Tougher Comps For Alphabet Could Be Offset By New Google Ad Initiatives

Bank of America Merrill Lynch isn't worried about the early response to Alphabet Inc GOOGL's new ad formats for Google, as long as the overall trend remained solid. The firm believes this would compensate the tougher comparisons that the search engine has to encounter.

Analysts Justin Post and Ryan Goodman comments came on the heels of the company re-highlighting a tougher comparison in the second half of the current year as investors expectations remain higher. They have modeled revenue to grow 25 percent and 21 percent in the third and fourth quarters, respectively, that excluded forex impact. The growth rate would be lower than the 28 percent year-over-year uptick achieved in the second quarter.

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In a note, the brokerage pointed out, "Google is constantly adjusted ad formats, tools, algorithms, etc., but three key ad format changes could potentially help offset the tougher 2H y/y comp. First is expanded Text Ads (FTA), second is the addition of a 4th mobile ad link, and third is a local ads in Google Maps."

While expecting map ads to be launched in the fourth quarter of the current year, Bank of America said the other two ad formats are available readily. The firm pointed out that its ad checks indicated a "stable to slight deceleration in y/y growth in 3Q vs 2Q". However, this is better than the brokerage and the Street estimates.

The analyst thinks the concerns on comparisons should dispel in the upcoming quarters. Therefore, the brokerage maintained its Buy rating with a target price of $960 on shares, implying nearly 20 percent upside potentials.