Squishy Q4 Earnings Weigh on Alphabet, Send Shares Tumbling
Alphabet (GOOGL) has been relegated to the penalty box after a disappointing fourth-quarter report. Shares plummeted 8% in pre-market trading on Wednesday following a revenue miss.
The culprit? Subpar cloud services sales (mirroring recent results from rival Microsoft (MSFT)) and a slowdown in business growth compared to the previous quarter.
CFO Anat Ashkenazi attributed the earnings shortfall to "capacity constraints" in the cloud, emphasizing continued strong demand. However, investors are skeptical, opting to sell off the stock and expressing concerns about $75 billion in capital expenditure plans for 2025 – significantly higher than pre-earnings estimates of around $60 billion.
Overshadowing these concerns is growth in Alphabet's lucrative search business, which rose 13% in the quarter. YouTube ad sales also impressed, soaring 13.8%.
Analyst Commentary:
* DA DavidsonAnalyst Gil Luria:
* Retains Neutral rating and $200 price target
* Acknowledges benefits from AI integration across Alphabet's products but notes decelerating Google Cloud growth and capacity constraints
* Pivotal Research Group Analyst Jeffrey Wlodarczak:
* Maintains Buy rating and $225 price target
* Highlights mixed results with strong search and YouTube revenue but concerns over cloud revenue deceleration and higher capex
* JP Morgan Analyst Doug Anmuth:
* Reiterates Overweight rating but lowers price target to $220 from $232
* Expresses concerns over 2025 capex, cloud revenue trajectory, and margin expansion potential
* RBC Analyst Brad Erickson:
* Maintains Outperform rating and $235 price target
* Views the earnings reset as an opportunity, citing AI advancements and eased capacity constraints in the future