Alphabet Shares Plunge Overnight on Revenue Miss, RBC Still Sees ‘Consistent, Robust’ Fundamentals

Alphabet (GOOG) shares are down more than 5% in pre-bell after reporting revenue that missed expectations after the close on Thursday, but RBC analysts are less bearish on the stock as growth continues.

Third-quarter revenue came in at $33.7 billion, up from $27.8 billion during the same quarter last year, but below consensus compiled by Capital IQ for $34 billion. Earnings were reported at $13.06 a share, up from $9.57 last year, and well ahead of forecasts for $10.41 a share.

Revenue and operating income missed expectations, but growth was “very consistent,” RBC analysts Mark Mahaney, Zachary Schwartzman and Shweta Khajuria, said in a note to clients on Friday morning. The analysts said they were surprised no share repos were announced, but that could still happen in the fourth quarter.

The bank reiterated its outperform rating on the stock and left its price target at $1,400 a share.

Despite the revenue beat, fundamentals are “very consistent and robust,” and the company has recorded 35 straight quarter of year-over-year revenue growth of around 23%, the bank said. Operating margin of 25% on a GAAP basis was just below the three-year average, but the cost to acquire traffic is slowly moderating.

“We believe that dry powder should give investors extra confidence amid market turbulence,” the RBC analysts said. “That’s why we call Alphabet an internet staple. And the company’s investments in cloud, internet-connected homes, and autonomous vehicles potentially set the company up for more years of premium growth and profits. There is regulatory risk, though we have yet to find evidence that regulations will adversely impact the usefulness of Google for consumers or advertisers.”