Credit Suisse Raises Alphabet's Pirce Target To $900, Likes YouTube Revenue Addition

• Shares of Alphabet Inc GOOGL have appreciated 46.4 percent over the past year, rising to a high of $793.96 on December 29.
• Stephen Ju of Credit Suisse has maintained an Outperform rating on the company, while raising the price target from $850 to $900.
• Expressing optimism regarding the contribution from YouTube Red, Ju stated that YouTube Red was expected to grow at a CAGR of 44 percent from 2017 to 2022.

Analyst Stephen Ju noted that although “initial investor reaction may be to dismiss the product, with over one billion users already on YouTube, we calculate that even a low-single-digit percentage rate conversion from free ad-supported to paid subscription will allow Google to monetize users at 10x the annual ARPU versus that derived just from advertising.”

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Ju estimated contribution growth at a CAGR of 44 percent, from about $1 billion in 2017 to $6.3 billion by 2022, assuming a 3 percent conversion rate by the target date. Ju believes that this is a reasonable expectation “in the context of other free-to-paying examples.”

Ju also mentioned that the investment thesis of the stock for 2016 remained the same as into 2015, although with higher product clarity.

According to the Credit Suisse report, Alphabet is expected to see “faster-than-expected narrowing of the mobile-desktop monetization gap through benefits from a plethora of products including app install, as well as increased ad load on the mobile/desktop SERP.”

In addition, Ju expects continued moderation in capex increased, following the company’s multi-year investment cycle, as well as increasing contribution from non-search business, such as YouTube and Google Play.