Class A shares of Alphabet (GOOGL) are slipping after the quarterly report from Google's parent company revealed continuing pressure on advertising prices and decreasing margins, although the company reported better than expected revenue and earnings. While most Wall Street analysts reiterated buy-equivalent ratings on the stock and remained positive on the company’s outlook, some trimmed their price targets for the shares. Barclays analyst Ross Sandler, who lowered his target on the stock to $1,350, pointed out that while the company's revenue growth "remains stellar" the pace of margin erosion continues to disappoint.
QUARTERLY RESULTS: On Monday after market close, Alphabet reported fourth quarter earnings per share of $12.77 and revenue of $39.28B, both above consensus of $10.86 and $38.98B, respectively. The tech giant also reported fourth quarter properties revenues of $27.02B versus $22.24B last year, and traffic acquisition cost of $7.44B for the quarter versus $6.45B last year. Paid clicks on Google properties were up 66% year-over-year and up 22% quarter-over-quarter, and cost-per-click on Google properties were down (29)% year-over-year and down (9)% quarter-over-quarter. Additionally, Alphabet said impressions on Google Network Members' properties were up 7% year-over-year and quarter-over-quarter, cost-per-impression on Google Network Members' properties were up 5% year-over-year and up 7% quarter-over-quarter, and reported fourth quarter Other Bets revenue of $154M versus $131M last year. The company also announced Google "other" revenue of $6.49B versus $4.97B a year ago, and Google advertising revenue of $32.64B versus $27.23B a year ago.
STILL BULLISH DESPITE MIXED QUARTER: In a post-earnings research note, Piper Jaffray analyst Michael Olson raised his price target for Alphabet to $1,355 from $1,250 saying the company reported a "solid" sales quarter, but missed on earnings due to heavy investment in R&D and cost of revenue. While Alphabet does not provide specific quantitative guidance, the qualitative outlook remained positive, Olson contended, adding that he remains confident Alphabet will post "strong" first quarter and fiscal 2019 numbers driven by offline-to-online migration and continued digital share gains. Olson reiterated an Overweight rating on the stock. While increasing his price target on Alphabet shares to $1,420 from $1,400, UBS analyst Eric Sheridan noted that operating income margin volatility might detract from the revenue story but he sees investors better understanding the need for investment. He reiterated a Buy rating on the stock. Deutsche Bank analyst Lloyd Walmsley also raised his price target for Alphabet to $1,380 from $1,300, and reiterated a Buy rating on the stock. Meanwhile, KeyBanc analyst Andy Hargreave said he continues to recommend buying Alphabet. Though expenses continue to grow faster than revenue, Alphabet has sustained gross profit dollar growth at a stable high-teens rate with EBITDA growth in the mid-teens, he contended. The analyst believes Alphabet's extraordinary collection of assets will allow it to grow profit dollars at rates similar to this through 2020, which, along with growing value in Other Bets, suggests the shares are undervalued.
PRICE TARGETS TRIMMED: Alphabet's revenue growth "remains stellar," but the pace of margin erosion continues to disappoint, Barclays analyst Ross Sandler told investors in a post-earnings research note. The analyst lowered his price target on the shares to $1,350 from $1,400, but reiterated an Overweight rating on the stock. His peer at RBC Capital also cut his price target for Alphabet to $1,300 from $1,400 saying that while the company beat on revenue, its operating income missed expectations. Analyst Mark Mahaney acknowledged the company's consistent top-line growth, but attributed reduced earnings to higher "cost of goods sold," with rising costs associated with YouTube and other R&D expenses. Meanwhile, Credit Suisse analyst Stephen Ju trimmed his price target on the shares to $1,400 from $1,450 following quarterly results as he increased his revenue, OpEx, and CapEx estimates. The analyst reiterated an Outperform rating, on the shares, nonetheless, as his thesis remains unchanged. BMO Capital analyst Daniel Salmon also lowered his price target on Alphabet to $1,100 and reiterated a Market Perform rating after its fourth quarter results, saying the company's margins are trending lower as its revenue mix shifts to lower-margin businesses.
JPMORGAN PREFERS OTHER FANG NAMES: JPMorgan analyst Doug Anmuth lowered his price target for Alphabet to $1,250 from $1,270 but said he believes the company continues to execute well as evidenced by both the acceleration and long-term stability in its sales growth. The analyst reiterated an Overweight rating on the shares, but told investors he prefers Facebook (FB), Amazon (AMZN) and Netflix (NFLX) to Google.
PRICE ACTION: In morning trading, class A shares of Alphabet have dropped about 1% to $1,132.08.
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