Google Parent Alphabet Inc (GOOGL) Attracts Analysts Following Best Revenue Growth Since 2012

Alphabet Inc (NASDAQ:GOOGL) released a fourth-quarter print yesterday after market close that has analysts from Aegis and Jefferies cheering for the tech giant in research reports issued today. In particular, both analysts are impressed with Google’s robust revenue that rose above expectation. The tech giant’s success does not seem to be stopping any time soon.

Let’s dive in:

The Aegis Take: Expect Continued Growth

Aegis analyst Victor Anthony commends Alphabet’s fourth-quarter revenue outperformance, attributing the robust results to hardware sales coupled with Cloud. Moreover, even though the analyst acknowledges that the giant had an EPS miss, he believes without expenses and higher taxes, there would have been a beat on this front as well.

As such, on back of a strong quarter, the analyst reiterates a Buy rating on GOOGL while raising the price target to $1,011, which represents a just under 20% increase from where the shares last closed.

From Anthony’s perspective, the real “pain point” for investors points to back-to-back quarters of segment margin contraction, even as he notes that in a bigger picture context company margins did expand.

For the fourth quarter, Alphabet posted net revenue that saw a 22.8% year-over-year rise to $21.2 billion, and a 20.9% increase from the third quarter, beating the analyst’s estimate by 3.8% and consensus by 3%. The giant’s websites revenue growth surged 20.3% year-over-year, which though experienced “tough comps,” still was just over the analyst’s expectations. Strong assets in Search and YouTube with a 43% year-over-year rise in paid clicks growth and network revenue growth rising 7% year-over-year have Alphabet in a stellar position.

“The source of the margin compression is now well-known by Google investors – mobile, hardware, programmatic, YouTube content – all of which are growth areas for Google. Our feeling is that investors will need to accept the margin pressures for a few quarters and look to the overall company margin expansion on pared-back losses at Other Bets. The model continues to benefit from multiple secular tailwinds (search, video, programmatic, Play, Cloud and now hardware and AI and Machine Learning), management is buying back stock, advertising growth remains in the 20% range, the balance sheet is solid with $86B or $125/share in cash, and the multiple is cheap relative to peers. Current tracking data points to continued strong growth at YouTube, and Search has many new and updated ad units that should drive continued strong growth,” Anthony surmises.

In reaction, the analyst lifts his 2017 net revenue projection to $88.319 billion while increasing his 2017 GAAP EPS projection to $34.33, taking into account strength in hardware coupled with accelerated advertising growth.

As usual, we like to include the analyst’s track record when reporting on new analyst notes to give a perspective on the effect it has on stock performance. According to TipRanks, five-star analyst Victor Anthony is ranked #107 out of 4,378 analysts. Anthony has a 65% success rate and realizes 12.6% in his annual returns. When recommending GOOGL, Anthony yields 9.5% in average profits on the stock.

The Jefferies Take: Alphabet Is a Franchise Pick

Jefferies analyst Brian Fitzgerald likewise cheers Alphabet’s revenue outclass, highlighting that between a triple threat of mobile search, YouTube, and hardware, GOOGL has hit its best growth in revenue since the first quarter of 2012. Meanwhile, Fitzgerald underscores mobile search remains the #1 driver of the tech giant’s revenue for the sixth consecutive quarter.

Therefore, the analyst reiterates a Buy rating on GOOGL with a price target of $1,000, which represents an 18% increase from where the stock is currently trading.

Fitzgerald affirms, “Alphabet revenue beat with strength again coming from mobile search and YouTube. But higher costs for TAC, hardware, and a large 1x Cost of Revenue expense drove an EPS miss. 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. Trading at 15x (ex-cash), GOOGL remains a franchise pick.”

Furthermore, the analyst connects strength in hardware to the giant’s foray into artificial intelligence, opining, “Google likely sold < $1B of hardware in 4Q. GOOGL’s hardware showcases its prowess in Artificial Intelligence, and as such we view the hardware and software businesses as highly complimentary. Note hardware does drive higher cost of revenue.”

Moving forward, “We believe online video is the biggest online ad growth driver and YouTube is the premier vehicle to play that trend,” Fitzgerald concludes.

According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, five-star analyst Brian Fitzgerald is ranked #169 out of 4,378 analysts. Fitzgerald has a 70% success rate and earns 13.7% in his yearly returns. When suggesting GOOGL, Fitzgerald gains 10.0% in average profits on the stock.

TipRanks analytics exhibit GOOGL as a Strong Buy. Based on 28 analysts polled by TipRanks in the last 3 months, 27 rate a Buy on Alphabet stock while 1 maintains a Hold. The 12-month average price target stands at $984.63, marking a nearly 15% upside from where the shares last closed.

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