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Why Google's Speedy Recovery In Digital Advertising Impresses Stifel Analyst

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Why Google's Speedy Recovery In Digital Advertising Impresses Stifel Analyst

Google parent company Alphabet Inc (NASDAQ: GOOG) (NASDAQ: GOOGL) showed an impressive and speedy recovery in its digital advertising business after bottoming in 2020, according to Stifel.

The Alphabet Analyst: Scott Devitt upgraded Alphabet's stock rating from Hold to Buy with a price target lifted from $2,025 to $2,350.

The Alphabet Thesis: The COVID-19 pandemic negatively impacted Alphabet's digital advertising business, but metrics showed a swift and sharp rebound by the end of 2020, Devitt wrote in the upgrade note. Specifically, Google Properties (mostly search engine and YouTube ads) in the fourth quarter showed a 21.6% year-over-year growth rate, marking the fastest pace of growth since mid-2018.

The momentum can be attributed to companies of all shapes and sizes embracing a digitalization trend and this should continue even in a post-COVID reality, the analyst wrote. Advertisers will prioritize digital spending as it has proven to offer superior return on investment opportunities versus linear TV.

Related Link: How Google's Decision To Scrap Third-Party Cookies Will Affect The Search Giant

Continued success in the digital business is the driving factor of a new bullish stance, but there are other catalysts to help lift the stock. These include margin improvement from recent operating leverage, growth potential from under-monetized business units and strong expectations for the Cloud business.

Finally, Alphabet's stock is trading at a NTM P/E of around 28 times and this is just one standard deviation above its average around 25 times.

"Over a multi-year period, we believe GOOGL shares support a high-single-digit to low-double-digit annualized return from here," Devitt wrote.

GOOG Price Action: Class C shares are up 0.16% at $2,059.34 Tuesday morning.
GOOGL Price Action: Class A shares are up 0.30% at $2,051.98 Tuesday morning.

(Photo by Mitchell Luo on Unsplash)

Latest Ratings for GOOG

DateFirmActionFromTo
Apr 2021Piper SandlerMaintainsOverweight
Apr 2021Credit SuisseMaintainsOutperform
Apr 2021OppenheimerMaintainsOutperform

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