Alphabet's Q3 Shows Top-Line Upside Across The Board

Commenting on Alphabet Inc GOOGL GOOG's third-quarter results, Wells Fargo Securities said the revenue upside was seen across all major segments.

As such, the firm maintains its Overweight rating on the shares of the company and raised its price target from $1,250 to $1,275.

At time of writing, both classes of Alphabet shares were rallying, with GOOG up 6.36 percent at $1,043.43 and GOOGL up 5.86 percent at $1,049.51.

Analyst Ken Sena noted that the company reported better-than-expected revenue growth and operating leverage for its September quarter, with the company crediting the outperformance to early bet on AI.

Reported gross revenues rose about 24 percent year over year to $27.7 billion, ahead of the analyst's 22 percent estimate. The analyst noted that the third quarter marked the seventh quarter in a row of consecutive acceleration when adjusted for comparisons.

Additionally, the analyst said higher margins led to a 10-percent EBIT and a 12-percent EPS beat.

Among the segments, Wells Fargo said sites and network revenues beat estimates by 2 percent and 3 percent, respectively to $19.7 billion and $4.34 billion, with the company crediting the strength to mobile, YouTube, programmatic and AdMob. Other Bets revenues came in at $302 million, $50 million more than expected, the firm added.

The firm noted that Core Other revenues were roughly in line at $3.4 billion. The firm also noted traffic acquisition cost as a percent of revenues were 40 basis point above expectations and operating leverage in R&D and G&A helped drive 330 basis points of overall GAAP operating margin leverage.

Citing the quarterly beat, the firm raised its fourth-quarter net revenue estimate by 2 percent to $25.92 billion and GAAP operating income estimate by 3 percent to $8.45 billion, with higher margins driven primarily by additional expense control in R&D and G&A. The firm also raised its 2018 net revenues estimate by 2 percent to $107.44 billion and GAAP operating income estimate by 5 percent to $35.72 billion.

"We view this quarter as further supporting our view that an inflection in compute stands to pave a path for Google into a growing number of industries, where vehicles (e.g., Waymo) remains one of several, and we view GOOGL's leading position here as sufficient enough to offset known overhangs (i.e., EU Regulatory, GDPR, etc.)," the firm said.