WestPark Capital analyst Curtis Shauger initiated coverage on Alphabet
Alphabet reported fourth-quarter net sales of $96.47 billion, up 11.8%, but this fell short of the consensus estimate of $96.56-$96.69 billion. GAAP EPS reached $2.15, topping the consensus of $2.12-$2.13.
Cloud revenue of $11.96 billion grew 30% but underperformed the $12.19 billion consensus, with growth slowing from the third quarter's 35%. Operating profit hit $2.15 billion (18% margin), beating the $1.9 billion estimate, but the revenue miss raised concerns about Alphabet trailing AWS
Search represents one of the actual utilities of the Internet economy, and Alphabet has expertly dominated the sector for nearly twenty-five years.
The company has levered this enviable position into numerous other growth areas, notably video streaming (YouTube) and Infrastructure-as-a-Service (Google Cloud Platform). Alphabet is a massive cash flow machine with an under-leveraged balance sheet.
With EBITDA margins of 35-40%, Alphabet ended 2024 generating over $70 billion in free cash flow and amassed a net cash balance of ~$85 billion; Shauger noted Alphabet is well positioned to pursue emerging areas of growth, particularly AI.
Slowing growth at GCP has led to concerns about the trajectory of this critical segment.
After reporting 23% growth in its third quarter of 2023, GCP subsequently accelerated over the next several quarters, peaking at 35% in the third quarter of 2024 before slipping to 30% in the fourth quarter of 2024. Despite indications of demand outstripping supply, Shauger noted this dent in acceleration has raised concerns about the near-term trajectory of this strategically important segment.
Although Alphabet offers relatively little in the way of guidance, on its fourth-quarter call, it did announce initial 2025 cap-ex guidance of $75 billion, representing ~ a 35% increase over 2024 and 150% from 2023.
Shauger stated this, coupled with slowing GCP has stoked concerns among some investors. Upcoming remedy trial could prove pivotal.
After ruling in mid-2024 that Alphabet maintained an illegal monopoly in search, the Department of Justice (DOJ) subsequently proposed various remedies, some potentially quite disruptive.
Shauger noted that the trial, set for April of this year, could give investors some measure of the impact of the company and its shares.
Shauger projected first-quarter revenue of $90.23 billion and GAAP EPS of $2.06.
Price Action: GOOG stock is up 1.06% at $157.88 at the last check on Tuesday.
