Alphabet A Color on Quarter (1181.59)
- Stifel downgrades GOOGL to Hold from Buy and sets target price at $1150 as the price has exceeded their tgt. They further highlight in slides included in this note some longer-term concerns including: 1) Amazon; 2) Google Cloud Platform market share; 3) regulatory risk; 4) rising TAC; and 5) operating leverage. They are raising their 1Q / 2018 net rev forecasts to $23.97B / $104.8B (from $23.8B / $103.6B previously), while their GAAP EPS for those periods falls to $8.24 / $39.51 (from $9.41 / $42.13) as Alphabet invests behind cloud, hardware, and mobile.
- Needham reiterates Buy, reiterates $1,350 price target. Firm notes that Alphabet reported mixed results, as revenue growth was strong, but GAAP EPS missed expectations. Websites and Network revenues and paid clicks both exceeded expectations, signaling that Google's core business is healthy. Mobile search, YouTube, and programmatic continued to power Google's accelerating growth. However, traffic acquisition costs associated with mobile search and programmatic were higher as a percentage of revenue, pressuring GAAP EPS. We expect this trend to continue into FY18, but at a slower pace.We continue to recommend Alphabet as a core Internet holding given the Website's steady 20% revenue growth and its +30% operating margin, which should be augmented by its growing Cloud, hardware, and Play businesses, as well as Other Bets.
- B. Riley FBR lowers their GOOGL tgt to $1350 from $1375, reiterates Buy. Firm notes that GOOGL reported a mixed 4Q with revenue upside offset by higher Cost of Sales and Marketing spend, causing the stock to trade down 2% AH. Net revenues/AEBITDA/GAAP EPS came in at $25.9B/$11.5B/$9.70 (excl. 1x writedown due to tax reform) versus their estimates at $25.4B/ $13.0B/$10.68 and consensus of $25.6B/$13.0B/$10.00. The higher expenses were due to Traffic Acquisition Cost (TAC), other COS, and Marketing; some seasonal and some due to increased investments for all businesses. While they believe the investments will continue, TAC growth should normalize post 1Q18. They believe this spend has relatively quick ROI at GOOGL's scale and hence they continue to support the efforts. Additionally, GOOGL is growing revenue and EPS at 20%+ and still trades at 12.0x 2019 AEBITDA versus comps at 15.0x. Their price target declines from $1,375 to $1,350 reflecting a 13.0x multiple on FY19 AEBITDA for the core business and 7.0x 2019 revenue for "Other Bets."
Shares of GOOGL are trading down 3.4% at $1,141.30/share in pre-market trade.