Alphabet’s bounce-back quarter has shares, price targets on the rise

Alphabet’s bounce-back quarter has shares, price targets on the rise

Google parent’s earnings showed ‘stronger signs of life than anticipated,’ says one analyst

A significant bounce in Alphabet Inc.’s Google-related revenue has returned a bounce to the steps of analysts following the company.

“Nice rebound from Q1,” Jefferies’ Brent Thill said of Alphabet’s 28% jump in year-over-year overall revenue to $38.94 billion in the second quarter. Google-related revenue paved the way, easing the concerns of Thill and others who were alarmed by a nearly $1 billion shortfall in sales during the previous quarter.

Thill, who rates Alphabet shares a buy with a price target of $1,500, was one of at least 21 analysts to hike his price target on the stock, according to FactSet. His prior target was $1,450.

Shares of Alphabet GOOGL, +9.62% GOOG, +10.45% are soaring 10% to $1,248.01 in trading Friday — which would be its largest single-day percentage jump since July 17, 2015, when it rose 16.26%.

The report contained “stronger signs of life than anticipated,” in the view of Pivotal Research Group analyst Michael Levine.

Among the standout data points for him was Alphabet’s performance in Europe, the Middle East, and Africa, where revenue climbed 15%, or 21% in constant currency. The company “does not seem to have experienced the downtick Facebook did from GDPR in Europe,” he wrote. “So, it is impressive that they are showing acceleration against a deteriorating economic backdrop.”

Levine, who rates the stock at hold, also cheered Alphabet’s disclosure that its Google Cloud Platform was sporting a $8 billion run rate, up from a $4 billion rate in the fourth quarter of 2017, which was the last time Alphabet provided a figure. “We are bullish that under Tom Kurian’s leadership, the company will become a more relevant player in the space, so it is bullish that they are more significant in scale than most expected this early in his tenure,” he wrote, while upping his price target to $1,350 from $1,250.

In raising his price target to $1,500 from $1,400, Cowen and Co.’s John Blackledge cited the impact of machine learning in helping advertisers optimize speed. He also credited growth in mobile search, YouTube, desktop search, and cloud.

“Cloud Killin’ It,” wrote Mark Mahaney or RBC Capital Markets, who had estimated a $7 billion run rate. He raised his price target to $1,425 from $1,300.

Alphabet’s management was less forthcoming with its YouTube disclosures than it was with its cloud numbers. But William Blair’s Ralph Schackart still found a few nuggets of insight in the company’s commentary, including the fact that the number of YouTube channels with more than 1 million subscribers is up 75% from a year ago.

“As YouTube comprises a larger mix of Google’s advertising revenue, its traffic acquisition costs (TAC) as a percentage of revenue is lower since these costs fall into the company’s ‘other cost of revenue’ expense line,” he wrote. “Management reiterated that brand advertising remains the largest part of YouTube, but direct response is growing faster.”

Schackart has an outperform rating on the stock.

MoffettNathanson analyst Michael Nathanson likened Alphabet to “a championship boxer that had been momentarily and unexpectedly knocked to the canvas” but that “delivered a series of well-timed punches that returned them to previous winning form.” He praised management’s forthcoming commentary on the conference call, which he said would likely help improve sentiment toward the shares going forward.

“Judging from the company’s actions and words, there is clear intention to support their stock during moments of doubt,” wrote Nathanson, who rates the stock a buy and increased his target price to $1,400 from $1,250. “We read this as proof that, indeed, Alphabet cares very much about its share price.”

Conspicuously absent from analysts’ notes was a hint of talk about regulatory scrutiny despite the likelihood Google is being investigated by the Department of Justice on antitrust grounds. On Wednesday, Facebook Inc. FB, -0.48% publicly disclosed it is under investigation during its quarterly financial results announcement. Amazon.com Inc. AMZN, -1.56% and Apple Inc. AAPL, +0.35% are also presumed to be targets of federal regulators. (One analyst, Alan Gould of Loop Capital Markets, acknowledged “antitrust risk” will “likely escalate into 2020” among bears.

Google did not mention a pending investigation in its earnings release, and company CEO Sundar Pichai briefly touched on the topic in a conference call with analysts Thursday.

Alphabet shares have gained 20% in 2019 largely because of Friday’s rally, while the S&P 500 SPX, +0.74% has gained 20% and the Dow Jones Industrial Average DJIA, +0.19% have gained 16%.

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