Alphabet (Google) Inc. (GOOGL) has seen revenue nearly triple during the past six fiscal years, driven by massive growth in its Cloud business, among others. But the tech giant is also facing new challenges. Growth is decelerating at a rapid pace. And it faces an antitrust investigation by the U.S. Department of Justice that could force Alphabet to sell parts of its business or to split some operations into a separate company.

Investors will focus on whether Google can maintain its strong growth amid these obstacles when it reports earnings on July 26, 2022 for Q2 FY 2022. Analysts predict that the company may falter in Q2. Earnings per share (EPS) is forecast to fall at an accelerating pace. Revenue is predicted to grow, but at the slowest pace in eight quarters. Note that EPS figures throughout this story reflect Alphabet’s recent 20-for-1 stock split in July 2022.

Investors will also be focusing on revenue for Google Cloud, one of Google’s main business segments. Google Cloud offers tools for developers through a cloud platform as well as other workplace collaboration tools. Analysts expect Google Cloud revenue to grow substantially, but nonetheless at the slowest rate in at least four years.

Alphabet shares have underperformed the wider market in the last year. The company’s stock outpaced the market for much of the second half of 2021 before dropping sharply in January 2022. Although the shares urged following the Q4 2021 earnings report, they were unable to maintain that performance and subsequently dropped again. There was another spike in early April before Alphabet stock fell once again. Since that time, it has largely echoed the ups and downs of the broader market. As of July 23, Alphabet shares have provided a 1-year trailing total return of -15.0%, behind the S&P 500’s return of -9.3%.

Google (Alphabet) Earnings History

Alphabet’s quarterly EPS performed erratically between Q2 FY 2018 through Q2 FY 2020: about half of quarters saw YOY declines in EPS, three of those more than 20%. Starting in Q3 FY 2021, though, Alphabet began a sustained streak of EPS growth. Four of the subsequent six quarters had EPS gains of at least 62%, and EPS more than doubled YOY in both Q1 and Q2 FY 2021. But growth has slowed sharply since then. Alphabet reported a 6.7% YOY drop in EPS in Q1 FY 2022. Analysts now expect a steeper decline of 16.1% YOY in Q2 FY 2022.

Alphabet’s revenue has grown much more consistently from quarter to quarter. In the last four and a half years, only Q2 FY 2020 at the beginning of the COVID-19 pandemic saw a YOY drop in revenue. Prior to the pandemic, in FY 2018 and FY 2019, quarterly revenue growth ranged from 16.7% to 25.8% YOY. Growth jumped 61.6% in Q2 FY 2021, the peak, and has gradually slowed since then. Analysts expect Alphabet’s revenue growth to slow to just 12.9% YOY in Q2 FY 2022, the slowest pace in nearly two years.

Google (Alphabet) Key Stats
	Estimate for Q2 FY 2022	Q2 FY 2021	Q2 FY 2020
Earnings Per Share ($)	1.14	1.36	0.51
Revenue ($B)	69.9	61.9	38.3
Google Cloud Revenue ($B)	6.4	4.6	3.0

^{Source: Visible Alpha}

The Key Metric

As mentioned above, investors will also be focused on Google Cloud revenue. Google Cloud is one of Alphabet’s primary business segments. The cloud segment provides developers with a highly scalable and reliable platform for building, testing, and deploying applications. It also offers workspace collaboration tools, including apps like Gmail, Docs, Drive, Calendar, Meet, and more. Revenue is generated through the collection of fees related to those services. As of the end of the fourth quarter of 2021, Google Cloud had an estimated 9% of the global cloud market, ranking it third behind Microsoft Corp.’s Azure and top-ranked Amazon.com Inc.’s Amazon Web Services.

Alphabet’s Google Cloud revenue has outpaced the growth of Alphabet’s total revenue in recent years. In FY 2019, FY 2020, and FY 2021, Google Cloud posted annual revenue growth of 52.8%, 46.4%, and 47.1%, respectively. While Alphabet’s Google Cloud revenue is a modest portion of its total revenue, its growth has helped to bolster overall revenue performance. But Google Cloud’s growth is slowing. Analysts predict that Google Cloud revenue growth will slow to 38.6% in FY 2022. For Q2 FY 2022, they estimate Google Cloud revenue growth to be 37.9%, compared with 53.9% for the prior-year quarter.