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OK Google, How Is The Street Reacting To Alphabet's Q4 Earnings?

Alphabet Inc (NASDAQ: GOOG) (NASDAQ: GOOGL) reported mixed fourth-quarter earnings results.

Benzinga · 02/04/2020 18:40

Alphabet Inc (NASDAQ: GOOG) (NASDAQ: GOOGL) reported mixed fourth-quarter earnings results. A handful of Wall Street analysts offered their take on the quarter and what's next for Google and YouTube.

Notably, the company disclosed YouTube advertising revenue, which came in at topped $15 billion in 2019, for the first time ever.

The Analysts

BofA Securities analyst Justin Post maintains a Buy rating on Alphabet's stock with a $1,620 price target.

Nomura analyst Mark Kelley maintains at Buy, price target lifted from $1,560 to $1,680.

Piper Sandler analyst Michael Olson maintains at Overweight, price target lifted from $1,500 to $1,600.

BofA: 'Bigger Story' To Read

Alphabet reported a revenue and EBIT miss in the quarter while GAAP EPS came in better than expected, Post wrote in a note. Beyond the headline numbers, other "sentiment drivers" were mixed, including Core Google operating margins rising two basis points, new Cloud disclosures point to a 53% growth rate and Infrastructure cloud growing faster, and management offered "early signs" of a more shareholder-friendly policy through incremental share repurchases in the quarter.

Despite a mixed overall earnings report, the analyst remains "optimistic" on the company's outlook. The cloud business showed growing adoption with $11.4 billion in the backlog and YouTube has room to grow from its current $7 to $8 per user in ad revenues in 2019.

Related Link: PreMarket Prep Recap, Feb. 4, 2020: TSLA Continues Its Unbelievable Move

Instinet: Growth Through Disclosure

Alphabet's miss can be mostly attributed to a shortfall in its Hardware business, Kelley said. The company disclosed new metrics for YouTube ads and subscription metrics along with data readouts from the Cloud business.

Management disclosed YouTube ad revenue rose 36% in 2019 while the Cloud business also grew 53%. The company also highlighted its success in cross-product service offerings among consumers and enterprise customers.

"Overall, we think the increased disclosure is a long-term positive, allowing investors to more accurately assess the performance of the company's biggest areas of focus and largest opportunities," the analyst wrote in a note.

Piper Sandler: Decelerating Core Business

Alphabet's disclosures around Cloud and YouTube show the business units are growing faster than the core company but off a smaller base. Olson said the Cloud and YouTube businesses are too small to offset the broader decline as Cloud represents 6% of 2019 revenue and YouTube accounts for another 9%.

"Said differently, despite the strength of these line items, we continue to model slowly decelerating overall company revenue growth," Olson wrote in a note.

Elsewhere On The Street

Alphabet's fourth-quarter revenue was "solid, but not stellar" as it was roughly in-line with the Sell-side consensus and a few hundred million short of buy-side expectations, Evercore ISI analyst Kevin Rippey said on CNBC. In addition, U.S. revenue growth decelerated notably which could prove to be an area of concern moving forward.

Alphabet's report won't "awe the Street" although it's far from a major upset, said Haris Anwar, analyst at Investing.com. Management deserves credit for introducing additional transparency in its financial reporting. This will offer investors "better insight" into how Google measures up to its competitors and where it's seeing pressure.

Alphabet Class A shares traded down 3% to $1,436.78 at time of publication.