GOOGL keeps “buy” rating at Roth after Q4 selloff

The market may be selling but Roth MKM analyst Rohit Kulkarni says you should be buying Alphabet (Alphabet Stock Quote, Chart, News, Analysts, Financials NYSE:GOOGL).

On January 30, GOOGL reported its Q4 and fiscal 2023 results. The company earned $1.64 on revenue of $86.31-billio, toppping the street’s expectation. Still, the stock slid following the results owing to the fact that the company’s ad revenue disappointed analysts.

“We are pleased with the ongoing strength in Search and the growing contribution from YouTube and Cloud,” CEO Sundar Pichai said. “Each of these is already benefiting from our AI investments and innovation. As we enter the Gemini era, the best is yet to come.”

The analyst gave his take on the quarter.

“GOOGL reported a mixed 4Q result driven by healthy YouTube & Cloud segment results offset by softness in Search coupled with lower Op Margins,” he wrote. “Shares declined -6% after hours to ~$142, a deja vu from 3Q earnings. Mgmt. didn’t specifically comment on macro, supply chain or any Middle East war related headwinds, however, they highlighted strength in the Retail sector.”

In a research update to clients January 30, Kulkarni maintained his “Buy” rating on GOOGL but cut his price target from $166 to $164.

The analyst thinks the company will post EPS of $6.83 on revenue of $342.9-billion in fiscal 2024. He expects those numbers will improve to EPS of $7.59 on a topline of $377.3-billion the following year.

Kulkarni says make no mistake, GOOGL has important AI offerings on the way, and he talked about what he learned on the conference call following the results.

“What did we learn in the conference call? 1) Google has AI network effects: We believe Google’s AI research in LLMs helps improve both Cloud offerings and AI layers inside its billion-plus user apps across Google; 2) However, success in AI needs more investments: As part of her outlook remarks, the CFO noted that Google expects investment in CapEx in 2024 will be notably larger than in 2023 as the company builds extraordinary AI applications for users, advertisers, developers, Cloud customers, and governments; and 3) Gen AI inside Search opens new opportunities: But, we think Gen-AI Search remains a work in progress, and Google continues to experiment with new native ad formats. The downside risk here is that Search might experience a hiccup or two as these experiments get bigger during 2024; and 4) Ad market feels strong with possibly stronger start to 4Q:Mgmt anecdotes imply that 4Q consumers became more price sensitive as the quarter progressed, and 4Q promotional demand was at an all-time high, likely hinting at Temu & Shein activity on Search,” he said.