Alphabet Inc GOOG GOOGLShares fell by 3% Wednesday after the tech giant reported a missed earnings report and disappointed the market with its YouTube numbers.
Alphabet reported adjusted EPS of $24.62 for first quarter revenue of $68.01 million on Tuesday. Both numbers were below consensus analyst estimates of $24.62 per share on revenue of $68.01 billion. Revenue was up 23% over a year earlier.
YouTube advertising revenue was very low at $6.87 Billion, compared with analyst estimates of $7.51 Billion. Google Cloud revenue exceeded analyst estimates by $5.76 billion to reach $5.82billion.
Traffic acquisition costs were $11.99 Billion in the quarter, which was higher than the $11.69 Billion analysts expected.
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Difficult CompsAnalyst at Bank of America Justin PostAlphabet’s margins were a bright spot during a quarter that saw it face a “difficult climate and tough comps,” said Alphabet.
“We believe that key drivers for stock (revenue trends and y/y Core Margin Trends, use of capital and disclosures), were mixed/negative in 1Q. However, this was expected on difficult.
Post wrote “Comps”
Analyst JMP Andrew BooneAlphabet’s Google Search was solid, but YouTube was adversely affected by macro events.
Boone wrote, “Stepping back, We continue to view Alphabet positioned across most major online secular growth trends as its more horizontalized search offering likely enhances ROI for travel and retail advertisers (with more verticals), 2B+ users come to YouTube each month, and GCP continues to be well positioned in cloud market.”
Temporary HeadwindsAnalyst at Wells Fargo Brian FitzgeraldAlphabet believes YouTube headwinds will be temporary and that Google Play trends should improve in the third quarter.
Fitzgerald wrote that “We are encouraged to continue strength in what we consider GOOGL’s most important franchises Search and Cloud.”
KeyBanc analyst Justin Patterson said he was anticipating that Alphabet would face European and forex headwinds in the first quarter.
“Against this lens, Search’s resilience (+25%y/y and 4% upside), screens to be a positive that more or less offsets the incremental bear narrative surrounding YouTube (e.g. slowdown comps, macro or TikTok).Patterson wrote.
Brian Nowak, a Morgan Stanley analyst, said that Alphabet’s lower search revenue was likely due to slowing growth in online e-commerce, which could have adverse implications for Amazon.com, Inc. AMZNThese and other online retailers
“We also note that the $12.6bn of Google’s ‘other’ revenues was 10% lower in comparison to what we expected due GOOGL’s Play pricing models (a pivot toward 15% or less fees),” Nowak stated.
Ratings and Price Targets
- Bank of America has a Buy rating.
- Wells Fargo has an overweight rating and a target of $3,400.
- JMP has a Market Overperform rating with a $3,300 target.
- KeyBanc has an overweight rating and a target of $3,075
- Morgan Stanley has an Overweight rating. They also have a $3,270 target.
