Alphabet (GOOGL) may be volatile in the near-term - Mizuho

November 30, 2022 12:03 PM EST
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Price: $99.37 +1.90%

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Mizuho analyst James Lee cut his price target on Google parent company Alphabet (NASDAQ: GOOGL) to $135 from $140, telling investors in a note Wednesday that the company's FY23 OPI appears aggressive without a material cost reduction plan.

"We recently received questions regarding Alphabet's FY23 cost structure based on the company's plan of moderated headcount growth. Based on our P&L assessment, we estimate Street's FY23E OPI could be nearly 10% too high," said Lee.

The analyst added that with increased investments and cloud and AI, the firm model a modest FY23 headcount growth of 5%, but the average headcount is estimated to grow by 12% YoY.

"Although the company states that 4Q22 headcount adds would be 50% lower than 3Q22, we anticipate the employee base would still grow modestly in FY23. Based on our discussions with investors, consensus on the buy side appears to be expecting headcount to remain flat post-4Q22. Our expectations are based on Alphabet's intention to increase investments in AI and Cloud," Lee continued.

"We anticipate dilution from Shorts monetization in FY23. Therefore, we expect total expense growth to outpace revenue growth by 150 bps at 10% YoY and OPM to be 25% vs. 27% for consensus. Although positive longer-term, we expect GOOGL may be volatile near-term from downward revision risks unless the company initiates a meaningful cost-reduction plan."

By Sam Boughedda

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