Deutsche Bank Modeling For 30% Upside In Google Shares Over The Next Year

“We come away from 4Q results upbeat on solid two-year growth trends in Google Sites revenue ex-FX,” Deutsche Bank’s Lloyd Walmsley said in a note, while maintaining a Buy rating on Alphabet Inc GOOG GOOGL and raising the price target from $1,090 to $1,100.

EBITDA Margins

EBITDA margins for core Google were better than expected, despite robust revenue growth for the Licensing & Other (L&O) segment, driven by Pixel.

Walmsley estimated that, ex-Pixel and including one-time Cost of Goods Sold (COGS) in the latter half of 2016 for core Google, the core Google EBITDA margins actually rose 59 bps year-on-year.

“As this settles in, we expect shares to rebound from the post-close lows,” the analyst stated.

Revenue

Alphabet reported total net revenue of $20.95 billion for Q4, marginally ahead of the estimate, with slight year-on-year margin compression, despite the sharp ramp in Pixel phones.

Revenue for the L&O segment came in at $3,403 million, in line with the estimate but well above the consensus forecast, implying Pixel units of 1.5 million.

YouTube remained strong during the quarter, with Alphabet stating that revenue grew at a “significant rate.”

In addition, Verily received an investment of $800 million from a Singapore-based fund, reflecting continued capital discipline.

“The company has yet to launch its $7 billion repurchase activity, suggesting a large corporate action may have been in the works,” the analyst stated.