Mobile Search and YouTube Driving Google to New Heights
On Monday, Alphabet Inc (NASDAQ:GOOGL) released second quarter earnings, which showed that despite a well-publicized boycott and large fines by the EC, the tech king kept up with Street expectations on both net growth and earnings per share (EPS). Top analyst Brian Fitzgerald of Jefferies commends assets like online video, mobile search, and paid clicks as strong roots for the robust quarterly outclass. As Google goes mobile and transitions to programmatic, the analyst expects traffic acquisition costs to increase, but remains unconcerned saying, “this is not a new story.”
The analyst points out that “Google’s business is sustaining the highest levels of growth we’ve seen in around five years. The core ad business looks solid with mobile search and YouTube driving strong new ad clicks. And strong growth in emerging areas like cloud and hardware suggests those investments are paying off. TAC continues to increase, but this is not a new story.” Referencing the 52% year over year (61% across Google-owned sites) growth in paid clicks, which beat out the Street’s estimate by 17%, Fitzgerald sees this as a confirmation that “Google’s ad business is benefiting from an explosion of new ads served in mobile search and YouTube.” Furthermore, “an explosion of lower-cost YouTube ads flowing through Google’s ad platform” is expected, opines the analyst.
In fact, the analyst notes that the success of both Mobile Search and YouTube is responsible for the company’s highest growth since late 2012 and for its continued streak in gaining 20%+ in revenue growth for five consecutive quarters. Fitzgerald believes “Google is clearly benefiting as advertisers pour money into mobile ad campaigns […] with investments in cloud and hardware paying off.” In these other forms of revenue, the company also beat expectations by 6%, pulling in $3.3 billion. Google also saw a net growth of nearly 20% in line with consensus and $5.01 EPS, which beat consensus by 14%. Moreover, even when factoring the impact of the $2.7 billion fine levied against the company by the European Commission (EC), GOOGL still beat the Street with an EPS of $8.90 vs. $8.28. For Fitzgerald “GOOGL remains a franchise pick.”
The analyst reiterates a Buy position on GOOGL with a price target of $1,200, indicating a 24% rise over current trading levels.
Brian Fitzgerald has a very good TipRanks score with an 81% success rate and is ranked #14 out of 4,608 Analysts. When recommending GOOGL, Fitzgerald yields 17.1% in average profits on the stock. On overall yearly returns, Fitzgerald earns 24.2%.
TipRanks analytics reveal GOOGL as a Strong Buy. Out of 27 analysts polled by TipRanks in the last 3 months, 27 are bullish on Google stock and 4 are neutral. With an upside of near 12%, the stock’s consensus target price stands at $1,084.36.
Amazon’s AWS Growth Simply Unmatched
Amazon.com, Inc. (NASDAQ:AMZN) is expected to release second quarter earnings tomorrow after the closing bell. Top analyst Mark Mahaney of RBC Capital expects the company to continue sharpening its competitive edge while keeping up a consistent 19 straight quarters of positive retail revenue growth. Referencing intra-quarter data points, channel checks, and model sensitivity work, the analyst is calling for Amazon to hit Street expectations with a “slightly greater room for EPS upside.”
While Mahaney expects revenue and earnings per share to match company outlook, his estimate is lower than consensus at $36.6 billion and $1.34, respectively. However, in regard to Operating Income, the analyst comes out above consensus and even above guidance at $1.1 billion. To arrive at these figures, the analyst looks at a range of factors, including Gross and Overall margin trends, AWS and North America and International retail results to determine the company’s direction- and it appears gilded on back of AWS growth.
Mahaney believes that the company will restore margin trends back to an average of 6% where it stood between 2003 and 2010. The catalyst for this expansion can be attributed to “scale, improved vendor terms, the ongoing mix shift to third-party (3P) sales—likely driven by Fulfillment by Amazon (FBA) and Prime and Amazon Web Services,” comments the analyst. Additionally, AWS is making a big impact, scoring an impressive $14 billion revenue run rate, which according to Mahaney “is practically impossible to match in public markets.”
On the domestic and international retail scene, AMZN is likewise exhibiting strength. The analyst estimates that “AMZN already accounts for roughly 20% of U.S. Online Retail Sales” and will continue to take share as it expands “strong mobile positioning and infrastructure advantages facilitating next-day and Same Day delivery.” North American Retail revenue is thus expected to reach $21.4 billion in Q2, or 1% year over year. On the international front, International Prime is lagging behind the US, but the analyst believes as “inventory selection ramps and Amazon improves shipping convenience” the international market will continue to strengthen. As a result, International Retail revenue should hover around 11 billion, 20% year over year.
The analyst maintains an Outperform rating on AMZN with a price target of $ 1,100, indicating a near 6% rise over current trading levels.
Mark Mahaney has a strong TipRanks score with a 71% success rate and is ranked #18 out of 4,608 analysts. When recommending AMZN, Mahaney yields 17.8% in average profits on the stock. On overall yearly returns, Mahaney earns 22.1%.
TipRanks analytics reveal AMZN as a Strong Buy. Out of 28 analysts polled by TipRanks in the last 3 months, 26 are bullish on Google stock and 2 are neutral. With an upside of 9%, the stock’s consensus target price stands at $1,140.17.