GOOGL - Google: APAC Retail Weakness May Flow Through In Q3 FY24 Financials

2024-06-21 08:32:25 ET

Summary

• Search advertising revenues makes up the bulk of Alphabet's top-line. As I had anticipated last year, growth has been strong. This is driven by strength in APAC Retail.
• But now, I see a slowdown in APAC Consumer Sentiment and weaker than expected Retail Sales activity in the US too. I expect this to affect Alphabet's Q3FY24 financials.
• Consolidation of team structures have led to headcount and office space efficiencies and hence higher operating margins. But I expect FCF margins to be lower due to AI tech spends.
• At a 22.6x 1-yr fwd PE, valuations don't show a discount to make buys compelling. The technicals vs S&P500 show a bull trend encountering 4-monthly resistance.
• I recognize upside risks if Other Bets' EBIT margins breakeven as this may sidestep FCF margin erosion. Also, the stock's upside has so far been driven mostly by earnings growth. Multiple expansion in the stock is an upside risk.

Performance Assessment

I had a 'Neutral/Hold' stance on Google ( GOOG ) ( GOOGL ) in my last article . Since that update, Google has generated an active return over the S&P500 ( SPY ) ( SPX ) of +8.55%:

For further details see: