Alphabet (GOOG, GOOGL), the parent company of Google, is scheduled to report fourth quarter results after the market close on Thursday, February 2, with a conference call scheduled for 4:30 pm ET. What to watch for:
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IN-LINE Q4 ON SEARCH, FX REVERSAL A POSITIVE: Earlier this week, BofA raised the firm's price target on Alphabet to $119 from $116, keeping a Buy rating on the shares ahead of the company's report. Recent checks with large search advertisers are mixed, with travel strength offset by e-commerce and finance pressure, said the firm, which projects search at flat to down 1% in Q4 and expects YouTube ad revenue growth and Cloud revenue growth will both decelerate. For 2023, BofA is increasing its revenue forecast by 1% to $254.2B, representing 8% year-over-year growth, and raising its GAAP EPS view by 3% to $5.40 given cost reductions from layoffs.
Credit Suisse also raised the price target on Alphabet to $145 from $128 ahead of earnings, maintaining an Outperform rating on the shares. The firm's conversations with advertisers indicate ongoing downward bias to budgets - specifically whereas prior checks indicated 5%-7% year-over-year growth to digital ad spend, the latest data points suggest that the higher-end of that range is no longer valid while the lower end drops to flat year-over-year. More near-term, its checks indicate a modest slowdown in Q4 ad budgets.
Meanwhile, KeyBanc kept an Overweight rating on Alphabet but lowered its price target on the stock to $117 from $118 ahead of quarterly results. The firm has lowered estimates at both Alphabet and Trade Desk (TTD) due to macro factors and is cautious on making a significant second half recovery its base case, but it expects large-cap ad stocks may fare well through quarterly earnings as "investors aim to 'Buy the last cut'." However, KeyBanc advises a more cautious stance and suggests revisiting these stocks in the spring when both ad budgets and micro-level drivers should be clearer.
ANTITRUST SUIT: Last week, Oppenheimer lowered the firm's price target on Alphabet (GOOG) to $130 from $135, but kept an Outperform rating on the shares. The firm notes that the DOJ has filed an antitrust suit, requesting a divestiture of Ad Manager Suite, essentially reversing the 2007 DoubleClick acquisition. In a blog post, Google cited growing competition including Xandr (MSFT), Amazon (AMZN), Apple (AAPL), TikTok, AppLovin (APP), PubMatic (PUBM), Magnite (MGNI), and Trade Desk, among others, and its defense against TX AG. Microsoft's lawsuit in 1998 took six years to settle, in the interim, Oppenheimer expects about $6B in annual cash flow from its Adtech, deprecate/removal of cookies from Chrome--which will weaken 3P competitors without Search data--and see open-web transform with AI and other emerging technologies. While 3P Adtech is the easiest area for the government to target, the firm thinks the Apple Search relationship and smartphone duopoly would have a wider ranging impact on Google long-term.
MKM Partners also lowered the firm's price target on Alphabet to $120 from $130, maintaining a Buy rating on the shares, saying the DOJ antitrust lawsuit against the company suggests that regulatory risks are rising. The firm added that the headline risks could keep the stock range-bound in 2023. MKM Partners further noted that the feedback on adoption of new products has been "mixed," and the public cloud spending trends have continued to get worse.
WHAT’S NOTABLE: Google is testing ChatGPT-like products that use its LaMDA technology, including a chatbot called "Apprentice Bard," according to sources and internal documents acquired by CNBC, Jennifer Elias reports. The company is also testing new search page designs that integrate the chat technology, Elias writes, adding that employees have been asked to help test the efforts internally in recent weeks. The product tests come after a recent all-hands meeting where employees raised concerns about the company's competitive edge in AI, given the sudden popularity of ChatGPT, which was launched by OpenAI, the startup backed by Microsoft.