Innovation Will Continue To Drive Alphabet Going Forward

Alphabet Inc GOOG GOOGL reported beat results for 2Q, with robust performance from Google Websites and higher core Google earnings power, which drove an EPS beat.

Morgan Stanley’s Brian Nowak maintains an Overweight rating on the company, with a price target of $880.

2Q Beat

Nowak mentioned that Google’s core Websites business beat expectations, growing 24 percent year-on-year, ex-FX.

“The primary drivers were mobile search, solid desktop search growth, and YouTube, which is seeing strong growth in Google Preferred and a growing contribution from buying on DoubleClick Bid Manager,” the analyst explained.

Innovation Driving Outperformance

The company’s stronger-than-anticipated top-line growth was driven by innovation, as Google continued to enhance the search experience, ad formats, tools and offering.

Related Link: Alphabet Shares Cross $800 After Big EPS And Sales Beats

“We see this innovation as the key to the long-term trajectory of GOOGL's top-line….in all leading to strong and sustained 20+ percent Google Websites growth,” Nowak stated.

U.S. Business Strong

The U.S. business was especially strong during the quarter, accelerating to 25 percent year-on-year growth, well ahead of the estimate.

Nowak pointed out that “American ad revenue growth in 2Q, again speaks to how the US online ad market is increasingly becoming winner take most.”

In addition, adjusted operating margins for Core Google grew 150 bps, while distribution TAC growth accelerated by 980 bps to 43 percent year-on-year, driven primarily by the increasing impact of mobile search.

At time of writing, Alphabet (GOOGL) was up 4.46 percent at $800.00 in Friday's pre-market session, while C shares (GOOG) were up 3.89 percent at $774.90.

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