What Analysts Are Saying About Alphabet After Earnings

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Alphabet Inc. (NASDAQ: GOOGL) reported third-quarter 2016 results after markets closed Thursday. Initially the data pushed the stock higher but it ended Friday relatively flat. However, a few key analysts had important takeaways from the report, and across the board price targets went up.

24/7 Wall St. has included some highlights from the earnings report, as well as what analysts are saying about Alphabet after the fact.

The search engine behemoth reported adjusted diluted earnings per share (EPS) of $9.06 on revenues of $22.45 billion. In the year-ago quarter, Alphabet posted EPS of $7.35 on revenues of $18.68 billion. Analysts were estimating $8.63 EPS on $22.05 billion in revenue.

The Google segment posted revenues of $22.25 billion, up from $18.53 billion a year ago. Operating income rose from $5.81 billion to $6.78 billion. The operating loss on other (Bets) revenues totaled $865 million, down from $980 million in the year ago quarter.

Revenues at Google websites rose 23% to $16.1 billion, and Google Network revenues rose 1% to $3.73 billion. Ad revenues rose 18% to $19.82 billion. Because Alphabet does not break out the source of advertising revenues by desktop versus mobile, it’s a little hard to draw any conclusion other than an 18% increase is solid.

Traffic acquisition costs paid to Google Network members rose to 70% of Network revenues, or $2.62 billion. Payments to distribution partners totaled $1.56 billion, about 10% of websites revenues. Total traffic acquisition costs rose to $4.18 billion and were flat year over year as a percentage total ad revenues (21%).

Paid clicks on Google websites were up 42% year over year and up 11% sequentially. Paid clicks on the Network members sites were up 1% year over year and sequentially. Aggregate cost per click fell 11%, compared with the year-ago quarter, and was down 5% sequentially.

Credit Suisse had an Outperform rating and raised its price target to $1,070 from $1,120. The brokerage firm went on to say:

Google reported a top and bottom line beat with currency-neutral revenue growth of 23% – the contributing factors were once again improvements in mobile search and YouTube for the Web Sites segment, as well as Google Play and Cloud for the Other segment. FCF to double YOY owing to moderating capex. We continue to anticipate benefits from recent ad product rollouts (Expanded Text Ads, etc.) as ongoing catalysts.

Merrill Lynch reiterated a Buy rating and raised its price target to $970. Overall, the firm believes that growth deceleration was more moderate than expected, but core expenses were high. Multiple growth drivers are helping to counter the tougher comps seen in Mobile, YouTube, Programmatic and Cloud. Merrill Lynch finished by saying that sentiment should improve as deceleration fades and new drivers ramps, and the $7 billion buyback also helps.

Jefferies reiterated a Buy rating for Alphabet with a $1,000 price target and further commented:

Alphabet easily beat estimates with strength again coming from mobile search and YouTube, the most important products. From a capital allocation standpoint, we appreciate Alphabet is investing in strategic, promising areas like Google Assistant and hardware, while pausing investment in less rewarding areas like Fiber. Alphabet remains a Franchise Pick and we reiterate our Buy rating.

Other analysts weighed in on Alphabet as well:

  • Canaccord Genuity has a Buy rating and raised its price target to $950 from $900.
  • Cowen has an Outperform rating and raised its price target to $1,000 from $940.
  • Deutsche Bank raised its target price to $1,080 from $1,050.
  • Goldman Sachs raised its price target to $970 from $930.
  • JMP Securities raised its price target from $928 to $985.
  • Nomura has a Buy rating and raised its price target to $950 from $925.
  • Raymond James raised its price target to $920 from $900.
  • Stifel raised its price target to $950 from $925.

Shares of Alphabet closed Friday at $819.56, with a consensus analyst price target of $945.59 and a 52-week trading range of $672.66 to $839.00.