Hey Google! Sell-Side Sentiment Solid After Alphabet's Q3 Earnings Disappoint

Alphabet Inc GOOG GOOGL shares dipped 2% on Tuesday after the company’s third-quarter earnings report fell short of Wall Street expectations.

Google’s parent company reported third-quarter EPS of $10.12, below consensus estimates of $12.42. Revenue of $40.5 billion and traffic acquisition costs of $7.49 billion were roughly in-line with estimates.

Several Wall Street analysts have weighed in on Alphabet stock since the earnings report. Here’s a sampling of what they’ve had to say.

Business As Usual

KeyBanc analyst Andy Hargreaves said revenue growth was solid, but operating expenses weighed on profitability.

“3Q results showed excellent core Sites ad revenue and continued strong growth in GCP, which, along with other significant growth opportunities, suggests the potential for sustained strong revenue and profit growth for the foreseeable future,” Hargreaves wrote in a note.

Morgan Stanley analyst Brian Nowak said the quarter was another demonstration of Alphabet’s “staple-like” ecosystem.

“GOOGL’s 3Q results – 21% Y/Y ex-FX websites growth in line with us and $9.7bn of GAAP EBIT (excluding a $554mn legal charge we hadn’t modelled) 3% higher than expected – showcase the continued durability of GOOGL’s top-line even through laws of large numbers,” Nowak wrote.

Nomura Instinet analyst Mark Kelley said the quarter was mixed, but Alphabet didn’t report anything out of the ordinary.

“We view this quarter as business as usual, and with several new and under-monetized products (Maps, Shopping and Feed) able to contribute over the long term, we remain positive,” Kelley wrote.

Firing On All Cylinders

Raymond James analyst Aaron Kessler said Google continued its momentum in cloud, mobile and YouTube in the third quarter.

“GAAP operating income of $9.2B was 2.1/2.6% below our/Street estimate of $9.4B/$9.4B due to higher legal costs (excluding this, operating would have beaten street by ~3%),” Kessler wrote.

Wells Fargo analyst Brian Fitzgerald said that despite the EPS miss, Alphabet still offers investors 20% revenue growth at a relatively low multiple and exposure to potential long-term Other Bets catalysts.

“While not sensational, we view 3Q performance as confirming the solid momentum re-established in 2Q,” Fitzgerald wrote.

Bank of America analyst Justin Post said Google made some impressive progress on key technology in the quarter, and the numbers would have looked a lot better if not for one-time items.

“On the call, Google’s CEO indicated that Google developed new neural network-based technique for natural language processing could be the biggest advance for search in five years, and a major Quantum Computing milestone, which is pretty unusual for an earnings call and potentially bullish,” Post said.

Ratings And Price Targets

• Wells Fargo has an Outperform rating and $1,400 target.
• Morgan Stanley has an Overweight rating and $1,450 target.
• Nomura Instinet has a Buy rating and $1,560 target.
• Bank of America has a Buy rating and $1,450 target.
• Raymond James has an Outperform rating and a $1,465 target.
• KeyBanc has an Overweight rating and $1,546 target.

GOOGL shares traded around $1,265.41 at time of publication.

Benzinga’s Take

The numbers may not have been as good as Alphabet bulls had hoped, but they certainly weren’t bad enough to impact the long-term thesis for the stock. Wall Street analysts remain bullish on Google virtually across the board.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.

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