Alphabet Misses On Earnings But Remains Key Beneficiary Of New Digital Economy

Alphabet Inc GOOG GOOGL reported strong 4Q results. The EPS miss was due to one-time items, and the company continues to be among the “key beneficiaries of growth in the digital economy,” Cantor Fitzgerald’s Youssef Squali said in a report. He reiterated an Overweight rating on Alphabet, with a price target of $1,040.

The company reported its gross revenue, net revenue and adjusted EBITDA at $26,064 million, $21,216 million and $10,172 million, ahead of the consensus expectations of $25,000 million, $20,590 million and $9,890 million, respectively.

Gross revenue growth accelerated marginally in Q4 to 24 percent, from the 23 percent recorded in the prior two quarters, analyst Squali mentioned. Alphabet’s EPS missed expectation mainly due to one-time equipment charges of $320 million and a slightly higher tax rate.

New Digital Economy To Drive Growth

Mobile search, YouTube and programmatic were the key drivers of the company’s above-industry performance. The quarter exhibited strong advertiser demand. “Substantial growth was also noted in hardware, Play, and Cloud,” Squali noted, while adding that healthy growth was displayed across all regions.

“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,” the analyst commented.

Although the upcoming transition to voice-activated search and commerce could pose a challenge for Alphabet and the industry at large, the company has an edge over competitors due to “heightened awareness of the risk, a level of product innovation not seen in years and a cash-rich balance sheet,” Squali added.