BMO: Alphabet’s Q1 Earnings Are “Largely Fine”
On Tuesday, Alphabet (NASDAQ: GOOGL) reported its first quarter financial results. The company announced revenues of $68 billion, which was generally in line with consensus estimates, up 26% year over year. Of the segments, YouTube ad revenue went from $6 billion to $6.8 billion, while Google Cloud revenues went from $4 billion to $6.8 billion.
The company reported an operating income of $20 billion, up from $16.4 billion, while operating margins stayed flat at 30%. Google Cloud continues to see operating losses, though losses came in slightly lower than last year at $931 million.
The company reported a net income of $17.9 billion, or earnings per share of $26.29. The company also reported free cash flow of $15.3 billion for the quarter and an operating cash flow of $19.3 billion.
The company announced it will be increasing its share buyback program to $70 billion, roughly half of its current cash and equivalents of $139.6 billion.
On the earnings call, the management team said that it expects play store fee changes will continue to affect the company’s results throughout 2022. Also, they expect capex to increase meaningfully in 2022 as the business builds up additional server networks.
The management team quantified its exposure to Russia and says that only 1% of revenue comes from Russia, while they have noted a pullback on YouTube spend in Europe after the conflict broke out.
A number of analysts lowered their 12-month price target on Alphabet, pushing the consensus price target down to $3,296, which represents a 45% upside to the current stock price. Alphabet currently has 53 analysts covering the stock, of which 17 have strong buy ratings, 35 have buys and a single analyst has a hold rating on the stock. The street high price target sits at $4,118, which is an 80% upside to the current stock price.
In BMO Capital Markets’ note on the earnings results, they reiterate their outperform rating but cut their 12-month price target from $3,300 to $3,000. Though they say that they believe the results were “largely fine,” but believe management did not provide enough confirmation to soothe investors rising ad recession anxiety.
On the results, BMO says that search and others beat their estimates as retail remains the #1 category and total travel searches are now back to pre-pandemic levels. Though YouTube advertising came in weaker than expected this quarter, while management says it was primarily due to the segment having a tough comp this year, BMO believes that TikTok could be eating some of people’s phone time. While the company’s cloud segment came in line with the results.
Lastly, on the results, BMO writes, “Google Services will no longer benefit from the tailwind of easy 2021 comps, with the largest impact in 2Q22; and expect continued investment in talent and compute power.”
Below you can see BMO’s updated estimates
Information for this briefing was found via Sedar and Refinitiv. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
