Alphabet: Shares Fell After 20% Growth in Q1, Now At 19x P/E

(Preview) Company Update (GOOG US) (Buy)

Summary

• Alphabet shares fell in aftermarket trading despite strong Q1 2022 results, an unjustified move in our view that took P/E down to 19x.

• Alphabet grew revenues and EBIT by more than 20% each in Q1; EPS fell only because of valuation losses on "Other Bets" investments.

• Q1 growth was broad-based, with all but one segment growing revenues by double-digits. There is no danger from TikTok or iOS changes.

• Alphabet's growth is still strong, albeit lower than its COVID-boosted level in 2021; higher costs and CapEx should not stop earnings growth.

• With Class C shares at $2,313, we expect an exit price of $6,429 and a total return of 178% (31.9% annualized) by 2025 year-end. Buy.

Introduction

Alphabet Inc. reported Q1 2022 results after markets closed on Tuesday (April 26). Alphabet's Class C shares fell by more than 10% initially during after-market trading, before finishing down 3%.

We believe the fall was completely unjustified. Alphabet reported a strong quarter where revenues and EBIT each g…