Argus Says Alphabet's Q2 Results Should Put Investors' Doubts To Rest

Alphabet's second-quarter results beat consensus projections by 4 percent on the top line and by 5 percent on the bottom line. Gross revenue rose 11 percent to $17.7 billion and non-GAAP EPS climbed 20 percent to $8.42.

"The bear case on Alphabet has been that as users may abandon search for mobile apps as move to mobile [...] and Alphabet will be less successful in monetizing mobile search advertising than it had been with desktop search."

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The analyst continued, "However, the results showed that mobile search advertising appears to be growing strongly, even as it generates lower margins than desktop." Also, "desktop/tablet remains an important source of revenue in its own right, as YouTube continues to monetize advertising."

"We see Alphabet as one of the tech industry's leaders, along with Facebook, Apple and Amazon. These companies have come to dominate new developments in mobile, public cloud, and big data analytics, as well as emerging areas such as artificial intelligence and virtual/augmented reality," analyst Joseph Bonner wrote in a note.

Bonner, who reiterated his Buy rating and $900 price target on the stock, has raised his 2016 EPS estimate to $34.56 from $33.60 and 2017 forecast to $39.98 from at $38.72.

"With more than 50 percent of search queries now on mobile, and the success of the Google Maps and YouTube mobile apps, Alphabet is certainly growing in the right direction," Bonner noted.

Alphabet shares are up about 2 percent year-to-date, compared to a 6 percent increase in the S&P 500. Alphabet's lagging EV/EBITDA of 16.9 is well below the peer median of 20.0.

Alphabet's class A shares closed Friday's regular trading at $791.34.

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