Google/ Alphabet, Amazon and Microsoft delivered a trifecta of earnings beats Thursday night, and Wall Street is in a frenzy today grabbing up shares of all three companies. Today Class A shares of Google parent company Alphabet Holdings climbed as much as 7.97% to $735.44 per share during regular trading hours.
Analysts from multiple firms harped on the company today, and most have raised their price targets for the stock.
Alphabet shares rerated
JPMorgan analyst Doug Anmuth and his team have upped their price target for Alphabet from $800 to $900 per share and reiterated their Overweight rating on the company. They think the rerating of Alphabet shares will continue as the key things they were expecting are playing out. Going into next year, they’ve maintained that growth in FXHN (FX and hedging neutral) revenue, driven by the growth of paid mobile clicks, higher prices, and YouTube strength, would accelerate while management continues cutting costs and improves transparency.
They note that their forecast of mobile becoming most of Google’s paid clicks hasn’t happened yet, but they think this suggests the possibility for more acceleration in the next several quarters. During the September quarter, Google grew its FXHN revenue 21%, with mobile and YouTube being the main drivers of that growth. The company managed growth in all three regions, with the U.K. growth representing the strongest in over two years.
Further, they note that Alphabet’s authorization to buy back $5.1 billion shares suggests that management and the board are changing their philosophy on capital returns. They expect this to attract a “broader shareholder base.”
Going into the next quarter, they’ll be watching how much Google Inc (NASDAQ:GOOG) (NASDAQ:GOOGL) spends on hardware launches, as the company expects the upcoming Nexus, Chromecast and Pixel to push sales and marketing and cost of revenue higher in the fourth quarter. Google also announced plans to reaccelerate its capital expenditures on Fiber and the Other Bets segment under parent company Alphabet.
Google’s next catalysts
CLSA analysts James Lee and Wei Fang also upped their price target for Alphabet, pushing it from $800 to $930 per share. They maintained their Buy rating as well. They’re positive on Google’s adoption of Apple’s iOS 9 standard, which they think should speed up app indexing and result in more revenue opportunities in the areas of app discovery and engagement.
They also see three other growth drivers, which are app advertising, closing the gap between mobile and desktop ad pricing, and the continue shift of TV ad budgets to online. They think these areas could bring upside of as much as 25% to their $65 estimate for revenue per user in 2017.
A few negatives in Google’s results
Analysts generally agree that there wasn’t much to complain about in last night’s earnings report. Macquarie Research analyst Ben Schachter bumped up his price target slightly from $750 to $770 per share and maintained his Outperform rating on Alphabet.
He noted a handful of negatives, like the fact that revenue growth in the Networks business remained week at 3.5% year over year. Also traffic acquisition costs as a percentage of Google Sites revenue increased sequentially, and the company increased its spending on research and development “significantly” to 16.5% of revenues, which is the highest level so far.
BAML analysts Justin Post and Joyce Tran also noted that Google’s non-GAAP margins reversed course in the third quarter, declining 90 basis points sequentially after a second quarter that was very positive in terms of margins. They have a Buy rating and $750 price objective on the company.
Other price target increases for Alphabet
In their report dated Oct. 22, Deutsche Bank analyst Ross Sandler and his team maintained their Buy rating and upped their price target for Alphabet from $840 to $900 per share. They think the company deserves higher multiples as it prepares to improve transparency under the new reporting structure. In last night’s earnings report, Alphabet said the next report will break out results for the core Google business from the Other Bets segment.
Goldman Sachs analyst Heather Bellini also raised her price target for Alphabet, pushing it up from $800 to $850 per share, and maintained her Buy rating on the stock. She was a bit surprised about the share repurchase announcement, as it came a bit earlier than she had been expecting. It’s only been five months since the company appointed Ruth Porat to the chief financial officer post. Porat has wasted no time in making her mark on the company since her appointment, and thus far Wall Street has been pleased with her changes.
Pacific Crest analysts Evan Wilson and Tyler Parker upped their target from $745 to $820 per share, saying the “shareholder triple play” is now complete. They said management has been telling them everything they wanted to hear since the beginning of this year in terms of cost controls and transparency, although commentary on cash returns was not mentioned until last night.
Riley & Co. analyst Sameet Sinha upped his price target from $778 to $853 per share with comments similar to those already mentioned, while analyst Brian Nowak from Morgan Stanley maintained his Overweight rating and price target of $820 per share, remaining in the minority of analysts who did not increase their price targets for Google’s parent company.