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Wall Street Reacts To Alphabet's Q4 Earnings

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Wall Street Reacts To Alphabet's Q4 Earnings

Google's parent company Alphabet Inc (NASDAQ: GOOG) (NASDAQ: GOOGL) reported fourth-quarter results, which came in better than expected but advertising prices continued to come under pressure while margins fell from 23 percent last year to 21 percent. Here is a summary of how some of the Street's top analysts reacted to the print.

The Analysts

  • Morgan Stanley's Brian Nowak maintains an Overweight rating on Alphabet with an unchanged $1,500 price target.
  • Wells Fargo's Robert Coolbrith maintains at Outperform, unchanged $1,300 price target.
  • Bank of America's Justin Post maintains at Buy, unchanged $1,350 price target.
  • Piper Jaffray's Michael Olson maintains at Overweight, price target lifted from $1,250 to $1,355.
  • Raymond James' Aaron Kessler maintains at Outperform, unchanged $1,300 price target.
  • Loup Ventures' Gene Munster and Steve Van Sloun.

Shares of Alphabet were trading lower by nearly 2 percent at $1,122.67 Tuesday morning.

Morgan Stanley: Reaffirms Strength Of Portfolio

Alphabet's earnings confirms the strength of its core business and growing portfolio of assets, Nowak said in a research report. Specifically, websites revenue rose 23 percent from last year due to continued growth in mobile search, which was up around 30 percent from last year. The 20 year-old $40 billion annualized desktop search business even showed a growth rate of around 7 percent from last year.

Nowak said the highlight of the quarter is YouTube, which benefited from a growing base of direct response advertising and this signals the monetizing potential of the streaming video unit over the long term.

Wells Fargo: Positives And Concerns

Coolbrith said on the positive front: Gross ad revenue rose 20 percent from last year despite a higher foreign exchange headwind, Traffic Acquisition Costs (TAC) growth of 23 percent was consistent with the third quarter and Sites TAC remained stable as a percentage of Sites revenue, and 3) the "Other" business saw a modest 31 percent accelerated growth rate.

The two negatives include: 1) operating expenditure rose 27 percent from last year led by 34 percent growth in "Other" and 40 percent growth in R&D, and 2) management isn't transparent enough in terms of disclosing scale and growth characteristics of the Cloud business and other growing units.

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Bank Of America: Ignore Margin Concerns

Alphabet did show a drop in margins from a year ago but revenue trends remain encouraging and momentum should continue in 2019 from search and YouTube, Post said. In fact, Alphabet has shown margin issues before due to investments in high growth businesses units like YouTube, Cloud, Waymo and Hardware devices.

Alphabet's stock could also see upside from a a few key catalysts in the near term, including new search ad formats, continued YouTube momentum and share buybacks.

Piper Jaffray: Clicks Versus CPCs

Google's TAC likely "settled down" in the fourth quarter with TAC as a percentage of Google Sites revenue reading 13 percent, Olson said. This implies an expansion of just 49 basis points from last year versus expectations of 100 basis points. Meanwhile, paid clicks rose 66 percent from last year while cost per click was down 29 percent which was worse than expectations of 23.1 percent.

Olson said it's important to note that a mix of clicks versus cost-per-pick doesn't matter much from quarter to quarter. Nevertheless, it would be preferable for lower priced clicks to improve advertiser return on investment.

Raymond James: Bullish On Valuation

Alphabet did show a higher opex growth to end the fiscal year, but should slow down through 2019 and support the stock. Kessler said the research firm's $1,300 price target is based on 25.5 times estimated 2020 GAAP EPS or 21 times Core Google EPS (excluding cash), which implies a PEG ratio of 1.5 times and assumes 15 percent long-term earnings per share growth.

Loup Ventures: 8 Key Takeaways

Munster and Van Sloun's eight takeaways from Alphabet's report include:

  • Stable revenue growth at 22 percent;
  • Operating expense grew faster than revenue but this should reverse in the coming quarters;
  • CFO Ruth Porat's commentary confirms this shift on the conference call;
  • The conference call was somewhat confusing as the company is investing more in key businesses but capex and hiring rate will slow;
  • Paid clicks rose 66 percent while click growth was stable at 29 percent growth, both of which were positive;
  • The company has eight products with more than 1 billion users;
  • Privacy will be an important concern in 2019; and
  • Artificial intelligence was mentioned 15 times in the conference call, which is the lowest amount in the past two years.

Latest Ratings for GOOG

DateFirmActionFromTo
Feb 2019PiperJaffrayMaintainsOverweightOverweight
Feb 2019Deutsche BankMaintainsBuyBuy
Jan 2019Deutsche BankMaintainsBuyBuy

View More Analyst Ratings for GOOG
View the Latest Analyst Ratings

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