Analysts Bullish On Google Following Mixed Quarter, With Ads Trending In The Right Direction

Alphabet Inc GOOG GOOGL shares were down 4.8% on Friday after the company reported its first quarter of negative revenue growth in history on Thursday.

Alphabet reported second-quarter adjusted EPS of $10.13 on revenue of $38.30 billion. Both numbers beat consensus analyst estimates of $8.21 and $37.37 billion, respectively. Revenue was down 2% from a year ago.

YouTube advertiser revenue of $3.81 billion also come in above analyst estimates, but Google Cloud revenue and traffic acquisition costs narrowly missed expectations.

Ad Business Recovery: Morgan Stanley analyst Brian Nowak said Google’s ad business is recovering more slowly than Facebook, Inc. FB, but it’s trending in the right direction.

“Ad trends across Search/YouTube/Network gradually improved over the quarter,as user search activity returned and ad dollars followed, consistent with the surging e-commerce and direct response ad spending seen at FB/SNAP/TWTR,” Nowak wrote.

Raymond James analyst Aaron Kessler said a rising Google Cloud backlog and more transactions with large cloud clients was a positive.

“Google Cloud revenues of $3.0B with growth of 43% y/y (vs. +52% y/y in 1Q20), with continued strong growth from GCP and GSuite (including Google Meet which benefits from work-from-home),” Kessler wrote.

Credit Suisse analyst Stephen Ju said the quarter was good enough to warrant raising his full-year estimates for Search, Network and Google Other revenue.

“As we have previously noted, Google is looking to accelerate the onboarding of SMBs and other businesses through a combination of offers which include exposure via Google My Business, free listings on Google Shopping, and zero commissions for Buy on Google,” Ju wrote.

Long-Term Advantages: UBS analyst Eric Sheridan said investors should look beyond near-term headwinds at the potential for Search growth, YouTube monetization and cloud services revenue.

“While the overall macro env't remains uncertain, we think GOOG's ad business has seen the worst of [short-term] trends & remains very levered to some key [long-term] secular themes: commerce moving online, local & small business recovery as mobility increases & media consumption shifts on a global scale (that benefit YouTube),” Sheridan wrote.

Bank of America analyst Justin Post said investors shouldn’t overlook Alphabet’s $6.9 billion in Q2 buybacks and new $28 billion buyback authorization.

“When the economy does eventually bounce, these actions position GOOG for margin expansion and stronger EPS growth,” Post wrote.

Ratings And Price Targets

• Morgan Stanley has an Outperform rating and $1,760 target.
• Raymond James has an Outperform rating and $1,700 target.
• Credit Suisse has an Outperform rating and $1,850 target.
• UBS has a Buy rating and $1,600 target.
• Bank of America has a Buy rating and $1,730 target.

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