Shares of Google parent company Alphabet (GOOG 0.24%) (GOOGL 0.34%) fell as much as 2.5% early Wednesday, then settled to close down 0.8% after a bearish analyst note ahead of the search giant's upcoming fiscal fourth-quarter release.
Are Wall Street's margin estimates for Alphabet "too aggressive?"
In a note to clients this morning, analysts at Evercore ISI included Alphabet stock in its Underperform List, arguing that Wall Street's estimates for operating margin and operating income for its fourth quarter are "too aggressive, given normal seasonal drag factors as well as the full quarter impact of Sunday Ticket expenses."
Indeed, a little over a year ago Alphabet's YouTube subsidiary agreed to a reported $2 billion-per-year, seven-year deal for the exclusive rights to broadcast the NFL's Sunday Ticket on Google's YouTube TV and YouTube PrimeTime services, starting with the 2023 football season.
At the same time, the news isn't exactly novel; during last quarter's earnings conference call in October, Alphabet CFO Ruth Porat specifically noted that Q4 will reflect the first full quarter of NFL Sunday Ticket revenues and content acquisition costs (compared to only a few weeks reflected in the third quarter).
What's next for Alphabet investors?
Alphabet did not provide specific guidance for revenue, margins, or earnings in the fourth quarter. Rather, Porat vaguely insisted the consolidated company will "continue to invest aggressively, given the significant potential we see, while remaining focused on profitable growth."
Meanwhile, most analysts are expecting Alphabet to report a 12% increase in fourth-quarter revenue, to $85.26 billion, which should translate to to a 51% increase in per-share earnings to $1.59 (up from $1.05 in the same year-ago period).
Whether those earnings estimates are indeed too aggressive remains to be seen. But we'll receive clarity to that end when Alphabet releases its Q4 2023 results on Jan. 30, 2024.
