Google's Ad Revenue Surprises Doubtful Investors

Alphabet Inc’s GOOGL 2Q16 results dispel investor concerns, as the company “continued to build on recent business strength,” UBS’s Eric J. Sheridan said in a report. He maintained a Buy rating on the company, while raising the price target from $880 to $925.

Addressing Fears With Execution

Alphabet continued with a strong performance in search and video advertising in 2Q. Moreover, Other revenues at core Google beat expectations, backed by Google Play and Cloud. “Recent investor fears/doubts of a steep trend of deceleration in ad revenue trends from Q2 to Q4 now seem to be shelved in the face of strong results,” analyst Eric Sheridan commented.

Moreover, Alphabet also delivered better-than-expected opex and capex results, with core Google continuing to benefit from leverage, despite the business outgrowing the industry.

The net revenue, adj. EBITDA and adj. EPS estimates for 3Q16 have been raised from $17.82b to $18.24b, from $8.78b to $9.01b and from $8.41 to $8.57, respectively. The net revenue, adj. EBITDA and adj. EPS estimates for FY16 have been raised from $71.82b to $72.75b, from $35.30b to $36.02b and from $33.38 to $33.95, respectively.

Sheridan believes Alphabet represents “an excellent risk/reward for investors,” with a combination of industry-leading revenue growth, solid FCF generation and “a host of long-tailed investments that are in the early stage of addressing large scale opportunities.”

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