A Google Bear's Take on Earnings

| About: Alphabet Inc. (GOOG)

A few thoughts on Google (NASDAQ:GOOG) earnings that were missed by mainstream media:

Google has "blow out" earnings at $4.84 and meets revenue estimates at $5.2 bil. But if somebody thinks that this stock will go back to October Highs - think twice: the company has beat only reduced estimates - just 90 days ago EPS was expected at 4.87.

On our bearish front, signs of further deterioration are all over the recent financial report:

Revenue Growth Q/Q has slowed -50% from 14% to 7%, Y/Y has slowed -33% from 63% to 42%.

EPS growth was 8.7% Q/Q and 30% Y/Y. Yearly growth is still impressive, but nothing out of the ordinary in order to support the bubble valuation. Let's have a look how this level of EPS growth has been achieved. Here is the surprise - welcome to the new reality: gravity still matters even in cyberspace.

Capex has increased to 841.6 mil +24% Q/Q YouTube blades add broadband must be eating hard into the company's margin. Cash Flow from operations has increased only 5% Q/Q.

Our famous metrics of Free Cash Flow multiple is not leaving a lot of roomfor unwarranted happiness: in Q1, FCF was $842 mil.

Now the market will decide what is Google: A new technological frontier changing the universe and "this time is different" - or it is still an advertising company with technology edge in its model?

Its customers and consumers must be living in a virtual world and not facing stagflation: rising prices due to intentionally loose monetary policy and recession in real inflation adjusted output. The most encouraging for this point is Eric's "...Eric reiterated the company has not seen any macro-economic impact." It is still to come...he needs some help to see his dramatically slowing growth and FCF.

If the company will be able to deliver FCF with 5% Q/Q growth for this year and CAPEX will stay at Q1 level FCF will be 4.2 bil. At 30 FCF multiple (our next stop in bearish slide compression) stock should reach Market Cap of 126 bil which will translate into USD397. Any change of heart of devoted shareholders or unfolding another bear leg in general markets and USD350will be seen as blue sky.

The higher the stock goes into this bear market rally the safer a PUT position will be.

Disclsoure: Author is short GOOG

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