Google parent Alphabet has about $73 billion in cash just sitting around, and one firm’s analysts think the company should be doing more to enhance its position in the cloud. Alphabet has made it clear that Google Cloud is important and that it intends to spend billions to build it out further in hopes of gaining ground against competitors, but it did not say exactly when it plans on doing this. The company has earned a price target cut from one firm less than a month after another firm raised its price target.

Alphabet price target trimmed

In a report dated April 18, Credit Suisse analyst Stephen Ju and his team said they trimmed their price target for Alphabet from $930 to $920 per share after adjusting their growth rates for the core search business, YouTube and Play. They upped their growth rate estimates for search and YouTube but moderated them for Google Play. They also estimate higher capital expenditures for the cloud build-out which is the main reason for the lower price target. Their price target comes about a week after another firm upgraded the Google parent company.

Ju and team note that the monetization gap between mobile devices and desktop will likely keep narrowing and that eventually mobile cost per click should be higher because of improved context. They said the better context should come through a combination of benefits from Enhanced Campaigns and other products like app install ads and higher ad loads on mobile and desktop SERP. They also expect Google’s other non-search businesses like YouTube, Play and eventually cloud will make greater and greater contributions as time goes on and see “optionality and upward bias to estimates and shareholder value creation from Alphabet’s other bets.”

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Alphabet to start spending on cloud, but when?

While Alphabet management never said how much or when they will start spending more on the cloud, the Credit Suisse team assumes that most of the spending will come early in the process as Google spends more on bigger data centers, presumably this year and next. They’re assuming an incremental $3 billion in capital expenditures “over the next few years” without adding any incremental revenue from Google Cloud, which result in a drag on their discounted cash flow.

Ju and team said the higher capital expenditures trims their price target by $4 per share. They believe that last year, Google’s cloud-based revenue was less than $500 million, which means that their new estimate for capital expenditures bakes in an implicit startup “overbuilding scenario.”