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High expectations for Google parent Alphabet Q4

Google's headquarters in Mountain View, Calif. (Justin Sullivan, Getty Images)

Google’s headquarters in Mountain View, Calif. (Justin Sullivan, Getty Images)

SAN FRANCISCO – Wall Street is eagerly anticipating Alphabet’s fourth-quarter results, the first time the main Google business will report separately from the rest of its businesses.

In October, Google restructured itself into the Alphabet holding company to separate its core online businesses such as search, YouTube and Android from more speculative businesses such as smart home device maker Nest. The Internet giant will begin reporting results for Google separately from the “other bets” in January.

The reorganization should give investors a clearer picture of how much Alphabet is spending on some of its newer  ventures such as its effort to build self-driving cars or develop a glucose-sensing contact lens. The change also comes amid a new push from Chief Financial Officer Ruth Porat to control costs and increase transparency with shareholders.

RBC Capital Markets analyst Mark Mahaney says Alphabet’s segmented reporting in the fourth quarter is the “most identifiable near-term catalyst in Internet land.”

First, he predicts the results will show that Google is “more growthy and more profitable than realized” with “hyper-growth” segments such as YouTube and Google Play.

Second, “more opportunities than realized” abound among the businesses under the Alphabet umbrella such as Nest and Google Fiber, both of which he says have business models already in place to generate $1 billion plus revenue streams, Mahaney says.

Third, he estimates that the “other bets” segment is on track to generate operating losses of $3 billion to $6 billion in 2015, “very high levels” that are consistent with Google’s” golden rule of spending 70% of time on the core business, 20% on related projects and 10% on new businesses. But, he says, “these very high levels suggest significant opportunity for more efficient cost/investment management by Google’s new CFO.”

Bottom line: Alphabet’s share price potential after fourth-quarter results is $1,000, Mahaney says. He has set a price target of $880 and a rating of “outperform.”

Shares rose 2% to $759.86. Google is up over 40% compared to a 24% gain for the Nasdaq so far in 2015.

Alphabet is not the only major Internet company exceeding Wall Street’s expectations. FANG, Facebook, Amazon, Netflix and Google parent Alphabet, are all up year to date and analysts expect them to outperform next year as well.

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