What Wall Street is saying about Alphabet ahead of earnings

Alphabet (GOOGL), the parent company of Google, is scheduled to report fourth quarter results after the market close on Tuesday, January 30, with a conference call scheduled for 4:30 pm Eastern Time. What to watch for:

PRODUCT MOMENTUM, AI INNOVATION: On October 24, along with Alphabet’s Q3 report, Sundar Pichai, CEO of Alphabet and Google, said: “I’m pleased with our financial results and our product momentum this quarter, with AI-driven innovations across Search, YouTube, Cloud, our Pixel devices and more. We’re continuing to focus on making AI more helpful for everyone; there’s exciting progress and lots more to come.”

Following that report, Monness Crespi downgraded Alphabet to Neutral from Buy with no price target after the company reported what the firm called “disappointing” Q3 operating profits and “hosted an opaque call.” While the firm believes Alphabet is well positioned to capitalize on the digital ad trend, participate in the cloud’s growth, and innovate with AI, it added that regulatory headwinds persist, competition is dynamic, and it believes “the darkest days of this downturn are ahead of us.”

Taking the other side, Mizuho said that Alphabet’s earnings pullback was an opportunity to add. Alphabet’s Q3 advertising sales beat expectations from strength in search and YouTube, as expected, but operating expenditure growth came in hotter than expected at 6% year-over-year, indicating the consensus Q4 growth rate of 4% “may be aggressive,” the firm stated. Cloud revenue growth was also softer than anticipated due to cost optimization despite increased artificial intelligence adoption, the analyst told investors. However, the firm expects the process to be transitory and it called the outlook reset “a buying opportunity” while reiterating a Buy rating on Alphabet shares.

FIRMS’ TOP PICK: In mid-December, JPMorgan raised the firm’s price target on Alphabet to $160 from $150 and kept an Overweight rating on the shares, which the analyst called (AAPL) implemented a similar change in 2020 – Needham added.

More recently, Evercore ISI added Alphabet to the firm’s the “Tactical Underperform” list in advance of Q4 results. The firm keeps an Outperform rating and $160 price target on the shares.

On January 26, BofA raised the firm’s price target on Alphabet to $175 from $166 and kept a Buy rating on the shares ahead of the company’s Q4 report. BofA raised its revenue estimate to above the Street view and its Search growth estimate to 14%, compared to the Street at 13%, but also raised expenses and maintained its EPS forecast of $1.63. A continued recovery in the ad sector, ramping Shorts monetization, AI integrations boosting ROI and ad spend and strong cost management can drive upside to Street estimates in 2024, the analyst added.

ANOTHER ANTITRUST FRONT TO FIGHT: On January 25, the Federal Trade Commission announced that it issued orders to five companies requiring them to provide information regarding recent investments and partnerships involving generative artificial intelligence companies and major cloud service providers. The agency’s inquiry “will scrutinize corporate partnerships and investments with AI providers to build a better internal understanding of these relationships and their impact on the competitive landscape.” The compulsory orders were sent to Alphabet, Amazon.com (AMZN), Anthropic PBC, Microsoft (MSFT), and OpenAI. The FTC issued its orders under Section 6(b) of the FTC Act, which authorizes the Commission to conduct studies that allow enforcers to gain a deeper understanding of market trends and business practices. “History shows that new technologies can create new markets and healthy competition. As companies race to develop and monetize AI, we must guard against tactics that foreclose this opportunity, “said FTC Chair Lina M. Khan. “Our study will shed light on whether investments and partnerships pursued by dominant companies risk distorting innovation and undermining fair competition.”

EXPECTATIONS: Current consensus EPS and revenue forecasts for Alphabet’s December-end quarter stand at $1.59 and $85.33B, respectively, according to data provided by Refinitiv. That $1.59 EPS estimate for the fourth quarter is flat over the past 90 days ago, according to Refinitiv. Bloomberg has a consensus adjusted EPS forecast of $1.72 for Alphabet’s fiscal Q4.

Among analysts tracked by Bloomberg that have updated their views on Alphabet within the last twelve months, 55 have Buy or equivalent ratings, 10 have Hold or equivalent ratings and the average twelve month price target of 43 of those analysts is $159.81.

SENTIMENT: Check out recent Media Buzz Sentiment on Alphabet as measured by TipRanks.