Google's Mobile, YouTube Sites Grew At Their Fastest Rate In 3 Years

Alphabet Inc GOOGL delivered a 2Q16 beat, with accelerating growth and margin expansion. SunTrust Robinson Humphrey’s Robert S. Peck maintained a Buy rating on the company, while raising the price target from $850 to $900.

Alphabet reported its 2Q revenue growth at 25 percent y/y ex-FX, up from 23 percent in 1Q. Google sites posted 24 percent growth, versus 20 percent in 1Q, led by mobile, YouTube and DBM. Analyst Robert Peck noted that sites recorded “the fastest rate in over 3 years,” and added ~$3B of revenues y/y.

Sites paid clicks recorded flat 37 percent growth. Although CPCs declined 9 percent in 2Q, this was an improvement over the 12 percent decline in 1Q.

Other Results

• Network: Growth of 3 percent y/y, flat with 1Q
• Other Google Revenues: Accelerated to 33 percent y/y growth, led by Cloud and Play
• US Revenues: Growth accelerated to 24 percent y/y, from 21 percent
• Operating Margins: Expanded ~110bps, despite higher TAC and investments
• Total TAC Rate: Down due to mix, but was up for Sites and Networks to multi-year highs
• FCF: Came in at $7B, representing 33 percent of revenues

“While 2H comp and TAC concerns remain, we feel that few companies in our universe have as much optionality, particularly at these valuation and FCF levels, and Google’s ability to gain advertiser wallet share is expanding with increased innovation and functionality,” Peck commented.

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