This Top Analyst Remains Positive on Alphabet (GOOGL) Heading Into 2Q18 Earnings Tonight


Google-parent company Alphabet (NASDAQ:GOOGL) is up 0.65% in Monday’s trading session ahead of its second-quarter earnings report which is due out after the closing bell.

Regulation is sure to be at the top of investors’ minds following Facebook’s Cambridge Analytica privacy scandal and the European privacy law, known as GDPR, which took effect in May.

SunTrust’s top analyst Youssef Squali commented, “With the implementation of GDPR on May 25th, 2018, we do not believe that GOOGL has seen much of an impact. The company believes it was ready to comply across all services after preparing for the last 18 months and that its search product was insulated, which accounts for ~80% of revenues from our estimates. One concern however, remains around YouTube and Network (especially programmatic) revenues due to the increased reliance on data from both 1P and 3P sources. Additionally, following Google’s $2.7 billion fine in June 2017 from European regulators on its online shopping practices, the regulatory body levied an additional $5 billion antitrust fine for abusing Android’s market dominant position this week. The company is appealing the ruling, but it highlights a series of costly anti-trust investigations taking place in Europe.”

Squali expects to see Q2 net revenues and adj. EBITDA of $25,388M and $12,143M vs. Street estimates of $25,833M and 12,168M, respectively. Squali’s GAAP EPS estimate is $9.05 vs the Street of $9.67. Looking ahead, Squali’s 3Q18 estimates on net revenues/adj. EBITDA/GAAP EPS are $26,648M/$12,782M/$9.80 vs Street expectations of $27,149M/$12,860M/$10.52, respectively. Squali’s 2018 estimates are $107,187M/$50,405M/$43.21 vs Street expectations of $108,439M/$50,368M/$44.30.

“We remain positive on Google heading into 2Q18 earnings on 7/23, on positive checks around Search and YouTube, improving trend in TAC and attractive valuation. Concerns around the regulatory environment and pressures on the company’s overall margins (due to investments in Hardware, Cloud, Content, and regulatory fines) remain top of mind for us; that said, sustained advertisers’ demand for the platform should overshadow such concerns in the short and medium-term, in our view,” the analyst concluded.

Net net, Squali reiterates a Buy rating on Alphabet shares, with a price target of $1,230, which represents a slight upside potential from current levels.

According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Youssef Squali has a yearly average return of 22.5% and a 73% success rate. Squali has a 20.3% average return when recommending GOOGL, and is ranked #48 out of 4840 analysts.

Out of the 37 analysts polled in the past 12 months, 34 rate Alphabet stock a Buy, while 3 rate the stock a Hold. With a return potential of 5%, the stock’s consensus target price stands at $1,265.39.

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