Alphabet Inc. reported a big third-quarter earnings miss, but the Google-parent’s shares bounced sharply off their worst levels, as a gaggle of Wall Street analysts raised their price targets on the revenue beat and massive stock repurchases.
The internet giant’s stock GOOGL, -2.20% GOOG, -2.12% fell 2.3% in afternoon trading, a day after it reached an all-time intraday high of $1,299.24. The stock pared losses of as much as 4.5% seen in Monday’s after-hours session, according to FactSet data, after Alphabet reported earnings per share that fell to $10.12 from $13.06 a year ago and missed the FactSet consensus of $12.28.
While profit disappointed, revenue rose 20% to $40.5 billion, above the FactSet consensus of $40.3 billion, and the company said it stepped up quarterly share repurchases by nearly 60% to $5.7 billion.
Of the 45 analysts surveyed by FactSet, no less than 18 have raised their stock price targets. The average target has increased to $1,460.30, which is about 16% above current levels, from $1,415.54 as of the end of September.
The average rating remained at the equivalent of buy, as 39 analysts had bullish ratings and just 6 were at the equivalent of neutral. There are no sell ratings.
Analysts generally dismissed the earnings miss, with many citing the fact it was the result of one-time factors such as losses on equity investments and the recognition of a French tax settlement.
Analyst Youssef Squali at SunTrust Robinson Humphrey said if you take those items out, Alphabet outperformed expectations. He kept his rating at buy, but raised his price target to $1,500 from $1,400, citing strength in mobile search, YouTube and the Google Cloud Platform (GCP), and signs of strong consumer and advertiser demand.
“While regulatory scrutiny remain a major risk with the potential for more fines [short-term], it is clear to us that it’s had no material impact on [Alphabet’s] business model to date,” Squali wrote in a note to clients. “Tech breakthroughs with [machine learning] and [artificial intelligence] should help drive the model further, in our view.”
KeyBanc Capital analyst Andy Hargreaves lifted his price target to $1,546 from $1,516, while maintaining his overweight rating, as the results “showed excellent core sites ad revenue and continued strong growth in GCP,” which he believes along with “other significant growth opportunities” suggests the potential for “sustained strong revenue and profit growth for the foreseeable future.”
Stifel Nicolaus’s Scott Devitt was one of the rare analysts who didn’t have a bullish rating, after he downgraded the stock to hold in April on valuation concerns, but he raised his price target to $1,325 from $1,299 and was upbeat about Google’s potential.
“The company continues to deliver 20%+ revenue growth at scale, supported by continued mobile search, YouTube and desktop search monetization,” Devitt wrote in a research note. Cloud and the company’s hardware (Pixel) businesses are supporting high 30% growth on a mid-teens percentage of the revenue base.”
He said that investments in GCP, hardware and other areas of the business will likely keep weighing on the margin trend over time, “though at a lesser degree in some quarters, like this one.”
Alphabet’s Class A shares have gained 1.4% over the past three months and rallied 20.5% year to date. In comparison, the SPDR Communication Services Select Sector exchange-traded fund XLC, -0.96% has run up 22.0% this year and the S&P 500 index SPX, -0.08% has advanced 21.2%.