Alphabet stock has received an upgrade from Pivotal Research analyst Brian Wieser, who moved his recommendation from Hold to Buy and raised his price target to $970 per share, marking at least the second increase in less than a week. He expects Google’s results and Alphabet’s overall results to remain positive, although he believes currency headwinds will continue to mute the performances even though they are finally starting to abate.
What to expect in Alphabet’s earnings report
He’s estimating a 16% increase in revenue or an 18% increase excluding traffic acquisition costs, and he expects the double-digit growth trend to continue for some time. YouTube and programmatic display ad revenues from GDN are expected to continue driving growth. Further, he believes that new initiatives like the Google Analytics 360 Suite and the search giant’s continued investments into marketing technology show how it continues to build its positioning and aims to attract a greater and greater share of marketing spend.
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Wieser said the big question right now is “the degree to which profitability will flow from this growth going forward.” He noted that the fourth quarter showed that Alphabet saw strong year over year improvements in most measures relating to profits, there are still some factors constraining the company’s results. He said Google’s display ad revenues, which are growing as a share of Alphabet’s overall revenue mix, tend to be less profitable than search, mostly because continual innovation is needed in this area.
Questions about Google’s profitability
The Pivotal analyst also noted that most investors don’t understand that programmatic advertising doesn’t “eliminate the need for costly humans in the process of trading media but instead requires different humans to manage these businesses.” He sees this issue as especially pertaining to YouTube as delivery and capital costs in that segment are even higher. Also content costs are becoming a factor as well, and content drives growth, the costs associated with getting that content holds back profitability.
He also notes that Other Bets will likely remain a drag on Alphabet’s overall results, although he notes that the scale of these impacts is small in comparison to Google’s sales.
Shares of Alphabet edged upward by 0.47% to $763.02 per share in afternoon trades.