Have investors forgotten about Alphabet (GOOG)? Amid all the attention on Facebook, Amazon and Apple earnings last week, it’s hard to argue if it feels that way. But with the internet giant expected to release earnings after market close today, the spotlight will be back on the world’s most popular search engine.
Following an impressive Q3 release three months ago, expectations are high for Alphabet. Wall Street expects revenue to rise 20.5% year-over-year, but also expects cost of sales to rise with holiday sales giving a boost to its hardware business. While the company will report two segments — Google and Other Bets — nearly all contribution will come from the former, which includes the search engine, Gmail, Chrome, Maps and YouTube.
SunTrust’s top analyst Youssef Squali remains bullish on the company, maintaining his Buy rating and $1,450 price target, which implies about 30% upside from current levels.
Squali’s estimates “call for a solid 21.7%/24.9% y/y growth in net revenues ($31,486M) and adj, EBITDA ($14,409M), with ad revenues of +18% y/y, Google Other revenues of +34% y/y, and Other Bets +24% y/y.” He remains more confident than the Wall Street consensus as his “intra-quarter conversations with marketers show Search spend remains strong growing double digits in 4Q,” while “Facebook’s positive earnings report for 4Q18 bode well for advertiser demand on the Google platform in the period.”
Even as the analyst is bullish on Google, he expresses concern with the regulatory environment surrounding the company. He says Google “has seen rising attention from regulatory agencies both domestically and internationally in the course of the last couple of years,” including from the European Union (GDPR and two “large” fines ($2.7B for Shopping and $5.1B for Android)), as well as the US Congress. Making matters worse, Bloomberg reports the “possibility of another fine by the EU over its AdSense product.”
While GDPR was a major concern for Google and other internet companies in 2018, Squali says “we do not believe the company showed any material signs of weakness from the GDPR implementation, but we also believe that 2019 is a year of growing regulatory oversight and compliance.” While he believes “search is relatively insulated from regulation,” YouTube and Network (especially programmatic) “are more exposed due to the use of first and/or third party data to improve ad targeting.”
According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Youssef Squali has a yearly average return of 19.4% and a 68% success rate. Squali is ranked #54 out of 5,144 analysts.
As the case with most tech companies, Wall Street is extremely optimistic on Alphabet. Of 20 analyst ratings tracked by TipRanks, all 20 are bullish on the company, showing a consensus Strong Buy rating. The 20 analysts have an average price target of $1,374.17, which represents a 22% upside to the stock. (See GOOG’s price targets and analyst ratings on TipRanks)