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GOOGL – Although management’s sentiment suggests the potential for near-term headwinds, market expectations are far too bearish, suggesting longer-term upside remains warranted

February 18, 2019

  • Alphabet, Inc (GOOGL:USA) currently trades below corporate averages relative to UAFRS-based (Uniform) Earnings, with a 17.8x Uniform P/E, implying fairly bearish expectations for the firm. While management may have concerns about AI, YouTube, and balancing capex and investments suggesting the potential for near-term headwinds, the firm’s leadership position in its space, and lack of management concern about competitive pressures suggest longer-term upside remains warranted
  • Specifically, management may be exaggerating their strengths in data management and analytics, and may be concerned about their ability to provide accurate and trusted information. Furthermore, they may be exaggerating improvements in YouTube, and may lack confidence in their ability to sustain engagement and revenue growth for YouTube TV and the Google Home Hub. Finally, they may lack confidence in their ability to balance growth and increases in capex, to sustain margins, and to handle headcount increases
  • That said, even with near-term headwinds suggested by management’s pessimism, long-term outperformance remains warranted at current valuations if GOOGL can just maintain profitability at current levels

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