Bank of America Securities analyst Justin Post maintained Alphabet Inc GOOGL with a Buy and raised the price target from $200 to $206.
Alphabet is the first in the online media group to report on July 23, and Post expects results to set a positive backdrop for the group.
The analyst slightly raised his Search estimates to 12% year-on-year (versus 11% prior) and now expects second-quarter revenue and EPS of $70.9 billion and $1.91 vs Street at $70.6 billion and $1.84.
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Post noted upside to Street estimates as his checks suggest AI integrations driving higher usage and ad Click-Through Rates (CTRs), Search revenue stability aided by improving macro and AI-driven ad spend, and YouTube strength from ramping Shorts monetization and less-than-expected headwinds from Prime Video.
Post expects flat Y/Y headcount growth (up 1,500 Q/Q) with ongoing restructuring aiding costs.
The analyst expects $22.7 billion in operating expenditures and core margins to increase 183bps Y/Y to 37.2%. Post also expects higher other income to help drive EPS upside (NASDAQ up 8% in the second quarter).
According to Post, second-quarter positives include Search upside, positive commentary on AI overviews driving higher usage & CTRs, Shorts driving higher traffic & revenue upside, and Cloud strength as IT dollars shift toward AI.
Post remains optimistic about growing AI integrations across Google’s ecosystem and noted that a broader rollout of AI overviews will help drive higher activity in the core Search business.
AI use poses a long-term competitive risk, but in the near term, he noted revenue upside from AI-driven monetization improvements will be a critical second-quarter takeaway.
Moreover, focusing on expense management, Post noted that Y/Y margin growth in 2024 will be a bright spot and potential EPS upside driver.
Given the market multiple expansion (lower rates), the analyst raised his price target.
Price Action: GOOGL shares are trading lower by 2.02% at $180.25 at last check Wednesday.
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