Alphabet's Q4 Fails To Excite, But Long-Term View Remains Largely Unchanged

Alphabet Inc GOOG GOOGL reported an earnings miss, despite better-than-expected revenue, as a mysterious cost of goods sold expense weighed on the margins. But, Wall Street’s bullish long-term view on the stock remains largely unchanged.

There are reasons for Street’s strong conviction on Alphabet's prospects as the company has delivered 28 straight quarters (seven years) of 20 percent-ish organic revenue growth. By any yardstick, this is not a mean feat. Further, it has lot of growth drivers in the form of enhanced search capabilities, YouTube, Google Play and cloud.

RBC's Take

“Google was growing approx. 20 percent on a $26 billion revenue run rate biz at the beginning of ‘10 and is now growing 20 percent on a $104 billion run rate biz. Very rare. Mobile, YouTube, Programmatic, Google Play and Cloud are all likely to help sustain growth,” RBC Capital analyst Mark Mahaney wrote in a note.

Mahaney reiterated his Outperform rating and $1,025 price target on Alphabet shares.

Other Voices From The Street

Similarly, Credit Suisse too maintained its Outperform rating and $1,100 price target, saying “GOOGL shares in our view continue to exhibit the best risk/return among the large cap Internet stocks.”

Analyst Stephen Ju based his bullish thesis on potential monetization improvements in Search, higher contributions from YouTube, Play and cloud, and value creation from Maps and Waymo.

Meanwhile, Lloyd Walmsley of Deutsche Bank came away upbeat from Alphabet’s earnings, citing solid two-year growth trends in Google sites revenue. Walmsley also noted EBITDA margins were better than he expected. The analyst reiterated his Buy rating and upped his target price to $1,100 from $1,090.

At the same time, Cantor Fitzgerald analyst Youssef Squali said Alphabet delivered another strong quarter, reflecting solid advertiser demand for the company’s mobile search, Youtube and programmatic products.

“With mobile search, display, cloud and hardware having a long runway ahead still, we believe Alphabet remains one of the key beneficiaries of growth in the digital economy, said Squali, who reiterated his Overweight rating and $1,040 price target.

Nomura’s Anthony DiClemente too is positive on Alphabet’s continued strong growth coupled with disciplined cost management. As such, apart from maintaining a Buy rating and $950 target price, the analyst raised his FY 2017 EPS estimate to $42.67 from $41.56.

At last check, shares of Alphabet were down 0.82 percent to $849.91 after setting a new 52-week high of $867.