Google: APAC Retail Weakness May Flow Through In Q3 FY24 Financials (Archive)

This 5-Minute Pitch was originally published on Seeking Alpha before the launch of the Hunting Alphas website. It is shared here to showcase my previous work and track record. New 5-Minute Pitches published on this site will not be disseminated anywhere else.

Elevator Pitch

• Search advertising revenues make up the bulk of Alphabet's top line. As I had anticipated last year, growth has been strong. This is driven by strength in APAC Retail.
• But now, I see a slowdown in APAC Consumer Sentiment and weaker than expected Retail Sales activity in the US too. I expect this to affect Alphabet's Q3 FY24 financials.
• Consolidation of team structures has led to headcount and office space efficiencies and hence higher operating margins. But I expect FCF margins to be lower due to AI tech spend.
• At a 22.6x 1-yr fwd P/E, valuations don't show a discount to make buys compelling. The technicals vs S&P 500 show a bull trend encountering 4-monthly resistance.
• I recognize upside risks if Other Bets' EBIT margins breakeven, as this may sidestep FCF margin erosion. Also, the stock's upside has so far been driven mostly by earnings growth. Multiple expansion in the stock is an upside risk.

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