Google Raised at BofA After Crushing Q3 Expectations

Google parent Alphabet Inc. (NASDAQ: GOOG, GOOGL) jumped as much as 9% on Friday after reporting a strong third-quarter beat on Search, Youtube and Cloud properties. The search giant crushed expectations for both earnings per share (EPS) and revenue, following its first-ever revenue decline in Q2.

BofA Securities analyst Justin Post maintained a “Buy” rating on Alphabet and raised the price target to $2,000 from $1,850.

While the company announced growth in key metrics, a recovery in online advertising spend was primarily responsible for the beat, Post said in a Friday note.

For the quarter ending September 30, Alphabet brought in total revenue of $46.2 billion, versus the $42.8 billion estimate with Google Search, Youtube ads and Google Cloud surging 6.5%, 32%, and 45% to $26.34 billion, $5.04 billion, and $3.4 billion, respectively. GAAP EPS came in at $16.40, versus the $11.21 estimate. Google’s “Other Revenue” came in at $5.48 billion, compared to $4.05 billion a year ago, while revenue from “Other Bets,” which includes subsidiaries like the self-driving car company Waymo surged 15% to $178 million from $155 million year-over-year (y/y).

On its earnings call, CEO Sundar Pichai disclosed that Alphabet will also break out Google Cloud’s operating income beginning with its fourth-quarter report. Pichai also briefly commented on the recent Department of Justice lawsuit, which accuses Google of abusing its monopoly power over search.

“Regarding the DoJ’s lawsuit, we believe that our products are creating significant benefits and we’ll confidently make our case,” Pichai said. “Our company’s focus remains on continuing our work to build a Search product that people love and value.”

Price Action

Alphabet closed at $1,616.11 on Friday – up 27% y/y and 21% ytd – and had a median consensus target price of $1,900 ahead of the Post’s call. The analyst thinks (via Benzinga) the stock has “more room to go given YTD underperformance, vaccine benefit for depressed verticals, and new Cloud disclosure coming in 2021.”

“We are encouraged by a faster than expected search recovery with 3 more quarters to play out, while Cloud and YouTube are back on track. We remain constructive on the growing value of adjacent businesses (Waymo, Cloud, YouTube), and think Cloud disclosure will elevate the importance of sum-of-parts valuations.”

Alphabet shares traded 1.89 points higher at $1,618 in Friday’s after hours session, while Apple (AAPL), Amazon (AMZN), and Facebook (FB) declined in reactions to their better-than-expected earnings reports.

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