‘Participating in the digital ad recovery’: Here’s what 5 Wall Street analysts had to say about Alphabet’s 3rd-quarter earnings report

  • Alphabet’s 3rd-quarter earnings report easily cruised by analyst estimates as a recovery in digital advertising materialised following a week second quarter.
  • A surge in advertising for Google’s Search and Youtube properties helped propel shares higher by as much as 8% in Friday trades.
  • Here’s what five analysts had to say about Alphabet’s 3rd-quarter earnings report.
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Google parent Alphabet surged as much as 8% on Friday after it reported third quarter earnings that easily beat analyst estimates.

A recovery in online advertising spend was primarily responsible for the beat, with Google’s Search and Youtube properties helping the company return to revenue growth after it reported a revenue decline in the second quarter.

Also helping boost shares was the company’s intention to disclose more information about its Google Cloud division going forward, which is the fastest growing business at the company and is in a head-to-head-to-head competition with Amazon’s AWS and Microsoft’s Azure cloud platforms.

Here’s what five Wall Street analysts had to say about Alphabet’s 3rd-quarter earnings report.

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1. Goldman Sachs

Rating: Buy Price Target: $US2,250

Goldman Sachs was impressed with the strong Alphabet results given the uncertain economic environment, and accordingly raised its price target to $US2,250 from $US1,990.

“The company experienced broad-based improvement in ad spend across all geographies and almost all verticals, with strength across both Search and YouTube. Management highlighted that YouTube’s non-advertising business metrics have benefitted from the current environment,” Goldman said.

“We raise our multiples due to greater revenue visibility in the current environment and lower our perpetuity multiple due to increased macroeconomic uncertainty,” Goldman said.

2. JPMorgan

Rating: Overweight Price Target: $US1,870

JPMorgan increased its Alphabet price target to $US1,870 from $US1,770, and summed up the earnings report as: “Clean quarter w/upside across YouTube, Search, & margins, w/Cloud profit disclosure in 4Q.”

“Upside in Search came from advertiser spend beginning to pick up in August while upside in YouTube ads came from ongoing ‘substantial’ growth in DR, followed by a rebound in brand. We note that YouTube ads growth is back near pre-pandemic levels of 35% in 1Q 20 & 39% in ’19,” JPMorgan highlighted.

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“We believe certain verticals such as travel should still remain challenged & room for further ad recovery exists. We believe GOOGL’s decision to further break out Cloud reflects how different Cloud is from the other businesses, & may suggest it is marginally profitable on a GAAP operating income basis,” JPMorgan said.

“GOOGL’s 3Q results were strong across the board, and we believe there was enough in the print to shift investor attention away from regulatory scrutiny in the near term. Additionally, Google Cloud profit disclosure to be provided at 4Q will shed more lights on the health of different businesses within Alphabet & make SOTP analysis more viable,” JPMorgan concluded.

3. Stifel

Rating: Hold Price Target: $US1,700

Stifel kept its Hold rating the same, but increased its price target to $US1,700 from $US1,600.

“A rebound in the global economy, and particularly in the digital ad market, has led to a faster-than-expected upward revision in the company’s growth rate. The company saw improvement in ad spend across all geographies and most verticals in the quarter. Notably, the company said advertising spend picked up in August,” Stifel said.

“The company touted the growth of Google Cloud, with GCP well above segment growth, being driven by digital shifts, customers seeking efficiencies, and more online collaboration. Management also indicated additional Google Cloud disclosure in 4Q. Alphabet will break out Google Cloud as a separate reporting segment to share information about the scale of investments and for investors to better gauge progress,” Stifel said.

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4. RBC

Rating: Outperform Price Target: $US1,900

RBC reiterated its Outperform rating on Alphabet and raised its price target to $US1,900 from $US1,700.

“GOOGL delivered a Solid Q3 Beat — Total Revenue, Advertising,Operating Profit all came in well above RBC/Street [estimates], with Fundamentals improving significantly. Search showing faster-than-expected recovery with YouTube, Cloud and Other (Play, YT Subs) posting accelerating revenue growth,” RBC said.

“Revenue growth made a near-V-shaped recovery, while Op Margins reached 2yr highs,” RBC highlighted.

“COVID has accelerated the obvious…Everything is going Digital. And we think AMZN, FB & GOOGL Q3 EPS results support that. YouTube’s Ad Rev growth made a full recovery to pre-COVID levels, Google was the only Big 3 Cloud player to show accelerating rev growth and Play & YouTube Subscriptions have emerged as Structural Winners,” RBC said.

“Ongoing large share [repurchases] should set GOOGL up for sustainable mid-to-high teens EPS growth. We still harbour concerns about GOOGL’s potentially slimming opportunity in Online Retail advertising, given AMZN & Social Commerce traction, and regulatory risk is real, in our view, but GOOGL’s fundamentals are inflecting up and this reality is what should drive shares,” RBC concluded.

5. Bank of America

Rating: Buy Price Target: $US2,000

Bank of America was impressed with Alphabet’s results, and accordingly raised its price target to $US2,000 from $US1,850.

“Expect Search recovery with the economy,” BofA said.

“We are encouraged by a faster than expected search recovery with 3 more quarters to play out, while Cloud and YouTube are back on track. We remain constructive on the growing value of adjacent businesses (Waymo, Cloud, YouTube), and think Cloud disclosure will elevate the importance of sum-of-parts valuations. We are raising our PO to $US2,000 from $US1,850 based on higher estimates in our SOTP valuation,” BofA said.

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