Technology giant Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) reported fourth-quarter numbers after the bell on Monday, Feb. 4. Although the company topped both revenue and profit estimates, Google stock dropped in response due to concerns regarding swelling costs.

Specifically, operating margins dropped to 21%. That’s the lowest operating margins have been on an adjusted and normalized basis in a long, long time.

As such, investors were spooked, and the stock dropped despite the double beat quarter. But, the drop wasn’t very significant. As of this writing, GOOG is off less than a percent on the day.

This relatively muted move in Google makes sense. Alphabet’s fourth-quarter-earnings report was some good and some bad.

On the good side, the near and long term revenue drivers remain very healthy. On the bad side, margins are falling almost everywhere, and profit growth is weak. The present valuation in Google accounts for big revenue growth and falling margins, and as such, this report should neither kill nor boost the stock.

Long term, though, the bull thesis looks compelling. It’s only a matter of time before Alphabet gets a handle on its cost structure and margin headwinds pass. When they do, margins will start to rebound.

As that happens, Alphabet will go from a sub-10% profit growth company, to a 10-20% profit growth company. That transition will ultimately push Google stock higher.

The Q4 earnings report simply signaled that this transition isn’t here yet. But, it also contained signs that such a transition could happen in 2019. As such, Google will likely remain range bound for the foreseeable future, but could break-out in later 2019 when margin headwinds reverse course.

The Good: Revenues Keep Rising

The good about Alphabet’s fourth quarter earnings report is that the company’s revenue drivers remain broadly healthy.

Total revenue growth in Q4 was 23%. That’s up slightly from last quarter (22%), down slightly from the year ago quarter (24%), and largely in-line with the growth rate over the past several years (20% to 25%).

In other words, despite increasing scale and tougher comps, Alphabet remains a 20%-plus growth company.

Resiliency in the company’s 20%-plus revenue growth rate can be traced to two things.

First, the digital ad business continues to benefit from a secular rise in digital engagement. As engagement becomes increasingly digitally-focused, more and more ad dollars flow into the digital channel.

As that has happened over the past several years, Alphabet’s digital ad revenues have consistently grow by 20% or more.

That growth rate slipped slightly under 20% in Q4, and the ad revenue business is slowing somewhat. But, not by all that much, and that’s impressive considering just how big this business is (over $130 billion in revenue on an annualized basis).

Clearly, advertisers continue to see the value in pumping money into the Google ecosystem, which is at the epicenter of everything consumers do on the internet.

Second, the company’s other growth businesses (namely, cloud and hardware) continue to grow at a healthy rate. There was some concern last quarter that Alphabet’s Other business segment slowed from 30%-plus growth in the first half of 2018, to sub-30% growth in the third quarter.

But, that was just a blip on the radar. Alphabet’s cloud and hardware businesses finished 2018 with tremendous momentum, and Other revenue growth re-accelerated above 30% in Q4.

Overall, the revenue growth drivers underlying Google stock remain healthy, and project to remain healthy for the foreseeable future.

The Bad: Margins Keep Falling

The bad about Alphabet’s fourth quarter earnings report is that margins continue to drop, and that’s diluting profit growth.

For the past several years, Alphabet has struggled with margin headwinds. Namely, traffic acquisition costs have been rapidly rising in the digital ad business due to a shift to mobile engagement.

Also, content acquisition costs for YouTube are going up, as are data center operating costs. It’s also worth noting that hardware businesses tend to have lower margins than software businesses, so continued strength in Alphabet’s hardware business is presumably a negative for the margin profile.

All these headwinds have converged to create persistent margin headaches for Alphabet. Those headaches continued in Q4. Operating margins dropped three points year-over-year to 21%.

That three-point year-over-year drop is fairly consistent with what has been reported over the past several quarters. But, the laps are getting easier. The net result is that operating margins in Q4 were the lowest they’ve been in a long, long time.

This margin compression is diluting profit growth. Revenues rose 23% in Q4. Operating profits rose just 7%. This has become the new norm for Google. A 20%-plus revenue growth rate has consistently trickled into a sub-10% profit growth rate.

Overall, the margin headwinds which have plagued GOOG over the past several quarters, stuck around in the fourth quarter, and significantly diluted profit growth.

The Bottom Line on Google Stock

Alphabet’s Q4 report underscored that this company remains a 20%-plus revenue growth, sub-10% profit growth company. That combination has led to range-bound trading in Google over the past year.

Thus, so long as Alphabet remains a 20%-plus revenue growth, sub-10% profit growth company, GOOG will remain stuck between $1,000 and $1,200.

Long term, it’s only a matter of time before margins rebound, Alphabet turns into a 10-20% profit growth company, and the stock breaks out. The drivers behind Alphabet’s margin headaches (the shift to mobile ads and expanding data center presence) will inevitably pass, and they could pass in 2019.

The shift to mobile is already mostly over, as the TAC rate in the quarter actually dropped slightly year-over-year. Meanwhile, capex growth is expected to slow meaningfully in 2019, and that will likely correlate with a drop in data center opex growth next year.

If TAC and data center opex growth both moderate in 2019, then margins will improve. If margins improve, Alphabet’s sub-10% profit growth rate will move towards 15%. As it does, Google stock will bounce higher.

Thus, it’s only a matter of time before Google stock roars to new highs. It won’t happen now because margins continue to fall. But, those margins could reverse course soon, and when they do, Google will take flight.

As of this writing, Luke Lango was long GOOG.