Pacific Crest Previews Alphabet's Q1: We Recommend Buying

Ahead of Alphabet Inc GOOG GOOGL's first-quarter results, Pacific Crest Securities, a unit of KeyBanc Capital Markets, recommends buying of the shares of the company. The recommendation follows its conversations with advertisers, which have served to reinforce its confidence in search advertising and ease concerns around YouTube.

The company is scheduled to release its first quarter results after the market close on April 27.

Q1 Preview

Analysts Andy Greaves, Evan Wingren and Tyler Parker expect the company to report revenues in line with the consensus estimate of $19.8 billion, with net ad revenue growth expected to remain relatively stable at 17 percent.

Helped by continued cost cutting, the analysts expect EBITDA and GAAP EPS of $9.9 billion and $7.74 per share, respectively. This would be ahead of the consensus estimates, which call for EBITDA of $9.8 billion and GAAP earnings per share of $7.40.

Strong Points

Based on its channel checks, Pacific Crest Securities said Google's core business is strong and YouTube is fine.

"Despite the public pullback by some major brands from YouTube, feedback from advertisers remained very positive, and we would not expect the controversy to meaningfully affect results in the quarter or for the year, " the firm said.

Gaining Traction In Cloud

The firm noted rapidly growing interest in Google Cloud Platform among enterprise customers. The firm's checks revealed that Google may have picked up as many new Fortune 2000 customers in the first quarter as it did in the second half of 2016.

The firm sees cost management as an ongoing opportunity for upside and believes Google's core advertising business remains strong and, and cloud, hardware and YouTube/YouTube TV provide sustainable extensions to revenue growth.

"We expect continued strong growth in the core Google business and view GOOGL as very attractively valued at current levels," the firm said of the valuation.

Pacific Crest Securities has an Overweight rating and a $1,040 price target for the shares of the company.

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