Is It Time to Sell Alphabet Inc (GOOGL) Stock?

Pivotal's Brian Wieser chimes in apprehensive on Alphabet, but 4Q print has left him a bit more positive on long-term expectations.

Is Alphabet Inc (NASDAQ:GOOGL) reliant on Apple for success down the line? As mobile search starts to get more attention from users than search on PCs, some wonder just how much the tech giant needs a competitor of the likes of Apple to dole out advertising.

In a round of tech earnings season that has seen rivals deliver beat after beat, the market may not be thrilled that the company posted $9.70 in adjusted EPS against consensus closer to $10- the least impressive of the tech squad. Therefore, though other rivals are gaining in trading, Alphabet’s shares are getting hit roughly 4% in the market today.

Pivotal analyst Brian Wieser may continue to be cautious on the giant, but he notes: “Overall, we are interpreting the quarter’s results favorably if only because they were ahead of our conservative expectations.” The analyst had played it safe in calling for EPS of $9.53, so from Wieser’s eyes, Alphabet left him encouraged.

In reaction to the print, the analyst reiterates a Hold rating on GOOGL stock while hiking the price target from $1090 to $1110, which implies a just under 3% upside from current levels. (To watch Wieser’s track record, click here)

Wieser finds Alphabet delivered a “good” fourth quarter show, aligning with his longer-term perspective on the giant. In fact, Wieser adds his long-term expectations have even “improved slightly” following Alphabet’s quarterly earnings.

For the fourth quarter, GOOGL flashed 24% in revenue growth with an operation income reaching $7.7 billion for a 29% ex-TAC (traffic-acquisition costs) margin. Conversely, the analyst had called for 21% in revenue growth and a 32% ex-TAC margin. YouTube, programmatic activities, Cloud and hardware segments tower as Alphabet’s leading drivers of gains for the quarter. The Asia-Pacific region along with “Other America” each surged with the quickest rates of growth in the globe for the quarter.

Yet, when it comes to margin erosion, the analyst points to traffic-acquisition costs that climbed 33% coupled with these expenses to distribution partners increasing by 57%. That being said, these expenses seem “relatively contained” by Wieser’s assessment.

Ultimately, “Alphabet’s core Google division faces many longer-term headwinds (primarily related to the limits to growth of digital advertising at least in lieu of significant investments in margin eroding content) that we don’t think are fully appreciated by investors. At the same time Google appears to be better positioned than Facebook in many ways. For example, increasing reliance on AMP by publishers in lieu of Facebook’s Instant Articles ties publishers more tightly to Google and provides Google with more data. GDPR may prove to be a drag on the industry in Europe, but search is probably more immune from negative effects than most other types of digital advertising. And of course, Google’s role in ad tech – and increasingly in marketing tech, illustrated by the company’s recent integrations with – position the company more firmly as a relatively immovable and dominant company in the sector,” Wieser contends.

TipRanks points to a predominantly bullish camp on Wall Street betting on the tech titan, with 17 out of 20 analysts in the last 3 months rating a Buy on GOOGL stock. Only 3 analysts are on the sidelines on Alphabet’s opportunity. With a return potential of nearly 9%, the stock’s consensus target price stands at $1,284.00.

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