Google parent company Alphabet (NASDAQ:) (NASDAQ:) this week crushed Wall Street's earnings estimates, producing sales and profits that far exceeded expectations.
The search engine giant posted its highest-ever quarter for sales and profits, fueled by hefty ad spend from companies trying to rake in sales as economies around the world reopen.
Alphabet reported revenue of $61.88 billion, up 62% from a year earlier, as its advertising business collapsed following the coronavirus outbreak that pushed the economy into a deep recession. Earnings have more than doubled to $18.53 billion, with earnings per share exceeding analyst expectations.
Anticipating this boost from the reopening, shares of the California-based company are up about 56% this year, as gains in other high-growth technology stocks are slowing. Google stock closed at $2,715.60 yesterday. It remains the top-performing name of the five megatech stocks, including Apple (NASDAQ:) and Amazon (NASDAQ:).
"We saw a surge in online consumer and business activity," Chief Executive Sundar Pichai said in a Wall Street Journal report, adding that digital publishers and YouTube partners earned more during this period than at any time in history. of the company.
The company posted $50.44 billion in advertising revenue, up 69%, fueled by a red-hot US market where ad spend is on track to be fastest in the post-war era. YouTube's ad business collected $7 billion in revenue, up 84% from a year earlier.
Bull Thesis remains intact
This growth momentum, many analysts believe, will continue as consumers return to restaurants, shops and even vacation destinations: activities that drive internet traffic and generate advertising revenue for Google. Thanks to these positive catalysts, many leading analysts have raised their price target for Google stocks this week.
JPMorgan, while raising its price target for GOOG stock from $2,638 to $3,250, said in a note that Alphabet remains one of its top picks as key components of the bull thesis continued to play out, including ad recovery, margin up , cloud profit improvement and greater return on capital.
Added the note:
“We continue to believe there is even more gains to come as Search and YouTube are well positioned to support an increasingly digital economy. We expect [operating income] overall margins to compress slightly in 2H21 as GOOGL brings in more variable costs, but [management’s]'s tone here was less cautious than expected and while the company will invest for future growth, we believe that it probably gained some cost savings stemming from COVID-19.”
In their note, Barclays analysts reiterated their call, naming Alphabet one of their favorite names in the mega-cap tech space, noting that the outlook for its stock remains good. The company maintained its overweight rating, but raised its price target from $3,000 to $3,200.
Their note said:
"Digital ads are proving very resilient in this economic cycle, and growth rates across the space, including at Google and YouTube, are staggering due to shared shifts and easy compositing – some of the highest numbers we'll ever see." Google's auction-based system is gaining popularity in categories that are strong, while increasing overall activity for both consumers and marketers.”
Bottom Line
With its traditional growth engine, search engine advertising, remaining undisputed, and the company positioning itself to grow faster in the post-pandemic world, Google's stock will continue to outperform other mega-tech peers. The stock could see more upward movement as the economy reopens, bringing the sale of digital advertising from hospitality and travel companies back.
