Google Falls on Mixed Earnings Report: What Wall Street's Saying

Google missed on revenue, beat on earnings and broke out revenue for YouTube and Cloud for the first time. Analysts came away largely positive on the results.
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Investors didn't fall in love with all that Google  (GOOGL) - Get Report had to show on its earnings report out Monday, but analysts liked Google's new revenue disclosures and high-than-expected share buybacks. 

The stock was falling 2.82% to $1,440.77 a share in early trading Tuesday. 

Google posted earnings per share of $15.35, handily beating estimates of $12.49. But revenue was $46.08 billion, missing expectations of $46.94 billion. Google's operating margin, which has fallen in the past few years, was 20%, missing estimates of 21%. 

Google's Chief Financial Officer, Ruth Porat, said, "To provide further insight into our business and the opportunities ahead, we’re now disclosing our revenue on a more granular basis, including for Search, YouTube ads and Cloud."

Here's what analysts said:

Morgan Stanley, Overweight, $1,560 Price Target Unchanged

"New disclosure gives us better insight into GOOGL's revenue drivers, but coming out of 4Q results our big-picture thesis is unchanged and we remain bullish for 2020. GOOGL’s ability to innovate and drive engagement and monetization across its 9 products with 1 billion plus users -- while exercising discipline and capital returns -- are key to driving long-term shareholder value. Search's durable growth even through laws of large(r)numbers speaks to the still-strong engagement, advertiser value and monetization. Disclosure will make it easier for investors to see the impact of GOOGL’s budding monetization engines like Maps, Discover, and e-commerce suite of products. YouTube is ~30% smaller than estimated though growing 300 basis faster: $15 billion of 2019 YouTube revenue.  Google Cloud is what we thought it was…$9 billion of revenue growing 50% year-over-year. GOOGL’s cloud business is essentially the size of AWS in 2015/2016… though growing slower (AWS was growing 60% over that period)." 

- Brian Nowak

UBS, Buy, $1,675 Price Target Unchanged

 "Long-term building blocks for equity value on display. Across the board, GOOGL presented a very solid Q4 2019 earnings report with above modeled advertising revs and upside surprises on both core operating margins and capital returns presenting a positive check-in against the long-term drivers (while short-term heightened investor expectations might cause stock price digestion). Positives: Increased segment disclosures (to include Google Search & Other, YouTube Ad & Google Cloud rev results;  Positive mgmt. commentary on Cloud business momentum with strong growth in customer demand; share repurchases higher than expected at $6.1 billion vs. UBS expected $4.0 billion. Negatives:  management expectations of continued investments in headcount and capex (data centers, servers) in 2020." 

- Eric Sheridan

Bank of America, Buy, $1,620 Price Target Unchanged

"Street was looking for, and got, more shareholder friendly disclosures and buybacks, but recent stock outperformance likely required a near perfect quarter and there were both revenue and expense misses. Google  stepped up share repurchases to $6.1 billion; early signs of a more shareholder friendly management. We are lowering 2020 net revenue to $155.4 billion from $156.2 billion, and we raise our GAAP EPS for 2020 to $54.23 from $54.09 on higher interest income and a slightly lower share count, offsetting lower operating income. We reiterate our buy rating and maintain our $1,620 price objective based on 21 times 2021 core Google GAAP EPS [of $80.20 from $80.03] (v. 22 times prior due to slightly lower growth), plus cash."

- Justin Post 

RBC Capital Markets, Outperform, Price Target Raised From $1,500 to $1,550 

"GOOGL reported light Q4 EPS results – revenue and operating income came in below Street, but the revenue miss was driven by lower-quality hardware revenues and the income miss by lower-quality other bets losses. And there were 3 key positives: 1) new revenue disclosure; 2) expansion in core Google operating margins; and 3) record-high share repurchase. No change to estimates. YouTube generated $15.1 billion in ad revenue in 2019, up 36% year-over-year and just a 1 point deceleration 2018. The scale was lower than we had assumed, but the robust growth was in-line. 3) Google Cloud growth accelerated to 53% year-over-year in 2019 (v. 44% in 2018) and consistent with Q4 2019, with Google Cloud Platform growth “meaningfully higher” than overall Cloud ($10B+ revenue run rate). 4) Capex and headcount growth outlook – 2020 headcount growth to be higher than the 20% growth in 2019. We arrive at $1,550 by applying a 12 times target multiple on 2021 EBITDA of $78.4 billion (previously 11.5 times)."