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Wedbush says competition affected Alphabet's Google revenue, but rates stock as Outperform

The price target for the company represents a 22.3% premium from the closing price on Thursday in the market

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The revenue shortfall in the quarterly report of Alphabet Inc's Google (NASDAQ:GOOGL) may suggest increasing competition, although the outlook remains positive, a report by analysts Wedbush said on Friday.

"It is possible that increasing competition from Amazon (NASDAQ:AMZN) is impacting Google Properties revenues, as product searches on Amazon and viewership of Twitch have likely cannibalized Google Search and YouTube advertising," the research note to clients by Michael Pachter and Nick McKay said.

Google’s parent company reported revenue of $33.7 billion compared with revenue of US$27.77 billion in the previous year’s third quarter. The revenue fell short of revenue expectations of $34.04 billion.

Shares of Alphabet Inc (GOOGL) slid 4% to US$1,056 in afterhours trading on Thursday after the numbers were released. The stock was dealing up 0.67% at $1,111.39 by midsession on Friday.

READ: Alphabet misses on 3Q revenue despite a boost in Google's online ads business

The Wedbush analysts said they were still positive about Google's prospects going forward.

"We are confident that Alphabet will continue to grow its top line and that it can manage its operating expenses to generate ever-increasing profitability," they said.

Their 12-month price target for the company is $1,350, representing a 22.3% premium over its Thursday close at $1,103.59. 

"We model year-over-year gross profit dollar growth of $11 billion in 2019, with increases in marketing spending and R&D offsetting approximately half of the gross profit growth," the Wedbush analysts said.

They added: "Alphabet should be well-positioned to grow its gross profits at a similar rate for years to come, and once it manages to stabilize its opex growth, investors should be rewarded with outsized earnings growth."

Wedbush Securities is a privately held financial services and investment company. It is based in Los Angeles, California.

Reporting by Rene Pastor, contactable on [email protected]


Quick facts: Alphabet Inc

Price: 1302.64 USD

Market: NASDAQ
Market Cap: $898.99 billion

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