Bank Of America Remains Bullish On Alphabet

Alphabet Inc GOOG GOOGL's earnings report fell short of what many investors had hoped for as evidenced by an earnings miss and revenue beat.

The Analyst

Bank of America's Justin Post maintains a Buy rating on Alphabet's stock with a price target raised from $1,340 to $1,360.

The Thesis

Alphabet's earnings miss in the fourth quarter could be attributed to an extra $1 billion in expenses, Post said in a note. Otherwise, the company reported multiple encouraging data points, including an acceleration in website revenue growth and the company selling "a lot of devices" which created an overall "strong revenue" quarter.

During Alphabet's conference call, the main "point of contention" was higher expenses, the analyst said. Specifically, Alphabet's TAC (total acquisition costs) came in slightly higher than expected, but other cost of revenue was $600 million higher than expected and operating expenditure was $400 million higher than expected. It's possible hardware seasonality contributed extra costs, but this headwind could "fade quickly" in the first half of 2018. Costs like data center operations could move higher in 2018 and management is "providing little visibility" for the time being.

Bottom line, Alphabet's quarter "feels like a budget flush at the tail end of a good year" and the bullish case for owning the stock remains unchanged.

Price Action

GOOGL shares were trading lower by 5 percent at $1,122.91.

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