4Q25 Earnings Updates:  Part Two – GOOG, DIS, LLY, SONY

Alphabet (GOOG): GOOG reported strong 4Q25 results beating estimates on most metrics at the corporate and segment level.  Guidance commentary supported continued growth in 2026.  Getting the most attention was guidance for capital spending nearly doubling in 2026 to around $180 billion.  Virtually all of this spending is supporting GOOG’s increasingly apparent leadership in AI, most notably in the 48% growth in Google Cloud reported in 4Q25.  The massive capex increase has further shifted the investment debate from near-term earnings volatility to the long-term return on investment.  For stock valuation, investors will now think about valuation while free cash flow rebuilds following the huge increase in AI-related capital spending — a framework that likely applies to other large stocks including Meta Platforms, Microsoft, and Amazon. Free cash flow is still positive but dramatically reduced, Northlake will shift the stock valuation at GOOG to traditional P-E ratios on GAAP earnings per share. Alphabet appears to be executing very well, maintaining leadership in AI while protecting its core Search franchise. A mid-20s multiple — in line with peers that have less growth potential — appears reasonable given Alphabet’s balance sheet strength, long-term return on invested capital potential, and ability to monetize elevated capex over time. Based on a 2027 consensus GAAP EPS estimate of $13, the shares have modest upside to $325.  Importantly, we see little evidence that competitive or structural risks have materially worsened; rather, the current environment reflects uncertainty around timing and visibility, not the durability of the business.  Significant additional upside in the shares is possible if GOOG continues to report results like 4Q25 that provide clarity on the company’s growth prospects and return on capital.

Disney (DIS): Northlake views the company’s 1Q26 results as inline to modestly positive, led by continued strength in Parks, the company’s most important segment, where higher attendance and ticket pricing drove solid margins despite ongoing weakness in international visitation that could persist. The Entertainment segment also came in as expected, supported by a strong film slate including Zootopia 2 and Avatar, while Sports was somewhat light, largely due to timing issues around rights fees, game schedules, and the YouTube TV blackout rather than underlying demand. Streaming remains a key focus, with Disney making progress by positioning Disney+ as a “super app” that houses all company content, including Hulu and ESPN, and improving operating margins to 8.4% toward a 10% target.  Investors remain frustrated by the decision to stop disclosing subscriber and ARPU data, al thought this is consistent with Netflix’s approach. Second-quarter operating income guidance came in below consensus across all segments, reflecting a mix of one-time factors and softer trends, which pushes even more of the earnings recovery into the back half of the year and likely keeps pressure on the stock in the near term. Lower guidance does reset the bar lower for Q2  and creates an opportunity to rebuild confidence. The announcement of Josh D’Amaro as CEO shortly after earnings was expected and generally well received.  D’Amaro’s main competition for the job, Dana Walden, was promoted and the CFO is staying in place, pointing to a smooth leadership transition, though investors will be watching early public signals closely. With strong free cash flow, an active buyback, and shares trading at roughly 17x earnings, the valuation is attractive relative to history and the market, but the stock is likely to remain rangebound until there is clearer evidence of second-half acceleration and a sharper strategic message from the new CEO; ultimately, DIS remains an execution story with meaningful upside if management delivers.

Sony Corporation (SONY): SONY delivered a better-than-expected December quarter and raised full-year guidance for sales, operating profit, and net income, reinforcing the durable growth of its earnings mix. Gaming revenue declined as console demand stayed soft, but profits rose, reflecting stronger software and network economics. Music was another bright spot, with higher growth and margins leading management to meaningfully raise its full-year outlook. Pictures was weaker year over year due to tough comparisons and timing, while Imaging and Sensing stood out as sensor demand for high-end smartphones improved, prompting an outlook increase. Electronics remained a drag, but that business is becoming less relevant following Sony’s decision to divest its TV operations via a joint venture with TCL. A larger share buyback adds further support for our bullish outlook. Overall, the quarter supports our view that sensors, music, and gaming software and services can drive earnings even when hardware cycles are soft. The stock has pulled back on concerns around AI disruption to gaming and rising memory costs, but we view shares as oversold given management’s strong execution history, improving capital allocation, and leadership positions across video games, music, and semiconductors.

Eli Lilly (LLY): Eli Lilly delivered another strong quarter that reinforces Northlake’s bullish view and highlights how decisively the company has pulled ahead of Novo Nordisk in obesity therapies. Demand for obesity and diabetes treatments continues to exceed supply, but the debate is shifting from whether Lilly can make enough product to how durable and profitable the category can be over time as manufacturing ramps. Access expansion and net pricing are now the key swing factors, with management comfortable trading some price pressure—particularly from the U.S. government—in exchange for broader Medicare access and higher volumes. The upcoming second-quarter launch of orforglipron, Lilly’s oral obesity drug, is an important catalyst, expanding demand to patients unwilling to use injections, supporting long-term maintenance therapy, and opening new dosing options that could further broaden the market. Competitive risks are moving from near-term supply constraints to medium-term pricing and formulary pressure as more GLP-1 and oral options emerge, but Lilly is signaling continued heavy investment to defend its lead, even if that delays margin expansion. With a deep pipeline that could extend the obesity franchise into oral therapies and additional disease areas, Lilly offers the rare prospect of sustained 20–30% growth into the next decade for an already highly profitable large-cap company—leaving the shares expensive, but justifiably so if execution continues.

GOOG, DIS, LLY, and SONY are widely held by clients of Northlake Capital Management, LLC, including in Steve Birenberg’s personal accounts.  Steve is sole proprietor of Northlake, a registered investment advisor.  Northlake’s regulatory filings can be found at www.sec.gov.