Google: Morgan Stanley Bullish On Websites, BAML Bullish On YouTube

Google: Morgan Stanley Bullish On Websites, BAML Bullish On YouTube

Google parent Alphabet received a price target increase from analysts at Morgan Stanley analysts on Wednesday as they reassured investors that there’s nothing to worry about in terms of the core Google Websites business’ growth rate. They describe themselves as “Websites bulls” and explained three key growth drivers. Meanwhile it was YouTube that received headline attention from analysts at Bank of America Merrill Lynch.

Google price target to $865

Morgan Stanley analyst Brian Nowak and team raised their price target on Alphabet from $850 to $865 per share and maintained their Overweight rating. They note that the company’s multiple has compressed by about 400 basis points and that its stock has lagged the S&P 500 by about 600 basis points since its first quarter earnings report. They also say that one of the most common questions posed by investors has dealt with Google Websites growth.

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However, they said there are three drivers of growth for the business: mobile search, desktop search and maps. They explained that their most recent AlphaWise data indicates that large-screen smartphones now make up 5% to 17% more online retail and travel purchases than users of smartphones with screens smaller than 5.5 inches. They believe the larger screen providers comfort to users because it makes it easier to see the items being purchased, and they see the shift toward larger-screened smartphones as a positive for Google’s mobile search business.

While most analysts have focused solely on mobile, the Morgan Stanley team expects Google’s desktop search business to keep growing and even accelerate this year as well. They note that 60% of Websites search revenue still comes from desktop, and they think the company’s recent changes to the desktop search experience are resulting in faster ad growth.

Nowak and team also like Google’s introduction of local search ads and Promoted Pins to Maps, particularly because they see it as one of the company’s most “under-monetized assets.” Maps has more than 1 billion monthly users, and they note that about one-third of mobile search queries have “local intent,” which demonstrates how large the monetization potential is here.

YouTube as a driver of Google Websites

BAML analyst Justin Post has a Buy rating and $925 per share price objective on Alphabet, and he also talked up Google Websites and its potential growth. However, his focus was on YouTube and how the video platform’s momentum will drive Websites growth. He also noted that Alphabet still won’t disclose financial details for YouTube and added that he believes because of its massive scale, investors will begin pressuring the company to disclose the platform’s revenues.

Cisco estimated recently that Internet video views will double between last year to this year and that 80% of all mobile Internet traffic will be videos by 2019. Post pointed out that Google said that the growth in the amount of time viewers are spending watching videos on YouTube is accelerating and now has grown by at least 50% year over year for the last three consecutive years. Post believes that video advertising will trend in the same way and notes that global online video ad spend is expected to skyrocket by $19 billion from 2015 to 2018 to reach $35 billion.

He estimates that YouTube revenues will reach $12 billion this year and grow to $20 billion by 2018. If YouTube were a standalone company, he estimates its potential valuation at about $90 billion. He adds that the valuation could go much higher if Google ever discloses information on social user and usage valuation comparisons.

Class A Alphabet shares closed up 1.62% at $742.93 on Wednesday.

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