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Stock Analyst Update

Alphabet Reports Mixed Results

After taking into account the time value of money, our fair value estimate is now 8% higher.

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While Alphabet (GOOG) reported mixed fourth-quarter results, we welcome changes already implemented by the firm’s new CEO, Sundar Pichai. Alphabet has finally begun to open the "black box" and is now providing more transparency regarding the revenue that its many products and services generate every quarter. Alphabet revenue breakdown showed continuing strong growth in YouTube advertising, cloud, YouTube subscription, and Google Play, partially offset by an expected slowdown in search ads and weakness in hardware sales. The firm’s total revenue came in below our expectation and the FactSet consensus, while continuing stability in traffic acquisition costs and a decline in sales and marketing expenses as a percentage of revenue helped Alphabet beat the consensus on the bottom line. We have slightly lowered our revenue projections as we think strength in YouTube and cloud will be partially offset by further deceleration in search revenue. After taking into account the time value of money, our fair value estimate is now 8% higher, at $1,400 per share. While the stock is down 4% in after-hours, we recommend waiting for additional margin of safety before investing in this wide-moat name.

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Ali Mogharabi does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.