Why Credit Suisse Sees Massive Upside for Alphabet, Amazon and Facebook Into 2018

Alphabet Inc. (NASDAQ: GOOGL) was reiterated as Outperform and the price target for the parent of Google was raised to $1,350 from $1.100. The firm points out that its own checks are indicating that its search results are trending well and that YouTube is doing better.

Credit Suisse’s new estimates are rolling out to 2018, and the firm said of the company:

Our conversations with advertisers suggest minimal search budget growth deceleration coupled with potentially accelerating spend on YouTube due to multiple factors. For Search we believe the driving factors are: 1) continued increase in mobile search traffic, 2) higher CPCs due to greater usage of location-based targeting for brick and mortar retail operators, 3) ongoing benefits from Expanded Text Ads – particularly for overseas advertisers.

For YouTube, the firm thinks that advertisers who pulled back during the first half of 2017 are back and accelerating budget deployment to the video side of the business. Additional divers for Google are ongoing monetization improvements in search (expanded text ads and individual bid adjustments), a larger contribution from Google’s larger non-Search businesses (YouTube, Play and Cloud) and value being created by initiatives such as Maps, Waymo, Life Sciences and more.

Facebook Inc. (NASDAQ: FB) was also reiterated as Outperform, and the firm raised its target price to $235 from $190. Credit Suisse thinks much of the “controversies news” is behind it, and the firm recalibrated its own product-by-product model for the higher estimates.

Credit Suisse believes that Facebook will be able to drive long-term revenue growth without a material lift in ad loads. Also noted as drivers were Instagram, Premium Video, DPA and upside to the monetization potential of upcoming new products like Graph Search.

For the third quarter, Credit Suisse increases its mobile news feed estimates from $5.8 billion to $6.2 billion and raised its fourth quarter estimate from $7.3 billion to $7.4 billion. The firm’s report said:

Controversies around Facebook shares that existed end-of-2016 and in the first half of 2017 on ad load growth deceleration now seem well behind us with two consecutive quarters of ad price acceleration to offset. It is the rising advertiser propensity to spend a greater portion of budgets on more targeted buys at effective CPMs more than double that of the untargeted buy.

All in all, Wall Street and Main Street seemed to be chasing these three analyst calls only marginally. The stock market just hit a new all-time high on Tuesday, and these stocks have all handily outperformed the market. Some of the more cautious investors might even think back to some of the dot-com bubble analyst calls seen at the start of 2000 or the end of 1999. That being said, that period had valuations that were by and large much higher on a multiple-basis (P/E, times-sales, etc.) than in 2017.

Shares of Amazon were last seen up 0.6% at $992.62, and they have a 52-week range of $710.10 to $1083.31. The consensus analyst price target from Thomson Reuters was closer to $1,160, and the new $1,350 Credit Suisse target, for almost 36% projected upside, compares to a prior street-high analyst target of $1,400.

Alphabet was trading up 0.7% at $994.45 Wednesday morning. It has a 52-week range of $743.59 to $1,008.61 and a consensus price target of almost $1,100. Alphabet’s target of $1,350 at Credit Suisse compares to a prior street-high price target of $1,250, and it target implies upside of about 36%.

Facebook shares traded up 0.3% at $172.16, and they have a 52-week range of $113.55 to $175.49. Facebook’s consensus price target was closer to $195 before Credit Suisse’s target jumped up to $235. The prior street-high target price before this call was $230. Credit Suisse is calling for roughly 36% upside here.

Please note: As a final reminder, investors have to treat all analyst calls as supplemental information rather than as sole-source or primary reasons for buying or selling a stock. 24/7 Wall St. wouldn’t want its readers thinking we just follow and believe every analyst call just because it was released. Sometimes the analysts get their numbers and expectations wrong, and sometimes outside events wreck a bullish thesis, above and beyond what the market was prepared for.

Also check out Wednesday’s other top analyst upgrades, downgrades and other research calls.

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