Alphabet: Amid Weak Macro, Resilient Q1 & Growing Self-Help

Company Update (GOOG US) (Buy)

Highlights

• Q1 Google Advertising revenues were flat in dollars year-on-year

• Google Cloud revenue grew just 2% from Q4 as demand slowed

• Self-help actions on costs will generate an increasing benefit

• P/E is 21x'; should re-rate to 30x when ~15% EPS growth resumes

• We believe shares can return 83% (25.3% p.a.) by 2025. Buy

Introduction

We review our Alphabet investment case after Q1 2023 results were released after market close on Tuesday (April 25). Alphabet (Class C) shares rose 1.6% in after-market trading, having previously fallen 2.0% during the day.

Alphabet’s share price remains 12% lower than a year ago, despite a 17% rebound in 2023 year-to-date:

Alphabet Share Price (Last 1 Year)

Source: Google Finance (25-Apr-23).

We started publishing our research on Alphabet publicly with a Buy rating in January 2021. Since our publication, Alphabet shares have gained 14%, about 6 ppt ahead of the S&P 500, though down 27% since the start of 2022.

Q1 2023 results were resilient despite weak macro. Search …