3 Alphabet Analysts Break Down The Q4 Report

For the first time, Alphabet Inc GOOGL GOOG stock has crossed above the $2,000 threshold after the search giant reported solid fourth-quarter results.

The Alphabet Analysts: Needham analyst Laura Martin maintained a Buy rating on Alphabet shares and upped the price target from $1,800 to $2,500.

Morgan Stanley analyst Brian Nowak maintained an Overweight rating and increased the price target from $2,050 to $2,200, with the bull-case target at $2,650 and sum-of-the-parts valuation at $2,800.

Raymond James analyst Aaron Kessler maintained an Outperform rating and hiked the price target from $1,800 to $2,440.

Needham On Alphabet's Q4 Numbers: Alphabet's fourth-quarter revenue rose 23% year-over-year to $56.9 billion, and non-GAAP EPS climbed 45% to $22.30, exceeding Needham estimates by 12% and 61%, respectively, Martin said in a Wednesday note.

Alphabet's key upside drivers were Cloud, Google Pay and YouTube, the analyst said, citing the company.

Google began breaking out Cloud revenues and operating income, improving disclosures, she said. 

Specifically, YouTube advertising revenues rose 46%, 2.7 times faster than Search advertising revenues, Martin said.

Among segments, Google advertising revenues climbed 22% to $46.2 billion, Google Cloud revenue jumped 47% to $3.8 billion, Google Other segment revenue rose 27% to $6.7 billion and Other Bets revenue was at $196 million, up 14%, the analyst said. 

The operating margin expanded from 20% in the fourth quarter of 2019 to 28% in the fourth quarter of 2020.

Martin said she expects margins to expand as ad revenues grow faster.

As of Dec. 31, 2020, Google had cash and marketable securities of $136.7 billion, according to Needham. 

Related Link: YouTube Eyes Expansion Of TikTok Rival Service After Finding Popularity In Beta Phase

Morgan Stanley's Takeaways On Alphabet: Alphabet's fourth-quarter ad revenue beat reflects macro ad market strength and inflecting online ad growth, as ad dollars follow a surge in online behavior, Nowak said. 

Search revenue grew 17%, on par with the level seen in January and February 2020 ahead of the pandemic, increasing the bullishness about the cadence of Search as travel recovers over the course of 2021, the analyst said. 

Continued strength in direct response and branded ad market recovery were responsible for the strong performance of the YouTube Ad platform, he said.

The platform is positioned for more than 40% revenue growth in 2021, Nowak said. 

Google Cloud's investment losses were much bigger than expected, underlining the fact that Alphabet's core business — comprising Search, YouTube, Network, Hardware and the like —is even more cash flow generative, the analyst said. 

The Cloud business, though unlikely to reach profitability soon, can scale profitably over years, he said. 

Raymond James On Google's Q4 Positives: Google's all-round outperformance suggests a recovery in advertiser spend and strong retail search activity, Kessler said in a note. 

Google Cloud has been seeing continued strong trends, with the  backlog increasing to nearly $30 billion in the quarter, the analyst said. 

Kessler sees strong across-the-board ad growth, strong Google Cloud revenues and better-than-expected EBITDA as positives.

Raymond James said its bullish stance is premised on solid long-term ad revenue growth, both in Search and YouTube; increasing Google Cloud momentum; option value in other areas such as Hardware and Other Bets; and attractive valuation.

GOOGL Price Action: At last check, Alphabet Class C shares were rising 8.36% to $2,088.59 ahead of the close Wednesday. 

Related Link: Amazon, Microsoft 'Cloud Arms Race Hitting Another Gear' With Bezos Replacement: Wedbush

Photo by Paweł Czerwiński on Unsplash.