20250428-招银国际-Earnings_beat_on_efficiency_gains__maintain_AI_investment_plan_to_drive_long-term_growth_5页_1mb

Alphabet (GOOG US) Summary

Core Content

Alphabet (GOOG US) reported its first-quarter 2025 (1Q25) earnings, highlighting a strong performance with total revenues growing by 12% YoY to US$90.2bn, in line with the Bloomberg consensus estimate. Operating income increased by 20% YoY to US$30.6bn, 6% ahead of the consensus estimate, driven by effective control of selling and marketing expenses, which declined by 4% YoY.

Despite the earnings beat, management expects that increased capital expenditures (capex) will continue to impact earnings growth in FY25. Depreciation growth is expected to accelerate throughout FY25, with capex guidance for FY25E remaining at US$75bn. The company is also planning for headcount growth in key investment areas to support long-term sustainable growth.

The report maintains the FY25–27E total revenue forecast largely unchanged, but has lowered the target price to US$218.0 from US$234.0, based on a 22x FY25E P/E multiple, reflecting a decline in sector valuations.

Main Points

• Earnings Beat: 1Q25 earnings beat expectations, with operating income up 20% YoY.
• Cost Control: Selling and marketing expenses decreased by 4% YoY, contributing to the earnings beat.
• Capex and Depreciation: Capex increased by 43% YoY to US$17.2bn, which will drive depreciation growth and affect margins in FY25.
• Share Buybacks and Dividends: In 1Q25, the company returned US$17.5bn to shareholders through share buybacks and dividends, and approved a new US$70bn share repurchase program.
• AI Impact: AI Overviews now has over 1.5bn monthly users, and AI tools like Demand Gen are driving ad demand with a 26% YoY increase in conversion per dollar spent.
• Google Cloud Growth: Google Cloud revenue grew by 28% YoY to US$12.3bn, with operating profit margin (OPM) expanding to 17.8% in 1Q25.
• Gemini 2.5 Pro: Released in March, Gemini 2.5 Pro is now SOTA (state-of-the-art) across multiple benchmarks.
• Market Position: Alphabet remains a leader in the global advertising market, and the report maintains a BUY rating.

Key Financial Highlights

Business Forecasts

• Revenue Growth: Expected to grow at a 11.6% CAGR from FY25 to FY27.
• Gross Margin: Projected to increase slightly from 58.6% in FY25 to 58.8% in FY27.
• Operating Margin: Projected to rise from 33.2% in FY25 to 34.1% in FY27.
• Net Margin: Projected to increase from 30.8% in FY25 to 29.8% in FY27.
• EPS Growth: Expected to grow from 9.9 in FY25 to 11.7 in FY27.

Valuation and Target Price

• Target Price: US$218.0 based on a 22x FY25E P/E.
• Valuation per Share: US$218.0.
• Target Equity Valuation: US$2.643bn.
• Net Income (FY25E): US$120.158bn.
• Valuation Multiple: A premium to the sector average (20x), reflecting Alphabet's market leadership and AI potential.

Shareholding and Performance

• Shareholding Structure:

  • Sergey Brin: 6.0%
  • Larry Page: 5.7%

• Share Performance:

  • 1-month: -5.2%
  • 3-month: -18.8%
  • 6-month: -1.9%

• Market Cap: US$1.983bn.

• Average 3-month Trading Volume: US$2.856bn.

• 52-week High/Low: US$207.71 / US$146.58.

• Total Issued Shares: 12108.0mn.

Analyst Certification and Ratings

• Analyst Certification: The analyst certifies that all views reflect personal opinions and that compensation is not directly tied to the report.
• CMBIGM Ratings:
  • BUY: Stock with potential return of over 15% over next 12 months.
  • OUTPERFORM: Industry expected to outperform the relevant broad market benchmark.
  • MARKET-PERFORM: Industry expected to perform in-line with the benchmark.
  • NOT RATED: Stock not rated by CMBIGM.

Disclosures and Legal Notes

• Risks: There are risks involved in transacting in any securities. The value of investments is uncertain and may fluctuate.
• Disclaimer: CMBIGM does not provide individually tailored investment advice. The report is not an offer or solicitation to buy/sell any security.
• Liability: CMBIGM is not liable for any loss, damage, or expense incurred in relying on the information.
• Distribution: The report is distributed to major US institutional investors and may not be provided to others without consent.
• Singapore Distribution: The report is distributed by CMBISG, an exempt financial adviser, and may not be provided to non-accredited investors without legal responsibility.

Conclusion

Alphabet's Q1 25 results reflect strong performance and continued investment in AI and cloud technologies. The company is maintaining its capex plan and long-term growth strategy, with a BUY rating and a target price of US$218.0. Despite the earnings beat, the report highlights potential challenges, including lapping effects and regional ad budget declines, and adjusts the target price based on sector valuation trends. The company remains a leader in the advertising market and has a solid financial position with consistent revenue and margin growth expectations.