‘Business Still Strong, But…’: Here’s what Wall Street is saying about Alphabet’s earnings (GOOGL)

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Alphabet, Google’s parent company, fell modestly Tuesday after the company reported quarterly and full-year earnings the prior evening.
Analysts who track the stock weighed in on the results with mixed reactions. Some left their price targets unchanged, while several made cuts, citing disappointing margins.
Still, many held their positive long-term views , and recommended that clients buy the stock for Alphabet’s consistent growth.
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Alphabet shares traded slightly lower Tuesday morning as Wall Street delivered a classic reaction to its earnings which were released the prior evening: the results were good, but not good enough.

While Alphabet reported revenue and profits for the fourth-quarter that topped Wall Street’s expectations, analysts said the internet giant’s margins were disappointing. That revelation led some to slash their price targets, but the majority of analysts who track the stock maintained their positive long-term outlooks.

Barclays analyst Ross Sandler told clients that while Alphabet beat estimates on both the top and bottom lines, its margins were still "imploding" in the fourth-quarter.

"Revenue growth remains stellar, but the pace of margin erosion continues to disappoint, based on mix shift & one-time items, he wrote. "Importantly, mgmt noted that the pace of headcount & capex growth will moderate in 2019."

Sandler added: "The last time the CFO flagged a change in expense trajectory was Sites TAC which improved meaningfully, hence this call-out is to be taken with some gravity."

He slashed his price target from $1,400 to $1,350, but maintained an "overweight" rating on the stock. That long-term positive sentiment, despite many cutting their price targets, was rather consistent across Wall Street.

Here’s a snapshot of what other investment firms are telling clients about Alphabet’s results:

Credit Suisse: ‘A Lot to Unwind but FCF Growth Recovery Thesis for 2019 Still Valid’

Reuters

Price target: $1,400 (from $1,450)

Rating: Outperform

"Our price target is now $1400 as we increase our revenue, OpEx, and CapEx estimates, and we maintain our Outperform rating as our thesis based on the following factors remains unchanged: 1) ongoing monetization improvements in Search through product updates, 2) larger-than-expected contribution from Google’s larger non-Search businesses 3) optionality for value creation from new monetization initiatives such as Maps as well as the eventual commercialization of Google’s Other Bets (Waymo, Life Sciences)," analyst Stephen Ju wrote in a note sent out to clients on Tuesday.

Susquehanna: ‘Business Still Strong, But…’

Getty

Price target: $1,340 (from $1,450)

Rating: Positive

"Our positive mobile search and YouTube thesis continues to play out as demonstrated by the reacceleration in sites revenue ex-FX growth. That said, the big black box of expenses was higher than expected and led to the consensus profit miss," analysts Shyam Patil and Brendan McGoldrick said.

"While we continue to expect robust top-line performance, we’re taking a more conservative view toward EBITDA and margins in 2019, leading to downward revisions and a decrease in our price target to $1,340. Nevertheless, we still like the long-term story and remain Positive."

RBC Capital Markets: ‘Hey Google… Can You Stabilize Margins?’

Google

Price target: $1,300 (from $1,400)

Rating: Outperform

"The largest Ad Revenue-based ‘Net business has now averaged 23% growth for 36 straight quarters & shows no signs of slowing," analyst Mark Mahaney wrote.

"The Rub… Margin Trends – GAAP Op Margin was 21%… the lowest we’ve seen in many years… mostly due to rise in other COGS (YT, data centers, hardware) and at R&D (due to revaluing up of Other Bets assets, which causes comp expense at those segments to rise). Key context, the 280 Y/Y Op Margin decline in Q4 was largely consistent with recent trends."

See the rest of the story at Business Insider

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Source: Business Insider