Citi’s Mark May mentioned that recent checks with two leading search engine marketing agencies/platforms revealed the annual search spending for 2016 is likely to be about $5 billion.
May maintains a Buy rating on Alphabet Inc (NASDAQ: GOOG) (NASDAQ: GOOGL), with a price target of $900.
Slight Deceleration In Search
“At a high level, these early data points suggest that a slight deceleration in the y/y growth rate for search marketing spend in 2Q16 vs. 1Q16 is possible. This could be slightly below current forecasts,” the analyst said.
However, May also pointed out that these were just two checks, and they did not include the whole of June. However, they could be interpreted by some as mixed to marginally disappointing, as compared to the current expectations.
Therefore, the analyst does not currently expect upside to the 2Q16 estimates for Google’s search business, and pointed out that the gross margin for the quarter could come in about 1–2 percent below expectations, similar to 1Q16.
YouTube And Websites
May also believes YouTube’s growth might be slowing in 2Q16, driven by tougher year-on-year comps.
With regard to the websites' search TAC perspective, the analyst believes “there is unlikely to be another disappointment like in 1Q16, as expectations appear generally fair.”
Although the 2Q16 revenue is expected to come in slightly below expectations due to all these reasons, management continues to be committed to capital and expense discipline.
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