Mizuho analyst James Lee maintained Alphabet Inc (NASDAQ: GOOG) with a Buy and lowered the price target from $140 to $135.
He recently received questions regarding Alphabet’s FY23 cost structure based on the company’s plan of moderated headcount growth.
Based on his P&L assessment, he estimates Street’s FY23E operating income could be nearly 10% too high.
With increased investments and cloud and AI, he models a modest FY23 headcount growth of 5%, but the average headcount is estimated to grow 12% YoY.
Furthermore, he anticipates dilution from Shorts monetization in FY23.
Therefore, the analyst expects total expense growth to outpace revenue growth by 150 bps at 10% YoY and the operating margin to be 25% vs. 27% for consensus.
Although positive longer term, GOOG may be volatile near-term from downward revision risks unless the company initiates a meaningful cost-reduction plan.
Price Action: GOOGL shares traded higher by 3.28% at $98.59 on the last check Wednesday.
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