04/20/18

If it’s possible for a household-name company whose stock trades in excess of $1,000 with volume of two million shares a day, Google, aka “Alphabet” (GOOG) has flown under the radar recently—relative to its FAANG brethren, of course.

While Facebook (FB) was subjected to Capitol Hill scrutiny, Amazon (AMZN) became the target of a presidential Tweet barrage, and Netflix (NFLX) took bows for its latest earnings beat and stellar subscription numbers, GOOG has been largely absent from the headlines.

Alphabet (GOOG) 11/6/17 – 4/19/18. Google daily price chart. Breakout before earnings.

Source: OptionsHouse

Meanwhile, GOOG shares, which hit $1,186.89 on January 29 before dropping to $1,037.78 during the February market correction, busted out of a nearly three-week consolidation on Tuesday—less than one week before Monday’s scheduled earnings release (see chart above).

Widening the lens a bit shows the late-March low and subsequent consolidation was the third time the stock has pulled back to (and rallied from) the support level implied by the June–October 2017 trading range:

Alphabet (GOOG) 8/7/15 – 4/19/18. Google daily price chart. Support level.

Source: OptionsHouse

And now GOOG will be kicking off a fully loaded week of earnings. For a stock that has soared so dramatically over the years, the company’s quarterly numbers have historically been a bit of a mixed bag—at least in terms of the headline numbers. Over the past 30 quarters, GOOG has topped earnings estimates 16 times and missed them 14 times; on revenues, it’s done slightly better, beating forecasts 18 times.1

The stock took a wallop after posting its most recent numbers on February 1, and while the company missed earnings for that cycle, the release came right in the middle of a broad market correction. Overall, GOOG’s performance immediately after earnings (since October 2010) has been fairly consistent. Keeping in mind Alphabet will be releasing its numbers after the close, here’s how GOOG has performed after its past 30 earnings reports:

●The stock rallied 53% of the time on earnings day, as measured from the close of the day preceding earnings to the close of earnings day (i.e., immediately preceding the earnings announcement). The average gain was 0.18%.

●The stock rallied 73% of the time from the close of earnings day (immediately preceding the earnings announcement) to the next day’s open, for an average gain of 2.54%.

●The stock gained ground 60% of the time on the day after earnings day, as measured from the close of earnings day to the close of the next day. The average gain was 2.08%.

●The stock declined 67% of the time on the second day after earnings, for an average loss of -0.65%.

This may sound familiar to traders who take positions around corporate earnings: Sometimes a stock will make a big jump on the announcement, only to at least partially reverse that move in subsequent days. Such patterns can be potential opportunities for traders, regardless of a stock’s longer-term outlook.

Market Movers Update. Amid a strong earnings release and fears of a tight aluminum market (see “Russian sanctions fire up aluminum shares”), Alcoa (AA) followed up on Wednesday’s 4% breakout rally with an 4.9% intraday gain yesterday, but reversed to close in the lower half of the day's range.

 

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1 StreetInsider. Google (GOOG) earnings. 4/19/18.