With the market recently digesting Microsoft’s stronger than expected earnings, pushing its market cap north of $1 trillion and making it the most valuable company in the world for however long, while patiently awaiting today’s Apple earnings after the close, yesterday’s report by the third largest company, Google parent Alphabet, left a decidedly bitter aftertaste in investors’ mouths after it missed across the board while reporting a sharp slowdown in ad revenue growth.
Making matters worse, analysts were left puzzled over the reasons behind Alphabet’sfirst-quarter revenue miss: as Bloomberg explains, a particular source of confusion was product changes in advertising that the Google-parent said led to a slowdown in revenue growth.
A lack of answers on the earnings call led to “frustration” for investors, Jefferies analysts wrote in a note. One concern is whether other online businesses are taking advertising share away from Google, given that paid clicks on Google ads rose at the slowest pace since 2016. Alphabet’s shares are down 7.8% in pre-market trading on Tuesday. The stock had climbed 24% this year and closed on Monday at an all-time high before tumbling.
Courtesy of Bloomberg, here’s what what analysts were saying this morning about Alphabet’s results:
JEFFERIES (Brent Thill); buy rating on Alphabet with a PT of $1,450
- 1Q results raise “more questions than answers”, with continued lack of transparency “troubling” to investors
- While valuation is undemanding, Alphabet will need to rebound in 2Q to show 1Q was not a trend
- Otherwise investors may be resigned to the view that Alphabet is a lower growth story, potentially losing share, though Jefferies doesn’t believe that is the case
MORGAN STANLEY (Brian Nowak); overweight recommendation, though lowers PT to $1,425 from $1,500
- 1Q Websites deceleration and uncertain forward trajectory highlight need for better transparency; this will likely remain key to long-term valuation
- Unclear what changes Alphabet made in the quarter that drove the deceleration in growth, and this is something the Street must figure out
- Remains positive on Alphabet’s ecosystem and valuation support
CITI (Mark May), buy rating, PT $1,325
- Alphabet’s 1Q report was worse than expected, with revenue below consensus due to impact from FX headwinds
- Operating income margin and adj. Ebitda margin were better than expected
- Despite weak 1Q results, still believes Alphabet can post a 3-year forward CAGR of 18% and generate GAAP EPS of $50 in 2020
KEYBANC (Andy Hargreaves), overweight rating, PT $1,430
- Difficult comparisons against an increase in YouTube ad load in 1Q18 drove deceleration in net ad revenue in the quarter
- Alphabet’s overall revenue growth prospects remain “excellent”
- Sees prospect for improved Ebitda and FCF margins through 2020
BAIRD (Colin Sebastian), outperform rating, PT $1,380
- The top-line miss was “modest” and offset at least in part by the EPS beat and moderation in traffic acquisition costs/opex/capex
Source: Bloomberg
via ZeroHedge News http://bit.ly/2PChh1E Tyler Durden