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Alphabet Exceeds Expectations, Bull Thesis Intact

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Alphabet Exceeds Expectations, Bull Thesis Intact

Analyst at KeyBanc turned incrementally bullish on Alphabet Inc (NASDAQ: GOOG) (NASDAQ: GOOGL) after the company reported its third-quarter results. The firm's Andy Hargreaves maintains an Overweight rating on Alphabet's stock with a price target boosted from $1,100 to $1,150.

Alphabet's ad revenue in the third quarter continued to show strength as Google Sites and Network Sites ad revenues both came in higher than expected, the analyst wrote in a research report. Google Sites traffic-acquisition costs rate rose from 11.1 percent in the second quarter to 12.2 percent.

In addition, the incremental year-over-year TAC rate of 23.2 percent was in line with the prior quarter's 23.0 percent rate, which signals stability and normalization in the impact of deal renewals and other factors on Sites TAC, Hargreaves also wrote. This should increase investor confidence in the future rate of TAC growth (see Hargreaves' track record here).

Google Performance

Alphabet's Google segment showed strong volume and revenue growth in the quarter. Investors can conclude from this that the company continues to see "extraordinary consumer demand" for the segment's services, which in turn offers compelling value to advertisers.

Google's EBITDA also rose 26 percent from the same quarter a year ago and up 19 percent year-to-date. Looking forward, the segment's EBITDA is expected to rise 18 percent for full-year 2017 and 13 percent next year, which still represents an "extremely strong" growth rate for a business the size of Google.

Finally, Alphabet's other business lines, including YouTube, maps and Other Bets, are still expected to perform better than expected moving forward as the company continues to roll out or improve monetization initiatives.

In Friday's pre-market session, shares of Alphabet (GOOG) were up 4.82 percent at $1,019.10. GOOGL shares were up 4.72 percent at $1,038.20.

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Latest Ratings for GOOG

DateFirmActionFromTo
Oct 2020MizuhoMaintainsBuy
Oct 2020Credit SuisseMaintainsOutperform
Oct 2020Raymond JamesMaintainsOutperform

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