Wall Street was a little surprised by Alphabet Inc.’s profits. But will the company’s stock actually be affected by that beat?
According to a note sent to clients by Mark Shmulik, an analyst at Bernstein Research, Alphabet (GOOG) (GOOGL) “delivered a pristine quarter.” However, he questions if investors are giving fundamentals enough consideration in a market where headlines dominate the conversation.
Although Alphabet’s stock increased by almost 2% on Friday, it’s unclear if the company is ready for long-term growth. As Shmulik noted, it was “too early to do a victory dance… in a cyclical sector that’s about to go through the car wash.”
He pointed out that the company’s profitability exceeded almost all of the important metrics, including “good enough” YouTube revenue up 10% and sales growth up 12%.
However, he cautioned investors that despite macroeconomic headlines, estimates had decreased over the previous six weeks. Because of the Trump administration’s tariffs and their effect on markets, there are increasing concerns of an economic downturn.
The debate about how the Google empire would fare in this uncertain climate was not entirely resolved by Alphabet’s earnings call. “We got almost no color on how the tariff and macro effects could impact Google’s business through the year,” he stated.
The company did note that recent gains on operating margins may be hampered by impending employee stock grants, growing depreciation, and legal fees. The Bernstein analysts, however, “learned very little about how all the potential changes to the ecosystem could impact Google’s financials going forward,” according to Shmulik.
Using language, he questioned what should be done with Alphabet’s shares, pointing out that this earnings announcement might be “as good as it gets.”
There are no conventional financial estimates available from Alphabet. “No guidance means no need to be conservative or highlight risks beyond what’s on the paper,” Shmulik stated. “We wouldn’t be surprised to see profit taking in the name here with a nice recovery in the share price off the bottom over the past few weeks.”
He increased his price objective from $165 to $185 while maintaining a market-perform rating for the company.
