Morgan Stanley Cautious On Alphabet Ahead Of Q1 Earnings

Alphabet Inc GOOG GOOGL's long-term outlook remains compelling, but there are reasons for investors to be concerned with its near-term story.

The Analyst

Morgan Stanley's Brian Nowak maintains an Overweight rating on Alphabet's stock with an unchanged $1,175 price target.

The Thesis

Alphabet is faced with a "growing need" to expand its disclosures to investors given its many large business units and strategic investments ranging from hardware, cloud, YouTube, and more, Nowak said in a research note. Without additional disclosures it may be hard to fully grasp the company's financials and it's likely the Street is underestimating the company's operating expenditure investments.

The Street's consensus estimate is calling for a total GAAP opex (cost of revenues, research and development, sales and marketing, general and administration) to fall 8 percent sequentially, which would represent the largest single quarter decline in five years, the analyst wrote. In other words, the Street is expecting Alphabet's opex to fall by $2 billion, which is outsized versus its historical average of $725 million. This may be overly aggressive given the strategic importance and monetization opportunity of its many businesses.

Alphabet is scheduled to release Q1 earnings on April 23.