In a report published Thursday, Citi analysts Mark May and Ryan Ripp looked into Google as it prepares to start reporting under Alphabet.
They expect the new company to disclose profitability, growth and capital expenditures on a segment-level, both for “core Google” and its “moonshots.”
After analyzing the implications of the new disclosure structure, the experts drew three conclusions:
- 1) This year, Google will spend roughly $4.5 billion on moonshots. Consensus forecasts for 2016 and forward seem to appropriately reflect such moonshot spending.
- 2) Core Google EBITDA margins seem to have risen over the current quarter, to approximately 55 percent from the 50 percent reported in the last quarter.
- 3) Based on a sum-of-the-parts analysis, which assigns little value to the moonshot projects, Citi believes Google’s stock (GOOGL) is worth $781. Thus, the analysts boosted their price target from a previous $730.
Moreover, the analysts noted, the company may have trimmed moonshot opex in 2015, “as it has rationalized some projects, such as Google Glass.” However, for 2016 and beyond, expectations point toward a resumption of growth in expenses. Thus, the experts increased their opex projections for the years to come.
Citi maintains a Buy rating and $781.00 price target on shares of Google (GOOGL).
Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.
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