Alphabet Inc (NASDAQ:GOOGL) is paving the way to divvy out its second-quarter earnings, and two analysts are shining bullish crystal balls for the tech giant. True, this is a quarter where the tech giant got hammered with a fine to the tune of almost $3 billion from the European Union- and this remains a questionable overhang. Meanwhile, the giant had to address fiery resentment running amiss with advertisers that high-tailed out of YouTube on pointed fingers towards offensive content. Yet, firms like Aegis and RBC Capital alike are casting the dye on Alphabet, confidence running full steam ahead of the print.
Aegis analyst Victor Anthony for one is looking for a strong quarter with advantages “more than” outweighing branding apprehension or ensuing fallback in advertising spending. Though the analyst has his attention intent to see how the EU situation “unfolds, what changes are made, and how it impacts revenue,” he boils these rough edges down to “minimal” at most “if/when changes are made.”
As such, in a positive quarterly preview, the analyst reiterates a Buy rating on shares of GOOGL with a $1,090 price target, which represents a just under 10% increase from where the stock is currently trading.
For the second quarter, the analyst projects gross revenue to hit a 21.2% year-over-year rise to $26.0 billion, with net revenues surging forward 21.3% year-over-year to $21.3 billion. The analyst attributes these expectations to growth in Google segment net revenue, which he believes will see a 21.1% year-over-year rise, as well as Other Bets revenue growing 40% year-over-year. Among other accelerating pieces for Alphabet include Websites revenue, which Anthony projects will increase 21%, as well as Network of 8.5%. Though it’s a more challenging comparison this quarter for the tech giant to tackle, the analyst remains steadfast in Alphabet’s corner, but factors in the European Union non-tax deductible fine of $2.74 billion into his expectations for $4.66 in GAAP EPS.
“The model continues to benefit from multiple secular tailwinds (search, video, programmatic, Play, Cloud, hardware, and AI and Machine Learning), management is likely to get more aggressive buying back stock, advertising growth remains strong (20% range), the balance sheet is solid, and the multiple is cheap relative to peers. Search checks were solid and YouTube usage trends remain robust despite the ad backlash, which we see alleviating,” argues Anthony, making a strong bullish case for the giant.
Top analyst Mark Mahaney at RBC Capital echoes Anthony’s chorus of praises for Google in his earnings “cheat sheet” that continues to back the company that has soared on robust market share, ruling in the Search Advertising realm, as well as carrying “an excellent track record of innovation and acquisition.”
Therefore, the analyst reiterates an Outperform rating on the stock with a price target of $1,050, which represents a close to 6% increase from current levels.
For the second quarter, the analyst forecasts gross revenue of $25.93 billion, net revenue of $21.05 billion, GAAP operating income of $7.11 billion, and GAAP EPS of $8.40. Mahaney is slightly more bullish than consensus expectations that call for $25.57 billion in gross revenue and $20.91 billion in net revenue, as well as more confident than the Street’s expectations for GAAP EPS of $8.36. However, the analyst makes a point to not include the European Commission fine in his forecasts for operating income and EPS, as Alphabet intends to post this as a different operating expense- one which Mahaney intends to factor back in with expectations once Alphabet released earnings.
When assessing revenue and operating margin trends for Core Google, the analyst projects gross revenue to hit a 20% year-over-year climb to $25.68 billion with net revenue soaring 20% year-over-year to $20.81 billion. Mahaney attributes this robust performance to three key assets for the giant: Mobile Search, Programmatic, and YouTube. Additionally, the analyst estimates Core Google GAAP operating profit to bring $8.23 billion to the giant’s table with a 39.5% margin on net revenue. For Google Websites Revenue growth, the analyst believes Google can amass $18.62 billion in Gross Google Websites Revenue, signifying an ascent of 21% year-over-year. As far as revenue and operating loss trends for Other Bets goes, Mahaney is angling is $249 million in Other Bets revenue with a $977 million GAAP operating loss, indicating a rise considering the $855 million loss level from last quarter.
“Paid Clicks, CPCs, And TAC: In Q2, we are looking for Paid Click growth of 45% Y/Y and a CPC decline of (21%) Y/ Y. In terms of TAC, we are modeling ongoing growth in TAC going forward (40bps Q/Q in Network Sites, 30bps Q/Q in Google Sites in Q2),” elaborates the analyst.
Mahaney concludes pointing to two key points for the quarter that do not detract from the overall encouraging picture for the giant moving forward: “1) U.S. Desktop Search Query Share: Google’s share of U.S. Desktop Search queries has fallen 30bps in the first two months of Q2 from Q1. However, we note that Desktop is becoming less important over time. 2) Geographic Sensitivity Analysis: Our current Q2:17 estimate of $21.05B Alphabet net revenue is based on a 3% Q/Q increase in U.S. gross revenue and a 6 Q/Q increase in International gross revenue, which we view as consistent with historical seasonal patterns.”
TipRanks analytics showcase GOOGL as a Strong Buy. Out of 26 analysts polled by TipRanks in the last 3 months, 22 are bullish on Alphabet stock while 4 remain sidelined. With a return potential of nearly 9%, the stock’s consensus target price stands at $1,080.68.