ANALYST ROUNDUP: Wall Street remains bullish on Google, despite its earnings miss

Google alphabet sundar pichai ceo happy smilingJustin Sullivan/Getty ImagesSundar Pichai, CEO of Google.

Google parent company Alphabet reported its 2016 Q1 earnings on Thursday.

It failed to meet analyst expectations for both the top and bottom line — and the stock got slammed in after-hours trading, dropping as much as 8% at one point.

That said, financial analysts aren’t too perturbed about the long-term vision. We’ve rounded up 11 of the biggest analysts’ views about Alphabet earnings and the verdict is clear: The fundamentals are good, so buy — even if some price targets have been revised down.

Read on for the full detail — but first, here are some of the key numbers:

  • Revenue: $20.35 billion, up 17% year-on-year, versus analyst expectations of $20.38 billion.
  • Non-GAAP earnings per share: $7.50 versus $7.96 expected.

Goldman Sachs: BULLISH

Rating: Buy

Price target: $850 (previously $890)

Comment: 'We believe a tighter focus on efficiency leading to spending discipline will continue to drive non-GAAP operating margins upward.'

Credit Suisse: BULLISH

Rating: Outperform

Price target: $920

Comment: 'Google reported 1Q16 results that were in-line with expectations due to strength in Licensing and Other revenue, offset by higher than expected TAC associated with mobile search and growth in programmatic ... Overall, our investment thesis for GOOGL shares remains essentially unchanged.'

Morgan Stanley: BULLISH

Rating: Overweight

Price target: $850 (previously $900)

Comment: 'It's a good thing that GOOGL appears to be exercising incremental discipline in its opex and focusing on 'managing the expenses that they can actually control', because TAC and Other Cost of revenue came in ~4% ($149mn) and ~3% ($87mn) ahead of expectations due to the rapid growth of mobile search, YouTube and programmatic advertising. We see this continuing going forward, particularly given the rapid growth of mobile and YouTube, as well as management's comments that they will be 'working on a lot more original content throughout the year.' We see this trend of opex discipline offsetting gross margin pressure continuing through the remainder of 2016 and the future...this will be important to GOOGL's ability to continue to drive higher earnings power and cash flow.'

Deutsche Bank: BULLISH

Rating: Buy

Price target: $1,100 (previously $1,080)

Comment: 'We have modestly increased our 2016 and 2017 revenue and EBITDA estimates. As a result, our price target moves to $1,100 from $1,080. Our price target is based on a blended average of 25x EPS, 15x EBITDA, and 4% FCF yield on our 2016 and 2017 estimates for Core GOOG, and 2x revenue on our 2016 and 2017 estimates for Other Bets. Risks include: 1) competition, 2) future downward estimate revisions, 3) smartphone legal issues and the stability of Android's ecosystem long term, 4) regulatory scrutiny across many regions worldwide, and 5) partner loss.'


Rating: Buy

Price target: $900

Comment: 'While revenue results came in ~1% below expectations, growth remained robust and impressive (e.g., 26% ex-FX websites segment gross revenue) and mgmt's focus on expense discipline resulted in operating income, adj. EBITDA , adj. EPS (ex. Other items), and capex all coming in better than forecasted. In fact, better opex and capex resulted in the highest FCF in company history ($5.2bn). Given this backdrop where better opex and capex is more than offsetting a modest revenue shortfall, and given expectations heading into the quarter that top-line results could be soft, we think the stock recovers from these after-market levels and continues to perform as the company demonstrates the path to $46+ in core adj. EPS in CY17. As such, we maintain our Buy rating and $900 price target. We also note that Alphabet's results could portend for more muted upside to Q1 revenue estimates for FB relative to recent quarters, though we do see room for upside in earnings (expense discipline) in Q1 and to overall results for CY16 and CY17 (reports 4/27).'


Rating: Buy

Price target: $970

Comment: 'Google reported good results with core website advertising revenue growing at 26% YoY FXN. While the UK accelerated to 21% from 20%, US decelerated due to stronger-than-expected seasonality impact from the YouTube business as the video ad spending is mostly from brands. At the same time, core margins remained strong at 37.5% and overall margin expanded by nearly 200bps. The EPS miss was due to a big swing in other income as the company recognised losses from securities investments. Going forward, we continue to see growth drivers in five major drivers: app advertising, closing the mobile pricing gap, shifting TV advertising online, optimising travel search and cloud computing. All together could contribute 30% upside to our 2018 revenue/user forecast.'

Pacific Crest: BULLISH

Rating: Overweight

Price target: $910

Comment: 'Alphabet reported good Q1 constant-currency results, but revenue was a modest disappointment. However, we believe that's more than offset by a new passion for expense control. We remain excited about the combination of revenue growth, expense control and cash return and would be buyers of GOOGL.'

Macquarie Research: BULLISH

Rating: Outperform

Price target: $890 (previously $870)

Comment: 'The bottom line is that GOOG continues to post substantial growth while also improving margins. Search will likely slow into 2H and beyond, but YouTube, programmatic, Play and other drivers remain solid ... Notably, CEO Sundar spent time discussing how we are evolving from a mobile-first world to an AI-first world. While the monetisation potential an AI-infused world is far, far from being understood, if AI/machine learning does evolve as expected, GOOG will likely be a key player. We reiterate our Buy and raise our PT to $890.'


Rating: Buy

Price target: $888 (previously $930)

Comment: 'We reiterate our Buy rating on Alphabet shares but lower our 12-month DCF-based Price Target to $888. While Google's core Search growth remains impressive, the Network business appears to be decelerating and profitability may continue to be pressured by the secular shift to mobile Search, YouTube, and programmatic advertising businesses with structurally lower margins than desktop Search.'


Rating: Buy

Price target: $865 (previously $930)

Comment: 'Product Momentum is Solid; Mobile Creates Bear‐Case Buster. Strength was seen across Search (mobile), PC/tablet, programmatic and YouTube (YT). Management highlighted Mobile Search as the key driver aided by a format change in 3Q. Desktop was also strong, YT engagement increased and Programmatic was strong again. Clicks/CPC came in at +29%/‐9% vs. RILY at +32%/‐4% and vs. consensus at +27%/‐6%.'


Rating: Outperform

Price target: $860 (previously $880)

Comment: 'Solid 1Q results overshadowed by below-the-line 'noise'; fundamental growth drivers remain intact. Alphabet reported solid Q1 top-line growth and margin expansion (revenue +23% Y/Y ex-FX vs. +24% 4Q15; non-GAAP operating income of $6.83B vs. $6.7B consensus), driven by continued strength in mobile search, YouTube, and programmatic ads. However, non-operating losses related to Alphabet's investment por tfolio/FX hedges (~$370M Y/Y drag) were primary drivers of an EPS miss. As such, we would be buyers on the earnings-related pullback, as core Google growth initiatives are progressing as expected.'

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