Alphabet's Glass Is Not Yet Full

• Alphabet Inc GOOGL GOOG shares have appreciated 42.36 percent over the past one year, rising to a high of $793.96 on December 29.
• Societe Generale’s Christophe Cherblanc has reiterated a Buy rating on the company, while raising the price target from $705 to $910.
• Cherblanc believes that the stock is currently “very attractive” as compared to most of the Global and European stocks in Societe Generale’s coverage universe.

According to the Societe Generale report, “The investment case remains fiendishly simple Alphabet operates in a growing ecosystem, as online continues to takes 2.5pp of the overall global ad pie every year, and enjoys unmatched resources, implying it is on track to deliver very healthy ad revenue CAGR of SGe 10 percent to 2025e.”

Analyst Christophe Cherblanc also stated that there had been positive developments on three out of the four primary concerns related to the company.

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Concerns

Firstly, the accelerating top line, driven by the mobile ramp and YouTube, suggests that Alphabet’s global online share, excluding China, was unlikely to decline in 2016, despite its exposure to the lower growth search desktop segment.

Cherblanc also noted that “given the strong topline, a soft focus on costs was enough to generate operating leverage,” while mentioning that Alphabet’s corporate reorganization, with separate reporting having started in Q4 for the different businesses, might not completely address the poor disclosure issue.

“However, we are convinced it will confirm our view that the moon-shot projects account for an affordable and minor part of earnings, while Google’s core profitability is underestimated,” Cherblanc added.