Google Will Post Solid Revenues, But Expenses May Weigh On Margins, BofA Says In Q4 Preview

Alphabet Inc GOOGL GOOG is scheduled to report its fourth-quarter results Feb. 4. While direct response ad checks for the U.S. show positive signs, the results may reflect some international macro pressure, according to Bank of America Merrill Lynch.

The Analyst

Analyst Justin Post maintains a Buy rating on Alphabet with an unchanged $1,350  price target.

The Thesis

Alphabet is likely to report Q4 revenue and GAAP EPS of $31.2 billion and $10.86, respectively, missing the Street estimates of $31.3 billion and $10.89, Post said in a Tuesday note.

The figures may reveal a 150-basis point year-on-year contraction in core Google margins, versus a 350-bps decline in the previous quarter, the analyst said. 

The Street estimate reflects around 100 bps of deceleration in ex-FX revenue growth, which seems reasonable, Post said.

Alphabet’s expenses may come in higher than expected, he said, adding that G&A may have remained inflated due to performance fees.

“Overall, we like the setup into the print given Amazon and regulatory concerns, margin comps, valuation and YTD stock underperformance." 

Price Action

Alphabet shares were down 0.91 percent at $1,070.06 at the close Tuesday. 

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