Alphabet Showed 'Clinical Execution' On Tough Comps

Alphabet Inc GOOG GOOGL reported strong quarterly results, as the company achieved growth and margin expansion. Google “continues to balance LT growth investments (i.e. Cloud), with capital returns (announcing a $7 billion buyback),” SunTrust Robinson Humphrey’s Robert S. Peck said in a report.

Peck maintains a Buy rating on Google, with a price target of $900. He noted that the company exhibited “clinical execution on tough comps.” The company’s growth decelerated to 23 percent, which was less than feared.

Key Takeaways

Peck mentioned that the key points of the third quarter were:

• Revenue growth decelerated ~2pts to 23 percent year-over-year, despite 3pt tougher comps. Google Sites grew 23 percent year-over-year, led by Mobile and YouTube, with paid clicks accelerating to 42 percent [from 37 percent in Q2] and CPC down 13 percent.
• Network growth of 1 percent year-over-year reflected growth in Programmatic and AdMob.
• Other Google revenue accelerated from 33 percent in Q2 to 39 percent in Q3, led by Play and Cloud.
• Google achieved operating margin expansion of ~110bps despite higher TAC and investments. Core Google margins contracted ~95bps year-over-year.
• The company generated $7.5 billion FCF, representing ~33 percent of revenues.
• In October, the board authorized ~$7 billion in share buybacks.

The EPS estimates for 2016 and 2017 have been raised from $34.08 to $34.44 and from $40.28 to $40.94, respectively, and the stock is responding positively. At last check, Alphabet was up roughly 2 percent on the day. GOOG shares were up 2.2 percent at $812.88, while GOOGL shares were up 2.37 percent at $836.75.