Alphabet Earnings Win Praise From Analysts and Investors
Alphabet stock was trading in record territory, following the company’s impressive earnings report late Tuesday. Wall Street praised the search giant’s results, with the majority of analysts covering
boosting their expectations to reflect the growing financial strength of the business.
Shares of Alphabet’s class A stock (GOOGL) were up 3.6% to $2,731.94 in Wednesday afternoon trading, putting them on pace to finish above a record close of $2,680.70. The stock is up more than 55% this year, while the benchmark
index is up18%.
At least 26 sell-side analysts raised their target prices after the company’s second-quarter earnings report. Wall Street was already expecting a strong period for Alphabet’s advertising business.
The company’s YouTube advertising business was a particular standout. For the second quarter, it recorded revenue growth of 84%, to $7 billion, topping analyst expectations. Some $7 billion in quarterly revenue puts it roughly in-line with streaming giant
(NFLX), which recently posted second-quarter revenue of $7.34 billion.
While Netflix spends billions making content, YouTube spends little in comparison. Alphabet executives did say on Tuesday’s earnings call that YouTube paid creators and partners more than any other quarter in the company’s history.
Netflix makes a good overall business comparison, but Alphabet executives said yesterday that its un-Netflix like YouTube Shorts is growing too. Shorts are 60 second videos designed for people’s phones; the company said they receive a combined 15 billion daily views. Shorts, which are available in 100 countries, competes with TikTok and similar products from
(FB) and Snap (SNAP).
BMO Capital Markets analyst Daniel Salmon said YouTube benefited from advertising budgets continuing to move from traditional TV to online video services. Big brands helped boost YouTube’s growth the most, but advertisers seeking an immediate return on each dollar spent—direct response, in industry parlance—also made a substantial contribution. Salmon raised his Alphabet target price to $3,000 from $2,700 and reiterated his Outperform rating on the stock.
Search is Alphabet’s oldest business, but its second-quarter revenue surge demonstrated that instant information retrieval remains lucrative. Alphabet said search revenue was driven by strength in the retail sector, helped also by travel, financial services, and media and entertainment. Generally speaking, the economic reopening across the U.S. has boosted ad spending.
Evercore ISI analyst Mark Mahaney attributed Google’s search and other advertising strength to record business formation in the U.S. and around the globe. New enterprises may be more focused on their digital operations compared with the rest of the economy and are likely spending more ad dollars online. Mahaney also noted that Alphabet’s partnerships with
(SHOP), GoDaddy (GDDY), and Square (SQ) helped improve shopping experiences and power retail ad revenue. Mahaney boosted his target price on Alphabet shares to $3,160, from $2,825 and reiterated his Outperform rating.
Alphabet is also expanding its stock buyback program to include the company’s class A stock. That announcement is helping to close a recent gap between the A and C shares. Google’s class C shares were up just 0.3% Wednesday even as the Class A stock surged.