Credit Suisse says Google's results point to an increased urgency among retailers and merchants to conduct more of their business online
Shares of Alphabet (GOOG; GOOGL) are on the rise on Wednesday after Google's parent reported better than expected quarterly results as it saw dramatic advertising growth amid the COVID-19 pandemic recovery. Following the news, several Wall Street analysts raised their price targets on the stock, with Wedbush analyst Michael Pachter saying the company reported "another stellar quarter" and that Google is pushing back on views that it has ceded ground to Amazon (AMZN) in e-commerce and retail advertising.
RESULTS: Alphabet reported second quarter earnings per share of $27.26 and revenue of $61.88B, both better than the expected $19.21 and $56.02B, respectively. The company also reported second quarter Google advertising revenue of $50.44B versus $29.87B a year ago, YouTube ads revenue of $7.0B versus $3.81B in same quarter of prior year, Google Cloud revenue of $4.63B versus $3.0B a year ago, Traffic Acquisition Costs of $10.93B versus $6.69B a year ago, and Other Bets revenue at $192M versus $148M a year ago.
Additionally, Alphabet stated in its earnings press release that, "As we previously announced in April 2021, the Alphabet board authorized the company to repurchase up to an additional $50 billion of its Class C capital stock under our stock repurchase program. On July 22, 2021, the board approved an amendment to the stock repurchase program permitting us to repurchase both Class A and Class C shares, in a manner deemed in the best interest o,f the company and its stockholders, taking into account the economic cost and prevailing market conditions, including the relative trading prices and volumes of the Class A and Class C shares."
'MASSIVE' OUTPERFORMANCES: Susquehanna analyst Shyam Patil raised the firm's price target on Alphabet Class A shares to $3,600 from $3,100, while keeping a Positive rating on the stock. The analyst noted that the company's results were a beat across the board with Search and YouTube putting up "massive" performances. While he acknowledged that comparisons will be more difficult in the second half of the year, he doesn't see any reason why the strong execution shouldn't continue. Patil remains positive on the secular ad growth story, the Cloud ramp, better expense management, and a more shareholder friendly capital allocation approach.
Credit Suisse analyst Stephen Ju also raised the firm's price target on Alphabet to $3,400 from $3,350 and kept an Outperform rating on the shares. The analyst believes Google's second quarter results offered incremental/stronger signals of what he thinks is a crucial thematic consequence of the pandemic, which is an increased urgency among retailers/merchants to conduct more of their business online, particularly among SMBs which have lagged in their e-commerce transition. And the higher-than-expected ad revenue result is due to not only Google's earlier moves to democratize online advertising with simplified AI tools, but also from the onboarding of more merchant supply last year with the release of free listings for Shopping, Ju added.
Also keeping an Outperform rating on the shares, Wedbush analyst Michael Pachter raised his price target on Alphabet to $3,424 from $3,127 after the company reported "another stellar quarter" with strong beats in revenue and margins, showing the ad market is accelerating beyond a rebound, and Cloud is continuing to accelerate. Pachter noted that Google is reinventing itself in online search, and is increasingly becoming a critical component of online commerce, pushing back on views that it has ceded ground to Amazon in e-commerce/retail advertising. The quarter should lead to another round of a material lift to consensus estimates, he contended, adding that he continues to view shares as undervalued.
Meanwhile, Morgan Stanley analyst Brian Nowak raised the firm's price target on Alphabet to $3,000 from $2,575, maintaining an Overweight rating on the shares following a second quarter report that highlighted more durable multi-year revenue and free cash flow growth. Alphabet's roughly $13B of share repurchases in the second quarter was larger than his estimate and represents the largest share repurchases in the company's quarterly history, Nowak added. The analyst sees a falling share count adding more potential earnings and free cash flow per share leverage in 2022 and beyond.
Piper Sandler, Barclays, Mizuho, JMP Securities, Stifel, Needham, Truist, Oppenheimer, Jefferies, KeyBanc, JPMorgan, MKM Partners, and BMO Capital also raised their price targets for Alphabet.
PRICE ACTION: In Wednesday morning, Class A shares of Alphabet have gained over 4% to $2,756.25.