Alphabet Inc (GOOGL) has shocked the market with the release of disappointing results for the first quarter. Shares are currently plunging 8% at $1,196. GOOGL reported revenue of $36.34 billion, missing the expected $37.33 billion. This reflected year-over-year growth of 17%, a marked drop from the 28% recorded this time last year.
So what are the analysts saying? Is now a perfect buying opportunity for a stock that- at its high point this year- nearly touched $1,300? Or is it better to take these numbers as a sign that there are more compelling names out there? TipRanks tracks and ranks analysts, meaning that we can delve into the recommendations of the Street’s best-performing analysts.
As this screenshot shows, the Street's strongest stock pickers have retained their 'Strong Buy' GOOGL consensus. That's with an average price target of $1,355, indicating upside potential of 13%.
‘Hey Google, What Happened to Revenue Growth?’ demands five-star RBC Capital analyst Mark Mahaney (Track Record & Ratings). He reiterated his buy rating on the stock on April 29 with a $1300 price target. From current levels that indicates 9% upside potential from GOOGL’s current share price.
“GOOGL Q1 Revenue came in a rare 3% below Street, while Op Income came in a rare 5% above. The 1st was the bigger surprise, given a very consistent revenue track record – the 1st sub-20% growth (19%) since Q2:15” explains the analyst.
Commentary suggests YouTube & Desktop Search might have been the slowdown sources, he added. Meanwhile US and EMEA were two notable decel regions, and Google Properties was a notable decel segment. Management noted that “product changes” occasionally impact growth rates, but said it was seeing no major “demand changes” from advertisers. And frustratingly, it gave no examples of the specific product changes that could have had such a material impact.
However, for investors, this may well be the crucial line: “We’re modest buyers on the 7% AM pullback; we’d be material buyers on a material pullback. We don’t believe GOOGL is going through a material, sustained growth deceleration.”
In fact Mahaney ultimately concludes: “We believe GOOGL Growth Trajectory very likely intact.” First of all, the total addressable market (TAM) for Google remains $1T+ in global advertising/marketing spend. Secondly, based on extensive survey work, the analyst doesn’t see evidence of changes in Marketers’ view of Google – budget allocations, future spend intentions, or perceived ROI (absolute or relative).
Finally, he believes GOOGL's investments in Cloud, Internet-connected Homes & Autonomous Vehicles help set the company up for more years of premium growth and profits.
Interestingly, this analysis is reflected by many top analysts. For example, JP Morgan’s Doug Anmuth (Track Record & Ratings) is ultimately bullish on the stock- hence his buy rating. However, he says that at this point he prefers names like Facebook, Amazon and Netflix to Google. In the near-term he expects shares to remain under pressure, citing both the revenue and downward earnings revisions.
Only Stifel’s Scott Devitt (Track Record & Ratings) has downgraded GOOGL from Buy to Hold post-results. He blamed the limited upside potential at current price levels: “At after-hour price levels, shares offer less than 10% upside to our PT, which remains unchanged following the 1Q report.”
And he believes it may take a while before shares re-rate: “The unexpected degree of revenue deceleration and lower visibility into the near-term reacceleration / deceleration potential lead us to believe the multiple on shares may be challenged to move meaningfully higher over the next twelve months. We move to a Hold rating as a result."
Turning to the TipRanks' Smart Score
It's also worth checking out how GOOGL ranks on the Smart Score. This score is updated daily and includes eight key datapoints, from analyst activity to blogger opinion to news sentiment.
Here we can see that GOOGL still scores an '8' i.e. Outperform. That's thanks to the Strong Buy analyst consensus and bullish blogger opinion. However, investors and hedge funds both display a much more bearish sentiment. Interestingly, stocks like Facebook (FB) and Amazon (AMZN) both boast a 'perfect' score of 10- again indicating that while GOOGL's long term growth picture remains intact, at this point investors may find that their money could be better spent elsewhere.