Stalled Revenue Growth Inspires Stifel To Downgrade Google

Okay, Google, what’s the Street saying about your mixed first-quarter earnings?

The Rating

Stifel analysts Scott Devitt and Logan Thomas downgraded Alphabet Inc Class A GOOGL to Hold and maintained a $1,287 price target on the stock.

The Thesis

For the first time since 2015, the firm’s quarterly revenue growth fell below 20 percent. The drop may be attributable to the timing of product changes.

“The company noted it may release hundreds of product updates in a given quarter which can create variability in the year-over-year growth rate,” Devitt and Thomas wrote in a note. “While YouTube was not identified specifically as the main driver of the deceleration, YouTube's 1Q click growth did decelerate versus a strong 1Q:18 comparison due to product changes that were made in early 2018.”

Given the growth rate, Stifel considers the stock fairly valued.

“The unexpected degree of revenue deceleration and lower visibility into the near-term reacceleration/deceleration potential lead us to believe the multiple on shares may be challenged to move meaningfully higher over the next twelve months,” the analysts wrote.

They anticipate a potential rise in discretionary spending that could drive up quarterly operating expenditures. Last quarter, the operating margin exceeded expectations.