Investors didn't fall in love with all that Google (GOOGL) - Get Alphabet Inc. Class A 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)."