Investors Punish Alphabet's Stock After Concerning Quarter

Google's parent company Alphabet Inc GOOG GOOGL reported first-quarter results which prompted an immediate sell-off in the stock as the report showed a deceleration of growth in certain key metrics. Here is a summary of how some of the Street's top analysts reacted to the print.

The Analysts

Bank of America's Justin Post maintains a Buy rating on Alphabet's stock with an unchanged $1,350 price target.

Guggenheim Partners' Michael Morris maintains at Buy, price target lowered from $1,475 to $1,400.

Wedbush's Michael Pachter maintains at Outperform, unchanged $1,350 price target.

KeyBanc Capital Markets' Andy Hargreaves maintains at Overweight, unchanged $1,430 price target.

Stifel's Scott Devitt downgrades from Buy to Hold, unchanged $1,287 price target.

Shares of GOOGL were trading lower Tuesday by more than 8 percent at $1,189.54.

BofA: No Clear Explanation

Alphabet missed expectations on the revenue line at $29.3 billion , Post said in a research report, but this shortfall was more than offset by better-than-expected operating income of $8.3 billion (excluding the European Union fine) and slightly better margins at Google.

Google Website (excluding foreign exchange) growth slowed from 22.6 percent in the fourth quarter to 19.1 percent in the first quarter. Post said the earnings report and conference call didn't include a clear explanation to explain the slowdown.

The analyst thinks it's likely but can't be confirmed Google saw a slowdown in growth from tougher comps at YouTube and other product improvements last year. Overall the report was disappointing but the longer-term picture remains unchanged.

See Also: Stalled Revenue Growth Inspires Stifel To Downgrade Google

Guggenheim: 'Tempered' Near-Term Sentiment

Alphabet's earnings and management's commentary makes it unclear if the slowdown in Google growth represents a "reset" in expectations versus the 20 percent-plus growth anticipated, Morris said. The uncertainty creates a new environment, at least in the near term, where investor enthusiasm is "tempered."

The company continues to invest in new technology initiatives to support revenue growth, the analyst wrote. The three key product and investment updates management discussed include: 1) cloud initiatives in onboarding, pricing, and geographic expansion, 2) hardware products with a focus on Google Assistant, 5G and gaming, and 3) machine learning opportunities to improve ad units.

Wedbush: Profit Upside

Alphabet reported a revenue miss but also reported an adjusted EBITDA beat of $13.69 billion versus the Street's estimate of $13.48 billion, Pachter said. The company's profit beat was driven by ongoing strength in mobile search and supported by YouTube and Google Cloud.

Alphabet reported a record first quarter EPS of $11.90 due to expense control along with a lower-than-expected traffic acquisition costs (TAC).

There's "no question" the core Google search business is closing in on market saturation but the company's suite of businesses, including YouTube and Google Play, continue showing "solid growth," the analyst wrote.

KeyBanc: Profit Growth Is 'Excellent'

Alphabet did disappoint investors with a deceleration in certain growth metrics but this doesn't translate to slower profit growth, Hargreaves said. In fact, Alphabet's profit outlook remains "excellent" given momentum in Search, YouTube, Maps, Cloud, Google Play and hardware sales.

Alphabet should show moderating expense and CapEx growth, which Hargeaves said is likely to stabilize EBITDA margins and improve free cash flow through 2020.

Stifel: Stock Fairly Valued

Alphabet's next 12 months will likely be characterized by a "potential deceleration digestion period" as the near-term outlook is clouded with "lower visibility," Devitt said. Granted, the company did show upside to margins in the first quarter but it's possible discretionary spending increases in the near-term which translate to higher OpEx.

Alphabet's sell-off implies a valuation of around 22 times 2020 estimated GAAP EPS, which Devitt said is in-line with the stock's three-year average of 22 times forward two-year EPS.

Related Link: How Google's Stadia Video Game Streamer Will Be 'Highly Disruptive'

Tigress: Pullback Below $1,200 A Buying Opportunity

Alphabet's stock traded below the $1,200 per share level and this should be viewed as a buying opportunity, Tigress Financial's Ivan Feinseth said in his daily newsletter. Despite a disappointing quarter, the company boasts multiple encouraging characteristics, including a 98-percent market share in search.

The company's continued investments in new and innovative technologies should expand its already dominant position across "leading secular technology trends."

Loup: The 'Oxygen Of The Internet'

Google's status as being the "oxygen of the internet" remains unchanged despite soft earnings, Loup Ventures' Gene Munster and Will Thompson said in a blog post. The company will continue to prove it can introduce new benefits across its close to 50 consumer-facing products moving forward.

In fact, Alphabet's management mentioned artificial intelligence in some form during its conference call 23 times, which is up from 15 in the prior quarter. The company continues to push deeper into AI, so this number is likely to increase moving forward.

Alphabet is likely being careful in how it balances near-term earnings and investing in the long-term to spur revenue growth, the two venture capitalists wrote.