By Sam Boughedda
Ahead of Alphabet's (NASDAQ:GOOGL) earnings release on Thursday, February 2, BofA analysts raised the firm's price target on the stock to $119 from $116, maintaining a Buy rating.
They told investors in a research note that the firm is updating estimates for FX and the tech giant's recent cost-cutting.
"We are at revenue/GAAP EPS of $63.6bn/$1.20 vs Street $64.5bn/$1.21," wrote the analysts. "Our recent ad checks with search large advertisers are mixed, with travel strength offset by eCommerce and finance pressure, and expect search at flat to down 1% in 4Q (in-line with buyside expectations)."
In addition, they said the firm expects YouTube ad revenue growth to "decelerate 3pts q/q to -5%, relatively in-line with Street." For Cloud, they see revenue growth decelerating 4pt q/q in the fourth quarter to +34% year-over-year to $7.4bn, slightly above Street consensus expectations, and with quarter-over-quarter margins improving to -8.8%.
On estimates and FX, they revealed that for 2023, it is "increasing revenue by 1% to $254.2bn (to 8% y/y growth), EBITDA by 4% to $121bn and GAAP EPS by 3% to $5.40 vs Street at $5.23."
However, they assume an FX benefit will offset some incremental core revenue pressure and expect layoffs to start aiding core Google margins in the second quarter, with year-over-year margins turning positive in the second half of 2023.
"We see Alphabet as a more defensive stock in group in 2023 (and less of a 'risk-on' stock after outperforming sector in 2022) with more relative earnings stability given utility of search, expense flexibility, healthy margins that will minimize cash flow concerns, and opportunity to support stock with buybacks," the analysts concluded.