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Alphabet (GOOG: $1,486) surged $52 yesterday and then gave it all away after reporting its 4Q19 earnings. We're far from disappointed at losing a day's rally . . . The stock will come back. 


After all, Alphabet gave us everything we materially needed to see: Revenue growth within sight of 20% ($46 billion translates to a 17% higher top line when we had anticipated $47 billion and 19%) and a BIG beat on profit ($15.35 is much better than the $12.55 we wanted). Revenue was just 2% low. Profit was 22% high. Does that look like a net disappointment to you?


In our view, Alphabet committed the crime of conserving too much cash. Its Artificial Intelligence initiative hasn't paid off big yet, but it isn't costing as much as we projected. And to compensate for the slight revenue miss, management has started breaking out the numbers for YouTube and Google Cloud separately from core Search. That's refreshing and illuminating. YouTube is a $15 billion business expanding a robust 36% a year. The Cloud is small compared to what Microsoft and Amazon provide, but its growth rate is trending well above 50%. These are thrilling businesses and would be crown jewels for any other company.


Admittedly, guidance remains skimpy. That's standard operating procedure for Alphabet and it's the final factor taking the pressure off last night's results. Management didn't tell us what to expect, which means investors can build up their own expectations here. If they're disappointed, it's on them. We see zero reason to get hung up on a 2% revenue miss, especially when it turns into so much unanticipated profit. This will be a $1 trillion company again in a heartbeat.


Now we have a break in the earnings calendar until Wednesday morning.




Earnings Preview: The Carlyle Group (CG: $32, down 1%)

Earnings Date: Wednesday, 8:00 AM ET 

Expectations: 4Q19
Revenue: $532 million
Net Profit: $157 million
EPS: $0.43


Year Ago Quarter Results
Revenue: $545 million

Net Loss: $18 million
EPS: -$0.17


Implied Revenue Decline: 2%
Implied EPS Growth: swing back to (big) profit


Target: $34
Sell Price: $29
Date Added: March 6, 2017
BMR Performance: 107%


Key Things To Watch For in the Quarter


This time last year The Carlyle Group had to report a rare loss but we hung on for better days ahead. The decision was easy. In the world of Private Equity, good and bad quarters alternate according to market conditions and management's strategic agenda, but sooner or later a strong season always picks up where a weak one leaves off. That's where we are here now. The last few years have been a drag on revenue because deal flow hasn't been where it usually is . . . Carlyle managers haven't had much motivation to sell their holdings at anything but a truly compelling price.


We suspect those unbeatable exits are coming. And the swing to profit will refresh the pool of cash available to distribute to shareholders as dividends, which is the real reason we love this stock. Even after doubling last year, Carlyle still pays a 4.2% yield. Earning more than $0.35 per quarter opens the window to dividend hikes ahead. We won't argue with that.




Earnings Preview: Spotify (SPOT: $147, up 4%)

Earnings Date: Wednesday, 8:00 a.m. ET

Expectations: 4Q19
Revenue: $1.9 billion

Net Loss: $40 million
EPS: -$0.25


Year Ago Quarter Results
Revenue: $1.5 billion

Net Profit: $442 million
EPS: $2.32


Implied Revenue Growth: 26%
Implied EPS Decline: swing back to loss


Target: $160
Sell Price: $125
Date Added: April 12, 2018
BMR Performance: -2%


Key Things To Watch For in the Quarter


Spotify has been one of our slower Technology recommendations, spending a lot of time in the shadow of other Streaming Music services. Reading between the lines, we remain thrilled at the potential that evolving beyond Music will unlock. This company should be a one-stop platform for all forms of audio entertainment, information and talk. In short, it should replace terrestrial radio, complete with a robust advertising model. But of course where old-time radio was a fragmented industry divided by locality and genre, Spotify can run all the channels and all the shows from a single source. That's power.


Our expectations aren't high this quarter. We would like an update on the audience size (the bar is set at 255 million, with at least 120 million on paid subscription accounts) and hints about progress on Talk Radio and Advertising. That's it. Otherwise, we know the company has swung back to an operating loss in order to keep expanding the audience. That's the business model and that's the goal here. It costs money to bring in listeners. But listeners who stick around will generate cash, straight to the bottom line.