Here's What Wall Street Thinks About Alphabet's Q1 Earnings

Alphabet Inc GOOGGOOGL traded lower Wednesday after the company’s first-quarter earnings release. Despite a top- and bottom-line beat, shares of GOOGL were trading down about 4.8 percent at $1,022.50 at time of publication.

Here’s an overview of what Wall Street thinks of the stock now.

Voices From The Street

Revenue Growth Is Booming

JPMorgan analyst Doug Anmuth said Google’s increasing investments are paying off with string revenue growth.

“Accounting changes, higher spending & P&L reclassifications may drive the bulk of near-term discussion, but Alphabet again delivered strong top-line results, proving that increased investments are paying off,” Anmuth wrote.

Canaccord Genuity analyst Michael Graham said the revenue growth was offset by lower margins in Q1.

“GOOGL is a company to be admired and is likely an attractive stock relative to much of tech and the broader market, but we find it relatively less compelling regarding long-term growth (where we favor AMZN) or value-for-growth (where we favor FB),” Graham wrote.

KeyBanc analyst Andy Hargreaves said core ad growth of 24.4 percent is worth the heavy investments.

“Alphabet is in the midst of a heavy investment period, but retains excellent growth prospects in its core ad business and strong growth potential in cloud, hardware, and Other Bets, which should add significant value over time,” Hargreaves wrote.

But Concerns Remain

BMO Capital Markets analyst Daniel Salmon said that, despite the accounting noise, Alphabet’s theme of revenue growth and margin compression was the headline story in Q1.

“We believe this reality is increasingly embedded in investor expectations, but still remains a challenge and it will take a notable new story (Maps monetization, Waymo commercialization, etc.) to drive material stock outperformance,” Salmon wrote.

Deutsche Bank analyst Lloyd Walmsley said investors likely have more pessimism about the possibility of slowing revenue growth than they do optimism about the possibility of improving operating margin leverage.

“While the company stood by the guidance that TAC de-leverage would moderate going forward, it’s not clear other opex line items are done their galloping pace, particularly in nin-TAC COGS,” Walmsley wrote.

Stifel analyst Scott Devitt said uncertain operating leverage trajectory, rising TAC, regulatory risk and lagging cloud and product search market share are all risks that should concern investors.

“Alphabet continues to drive growth at scale through strength in mobile search, YouTube, and programmatic advertising, while investing in other key initiatives (cloud, hardware, AI) that should serve as growth levers in 2018 and beyond,” Devitt wrote.

Credit Suisse analyst Stephen Ju said investments in YouTube, cloud services, hardware and AI are necessary for the type of long-term revenue growth that will drive the stock higher.

“With ongoing Websites revenue outperformance as well as accelerating momentum at GCP, we remain happy to underwrite the investments as this will enable Google even at its current scale to sustain >20% revenue growth,” Ju wrote.

Data Privacy

Loup Ventures analyst Gene Munster said commentary from management on the conference call went a long way in reassuring investors concerned about data privacy following the Cambridge Analytica scandal at Facebook, Inc. FB.

“Most notable on the earnings call was CEO Sundar Pichai’s comment that search (90% of Google’s revenue) relies heavily on keywords and less on private data, reassuring that in a stricter privacy environment, Google’s core business should largely be safe,” Munster wrote.

Ratings And Targets

• JPMorgan has an Overweight rating and $1,285 target.
• Canaccord Genuity has a Hold rating and $1,050 target.
• KeyBanc has an Overweight rating and $1,230 target.
• Deutsche Bank has a Buy rating and $1,225 target.
• BMO has a Market Perform rating and $1,100 target.
• Credit Suisse has an Outperform rating and $1,350 target.
• Stifel has a Hold rating and $1,234 target.

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