Credit Suisse’s Stephen Ju mentioned that Alphabet Inc GOOGL has not provided details on how much cash the company intends to deploy for GCP and when.
The analyst maintained an Outperform rating on the company, while lowering the price target from $930 to $920.
Capital Deployment
Despite the lack of specifics regarding capital deployment, Ju assumes “a relatively front-loaded spending pattern appropriate for larger data center amounts for 2016 and 2017 for now.”
Ju expects Alphabet to require incremental capex of $3 billion over the next few years, although without concomitant incremental revenue for GCP.
“We suspect that cloud-based revenue was sub-$500 million for 2015 so our updated capital expenditure estimate implicitly bakes in a start-up overbuilding scenario,” Ju explained.
Outlook
The analyst expects the stock to be impact by the continued narrowing of the mobile-desktop monetization gap in the International segment, along with higher pricing for mobile CPCs in the long run.
This pricing increase is likely to come via a combination of “continued benefits from Enhanced Campaigns as well as a plethora of other products including app install, as well as increased ad load on the mobile and desktop SERP,” the Credit Suisse report said.
Ju also expects higher than anticipated contribution from the company’s larger non-search businesses, such as Play, YouTube and eventually GCP.
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