Alphabet, the parent company of Google, received mixed analyst ratings on Thursday, with Cantor Fitzgerald initiating coverage with a Neutral rating and a price target of $190, while Wedbush analyst Scott Devitt reaffirmed an Outperform rating with a $205 price target.
Analyst Deepak Mathivanan of Cantor Fitzgerald highlighted Google’s core search revenue growth, which has accelerated over the past five quarters, surpassing +15% in constant currency during the second quarter. While he anticipates a deceleration in growth, Mathivanan believes Google’s search revenue will steadily benefit from increased query volume and monetization gains in the coming years. He also noted that Google’s share loss to competitors, both direct and indirect, appears minimal thus far. The early feedback on the user experience (UX) of generative AI has been positive, enabling Google to mitigate potential erosion of use cases.
Mathivanan believes that Google’s core search business possesses several growth levers, projecting double-digit growth in fiscal years 2024 and 2025. However, he acknowledges uncertainties in the medium to long term stemming from recent regulatory setbacks and the costly deployment of AI to transform search UX. Additionally, he anticipates headwinds for fiscal 2023 earnings per share (EPS) growth due to escalating infrastructure costs and headcount additions.
Despite Google’s stock currently trading at a 19x fiscal 2025 EPS, a discount to mega-cap peers, Mathivanan believes this discount is unlikely to change while near-term regulatory and AI-related uncertainties persist. He projects third-quarter revenue of $85.5 billion and EPS of $1.86.
Meanwhile, Wedbush’s Devitt acknowledged the looming second antitrust trial against Google, scheduled for September 9, 2024, in the U.S. District Court. The trial focuses on Google’s ad tech stack, particularly Google Ad Manager. Devitt noted the U.S. Department of Justice (DOJ) complaint proposes the divestiture of Google Ad Manager Suite but does not explicitly target other areas of the ad tech stack. Although Devitt recognized the near-term headline risk associated with the trial, he emphasized the limited overall risk to the industry based on Google’s recent financial disclosures regarding its ad tech products.
Google’s stock (GOOGL) closed up 0.20% at $156.77 on Thursday.
