What Deutsche Bank Is Watching For In Alphabet's Q3 Report

When Alphabet Inc GOOG (GOOGL) reports third-quarter earnings Oct. 26, Deutsche Bank analyst Lloyd Walmsley expects 20 percent year-over-year growth in Google site revenue.

That number excludes FX, where Walmsley projects a 1.8 basis point deceleration from the second quarter. (See Walmsley's track record here.)

The analyst projects "strong" growth in other Google revenue that's driven by hardware products. Operating margins are expected to roughly match last year's, he said.

Deutsche Bullish On Video Ads, Google Assistant 

Important Google customers cut ad spending in the second quarter over concerns of being placed next to questionable content on YouTube, Walmsley said. 

Deutsche analysts "came away from our AdWeek meetings bullish on Google 2H as YouTube ad spend returns after big brands pulled back in 2H," he said. 

Google is taking necessary steps to solve issues surrounding YouTube content, and removed 83 percent of videos with violent content in the last month before they were flagged by humans, Walmsley said. 

Google Assistant is going to have a more important role going forward for the company, Walmsley said: Retailers are increasingly integrating Google Assistant as a response to the presence of Amazon.com, Inc. AMZN. About 50 percent of searches could be voice searches by 2020, the analyst said. 

Google Could Sell 3.5M Pixels In Q4

The change of daily budget caps within AdWords should not change the behavior of advertisers, Walmsley said. 

Google's AI hardware platform is critical for the growth of advertising and maintaining market position, according to Deutsche Bank. The company recently issued the Pixel 2 line of smartphones and Google Home Mini speaker. Pixel sales are expected to reach to reach 3.5 million in the fourth quarter, which would translate into a revenue bump of $2.4 billion.

During Google's earnings call call, Walmsley said he'll be paying attention to user metrics around key services; Google Shopping changes in Europe; and  comments on YouTube issues and hardware. A change in the number of users in Google Photos is of particular interest, Walmsley said. 

Deutsche Bank has a Buy on Google with a $1,220 price target. 

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Photo courtesy of Google.