This post was originally published on this site
Alphabet Inc. investors got a long-term victory Monday afternoon, but not without a little short-term pain.
The company’s latest numbers “add[ed] to broader concerns that investor expectations for digital ad growth are too high,” wrote Guggenheim analyst Michael Morris, while the company’s hardware category also served as a headwind to the results.
See more: Alphabet shares decline on revenue miss
Wall Street did get a little bit to smile about, as Alphabet’s GOOG, -3.39% GOOGL, -3.25% leadership transition has prompted greater transparency in how the company reports results. The company for the first time provided a breakdown of how much the YouTube category contributes to advertising revenue: $15.1 billion in 2019.
“Overall, we were hoping for a bit more on the top line, but in terms of viewing multiple ways to win from the change in management, we think this quarter checked off a number of critical boxes – increased capital return and new disclosure,” wrote Pivotal Research Group analyst Michael Levine, who discussed how Alphabet’s buybacks grew to $6.1 billion in the quarter, double what they were a year earlier.
He rates the stock a buy while upping his target price to $1,700 from $1,650.
The new disclosures give analysts additional data points to scrutinize around Alphabet’s numbers, which used to be fairly bare bones. “YouTube ad revenue disclosure of $4.7 billion in 4Q was lower than us and Street estimates,” wrote Bernstein analyst Mark Shmulik. “Does this mean more headroom for growth or a harder-to-monetize business?”
He acknowledged some puts and takes on the company’s new Google Cloud revenue disclosures as well. Alphabet’s cloud business remains “comfortably number 3,” with “no path to number 2 yet,” he wrote, as Google Cloud sits behind Amazon.com Inc.’s AMZN, +1.59% AWS and Microsoft Corp.’s MSFT, +3.29% Azure.
“The upside? Full-year revenue growth accelerated from 44% to 53%, while [Google Cloud Platform] growth may be closer to 80% implying share gains, albeit from a smaller base,” he wrote.
Shmulik has an outperform rating and $1,600 price target on the stock.
Don’t miss: Why Google finally disclosed YouTube revenue
FBN Securities analyst Shebly Seyrafi initially expects the 2% revenue miss to batter Alphabet shares — they’re down 4% in mid-morning trading Tuesday — though he did retain an Outperform rating on Google and raised his price target to $1,600 from $1,400 because of impressive YouTube and Google Cloud sales.
MoffettNathanson’s Michael Nathanson emerged from Alphabet’s conference call encouraged that the new revenue breakdowns are just the beginning of more shareholder-friendly activity by Chief Executive Sundar Pichai, who recently took over the top spot at Alphabet after previously just leading the Google branch.
“While they didn’t come out and say it, management commentary on the earnings call suggested a more disciplined approach to allocating capital to Other Bets and a continued focus on increased capital returns,” wrote Nathanson, who has a buy rating and $1,550 price target on the shares.
The newfound transparency didn’t outweigh disappointment about the latest financials, however.
Opinion: Hey, Microsoft and Facebook — it’s time to do what Google just did
Monness, Crespi, Hardt and Co. analyst Brian White wrote that it’s “par for the course” for Alphabet to deliver inconsistent results from quarter to quarter and that digital ad spending was likely soft in the latest period, judging by the fact that Facebook Inc.’s FB, +2.07% results from last week came as disappointing to some investors.
“That said, we believe Facebook fared better in 4Q:19 than Alphabet, beating both revenue and EPS expectations, albeit with less upside than in the past,” White wrote. “Finally, Alphabet’s incremental disclosure on the call around important, faster-growing businesses such as YouTube Ads and Google Cloud will likely pacify some investors after a lackluster quarter.”
White has a buy rating on Alphabet’s stock and he lifted his price target to $1,535 from $1,360 after the report.
Despite Alphabet’s soft core advertising business in the fourth quarter, Piper/Sandler analyst Michael J. Olson maintained an Overweight rating and lifted his price target on the stock to $1,600 from $1,500. Like his analyst brethren, he was heartened by YouTube and Google Cloud sales.
At least 20 analysts raised their price targets on Alphabet shares following the report, according to FactSet, and the average target now stands at $1,596.94, about 11% below Monday’s close. Of the 47 analysts tracked by FactSet who cover Alphabet, 42 rate the stock a buy and the other five rate it a hold.
The stock has added 10.5% over the past three months, as the S&P 500 SPX, +1.66% has climbed 7.0%.
