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Alphabet Is Upping Its Ad Game

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Alphabet Is Upping Its Ad Game

Google parent Alphabet Inc (NASDAQ: GOOG) is ramping its ad business and the latest four ads move would help grow its paid clicks, according to Evan Wilson of Pacific Crest Securities.

Alphabet has increased the number of desktop searches that have four ads on top, up from a previous maximum of three. According to search agency Moz, 20 percent of searches now have four ads, up from a maximum of three previously.

"It is a meaningful increase in prime ad inventory, which somewhat degrades user experience and enhances its near-term revenue potential," Wilson wrote in a note to clients.

Wilson said the move could impact paid clicks growth. Alphabet had increased the number of ads on mobile at the end of second quarter 2015 and it saw a subsequent reacceleration in paid click growth.

"While it likely wasn't driven solely by this change, we do think this can impact near-term metrics. If the number of searches with four ads continues to increase, look for a potential tailwind of clicks on the Q1 call," the analyst said.

Alphabet has also been eliminating some right-hand ads in favor of more bottom ads. Searches with bottom ads increased to over 25 percent, from just over 10 percent. Searches with right-hand ads decreased to over 20 percent from around 40 percent.

"This shift clearly seems to be in response to the number of searches shifting to mobile and Alphabet providing a more unified experience of users and advertisers across platforms," Wilson said.

Wilson, who has an Overweight rating and $910 price target on GOOG, said Alphabet's fundamentals were strong exiting the fourth quarter, which will continue, and increasingly be the focus of the story.

Alphabet shares have gained 32 percent in the past year.

Latest Ratings for GOOGL

DateFirmActionFromTo
Apr 2021JefferiesMaintainsBuy
Apr 2021KeybancMaintainsOverweight
Apr 2021MizuhoMaintainsBuy

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