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Is Alphabet (GOOGL) a “Safe Haven” Despite Mixed Q1 Earnings Bag?

Loup Ventures' Gene Munster is reassured following Google's Q1 earnings call; here's why.


Alphabet (NASDAQ:GOOGL) released first quarter earnings for the year overnight and Wall Street’s resident tech expert Gene Munster of Loup Ventures is shining light on CEO Sundar Pichai’s key point: the company’s search business, which takes a whopping 90% majority slice of the tech giant’s revenue leans largely on keywords, and not so much on private data.

This is crucial, considering that amid a post-Cambridge Analytica Facebook scandal that has shaken the Street with fears of government regulation, fears of a tight-reigned privacy backdrop are running wild. As far as Munster is concerned, Google’s core business has good odds to make it out of this mostly “safe.” Munster takes this is stride as a “comforting confirmation around separation of Google’s search and privacy.”

Artificial intelligence remains a key theme for the company, notes the research analyst: “Google stayed heavy on the AI theme for the sixth consecutive quarter, mentioning it 25 times vs. 18 last quarter. While AI can be an abstract concept, it’s currently used in almost every Google product and service today and will be increasingly in the future.” Munster happens to be “delighted that Google can’t stop talking about their progress in AI,” a real strength in Google’s back pocket. Keep in mind, the analyst praises Waymo, the company’s self-driving car segment as one that will one day prove to be Google’s third biggest business.

Additionally, though some investors are taking Google’s quarterly print as “a mixed bag,” but not Munster. For the analyst, net revenue growth has left him impressed with its rapid-fire pace, and he stands by this as the key takeaway: “the company continues to defy the law of large numbers when it comes to revenue growth.” Though Google’s revenue run rate has risen roughly 73% throughout the last six quarters, net revenue growth still hit 23%- which aligns with the growth seen in this period of 21% to 24%.

How will data privacy shake up Google’s brand and monetization following Facebook’s big leak? “The elephant in the room” for Munster is General Data Protection Regulation (GDPR), which Alphabet’s team has mentioned they intend to be compliant here. That said, the analyst is aware Google never fully dove deep into buzz as to prospective changes lying ahead.

Ultimately, Munster cheers “Search as a safe haven,” asserting: “Our biggest takeaway was Sundar confirming that search relies less on personal data and more on keywords. The reason for this is, rather than relying on tracking personal data and inferring, the user offers a query that determines intent. This perspective should provide some insulation to Google’s earnings multiple as investors will continue to brace for a stricter privacy regulatory environment over the next year.”

TipRanks indicates GOOGL has a strong bullish camp on Wall Street rooting for the tech giant’s success in the market. Out of 30 analysts polled in the last 3 months, 26 are bullish on GOOGL stock while 4 hedge their bets on the sidelines. With a solid return potential of 25%, the stock’s consensus target price stands at $1,281.59.