JMP's Josey: Google Worth $880

Ahead of Alphabet Inc (NASDAQ: GOOGL) (NASDAQ: GOOG)’s fourth-quarter fiscal 2015 earnings call on Monday afternoon, JMP analysts Ronald V. Josey, Andrew Boone, Ignatius Njoku and Shweta Khajuria reiterated an Outperform rating and $880 price target on the stock.

The experts based their bullishness on the belief that the 2015 holiday season was “relatively strong” for online advertising -- Search & Social. Checks have suggested healthy Search advertising trends, with mobile driving much of the growth – while also impacting CPCs to a certain measure. Consequently, the analysts believe revenue and profitability figures for the quarter will come in ahead of their initial expectations.

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Moreover, Josey and his team noted, the ~8 percent year-over-year decline in Alphabet’s stock opens an attractive entry point for investors, especially given JMP’s “expectation of relatively strong 4Q15 results and increased transparency on revenue and profitability for core Google and Other Bets.”

The firm’s $880.00 price target is based on its sum-of-the-parts analysis for 2017, where they value core Google at 11.5 times their 2017 EBITDA estimate and Alphabet’s Other Bets at what they view as a “conservative” 0.9 times their $1 billion revenue projection.

The experts justify this sum-of-the-parts valuation “given Alphabet’s multiple growth opportunities, including search, mobile, video, and display, among others.”

For 2016, the analysts are modeling total gross revenue of $84.8 billion (up 14.6 percent year-over-year), net revenue of $69.8 billion (up 16.3 percent year-over-year), EBITDA of $35.1 billion (up 19.8 percent year-over-year, on a 50.2 percent margin), and PF EPS of $35.13.

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.

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