Alphabet Stock Declines on Analysts' Pessimistic Margins Forecast

The stock of Alphabet, the parent company of Google, experienced a decline, dropping as much as 2.5% in early trading on Wednesday before finally settling with a 0.8% loss at market close. The negative movement was triggered by a critical analysis from financial experts at Evercore ISI, who cautioned investors by placing Alphabet on their Underperform List. They voiced concern that the current expectations held by Wall Street for Alphabet's operating margin and income might be overly optimistic, especially with the typical seasonal slowdown and new expenses from the NFL Sunday Ticket deal factored in.

Analyst Skepticism Over Alphabet's Q4 Projections

Analysts are wary of the ambitious financial targets set for Alphabet's upcoming quarter. The tech giant inked a major contract over a year ago, granting YouTube, an Alphabet subsidiary, the exclusive broadcasting rights to the NFL's Sunday Ticket. This seven-year agreement, reportedly worth $2 billion annually, will begin its financial impact with the 2023 football season. Although the deal presents a potential revenue stream, it also brings substantial content acquisition costs that could affect the company's margins.

Last quarter, Alphabet's CFO, Ruth Porat, hinted that the fourth quarter would reflect the first complete period of revenue and expenses tied to the NFL Sunday Ticket, marking a change from the partial impact seen in Q3. However, Alphabet stopped short of providing precise forecasts for revenue, margins, or earnings for Q4.

Uncertain Outcome for Alphabet's Financials in Q4

In absence of clear guidance, the financial world has set its own expectations; analysts anticipate a 12% surge in Alphabet's revenue for Q4, reaching an estimated $85.26 billion, which could yield a significant 51% boost in earnings per share compared to the prior year's figures. Despite these optimistic projections, the actual results remain to be confirmed and will be disclosed when Alphabet publishes its Q4 2023 report on January 30, 2024.

Alphabet, Stock, Analyst