Alphabet gets target raise from Roth Capital

Top and bottom lines misses in fourth quarter numbers from Alphabet (Alphabet Stock Quote, Charts, News, Analysts, Financials NASDAQ:GOOGL) aren’t enough to change the tune from Roth Capital Partners analyst Rohit Kulkarni, who maintained a “Buy” rating on the stock in a Friday report to clients while nudging his target price higher. Kulkarni said the company’s aggressive stock repurchase plan will help Alphabet’s earnings going forward.

American tech giant Alphabet reported its Q4 financials on Thursday, featuring revenue up just one per cent year-over-year to $76.048 billion and diluted EPS of $1.05 per share, down from $1.53 per share a year earlier. Analysts had on average been expecting $76.53 billion in revenue and EPS of $1.18 per share.

The company saw strong growth over the pandemic in its various revenue streams but that has made for tough comps currently. YouTube ad sales were down year-over-year from $8.633 billion a year ago to now $7.963 billion, while Google Search came in at $42.604 billion versus $43.301 billion for Q4 2021.

Management focused its commentary on advances and investments in artificial intelligence while at the same time preaching fiscal restraint and cost-cutting.

“Our long-term investments in deep computer science make us extremely well-positioned as AI reaches an inflection point, and I’m excited by the AI-driven leaps we’re about to unveil in Search and beyond,” said Sundar Pichai, Alphabet CEO, in a press release.

“There’s also great momentum in Cloud, YouTube subscriptions, and our Pixel devices. We’re on an important journey to re-engineer our cost structure in a durable way and to build financially sustainable, vibrant, growing businesses across Alphabet,” he said.

Looking at the numbers, Kulkarni said revenue shortfalls were across all key segments for Alphabet, while the analyst noted management’s goal of finding long-term efficiencies in the cost structure by prioritizing investments and slowing the rate of hiring. The analyst also noted that Google’s AI division will no longer be reported in the company’s “Other Bets” segment but will be reported as part of Alphabet’s corporate costs. 

“We expect GOOGL shares to remain under pressure over the near term as we don’t foresee a positive catalyst over the next few months. Incremental cost-cutting initiatives might help the shares break out above our current price target,” Kulkarni wrote.

“All else being equal, we’d be aggressive buyers on weakness below low $90s, implying ~15x ’23E EPS (ex-Cash). GOOGL has ~$8 per share in cash,” he said.

With the 2022 results in, Kulkarni is now forecasting 2023 revenue of $300.908 billion (previously $296.817 billion) and EPS of $5.54 per share (previously $5.38 per share).

Kulkarni moved his 12-month target price from $120 to $126 per share, reflecting at press time a projected return of 17 per cent.