Alphabet is set to report second-quarter earnings after the market closes Tuesday, one of the first of the ” Magnificent Seven ” to post its results this earnings season. For the period ended June 30, analysts polled by LSEG are expecting the Google and YouTube parent to post earnings of $1.84 per share on revenue of about $84.2 billion. That’s a 28% increase in earnings per share and a 13% increase in revenue compared to the same period a year ago. Alphabet topped Wall Street expectations when it reported first quarter results in April, earning $1.89 per share on revenue of $80.54 billion. Several analysts expect Alphabet to top expectations this quarter too, with many reiterating buy ratings and raising their price targets on the stock ahead of Tuesday’s report. “We expect in-line or even slightly better Q2 results,” wrote Baird analyst Colin Sebastian, who has an overweight rating on the world’s dominant internet search engine company. “Specifically, our search and YouTube checks were generally positive, we expect stable Cloud growth and positive mgmt. commentary on GenAI usage and progress with Gemini. Search competition remains a key area of long-term investor focus.” For Google search revenue, Wolfe Research estimates growth of 12.6% compared to the prior-year period. On the whole, the firm expects a beat on both top and bottom lines “largely in line” with expectations. Wolfe has an outperform rating on Alphabet and a share price target of $240, implying more than 32% upside from Monday’s close. Analyst Shweta Khajuria cited the company’s scale, artificial intelligence investments, category leadership position and product catalysts as drivers. Deutsche Bank, Bank of America and TD Cowen all increased their price targets on the stock heading into earnings. Deutsche analyst Benjamin Black cited broader digital advertising strength and generative AI enhancements as reasons to expect second-quarter growth for Alphabet’s search and YouTube businesses. The investment bank cited a robust advertising market, AI-driven tailwinds and indications of management’s growing cost discipline as reasons to remain bullish on Alphabet, increasing its price target by $5 to $195 while reiterating a buy rating. Bank of America analyst Justin Post is focusing on growing AI integrations across Alphabet’s ecosystem. A broader rollout of AI overviews will help boost more activity in search, he said. While Post views AI use as posing a long-term competitive risk, an increase in revenue from AI-driven monetization improvements will be a key takeaway for the second-quarter print. Bank of America recent repeated a buy rating on the stock while increasing its price target by $6 to $206, or about 13% higher than Monday’s close. For TD Cowen, anticipated robust spending growth for search in the second quarter – pointing to healthy digital ad environment – combined with the firm’s view that YouTube is likely still gaining share among younger viewers, prompted a more bullish stance. The bank increased its target to $220, implying more than 21% upside from Monday’s close. “Google is the best-positioned mobile advertising company, in our view, due to its leading mobile advertising revenue position, robust capabilities, and traffic advantage relative to its peers,” analyst John Blackledge, who has a buy rating on Alphabet, said in a note. “GOOG’s advertising offering, combined with its competitive cloud franchise, results in a digital powerhouse and yields a forecast of double-digit annual top-line growth and similar double-digit annual EBITDA growth over time.” More negatively, Rosenblatt Securities analyst Barton Crockett estimates that Alphabet’s total sales will fall about 1% below Wal Street’s consensus, largely stemming from weaker search, YouTube and network ads. Compared to the first quarter results, Rosenblatt sees comps stiffening in the second quarter, with ad trends slowing “in inverse proportion.” Rosenblatt has a neutral rating on Alphabet and a price target of $181 – about where the stock closed Monday. GOOGL mountain 2024-07-22 Alphabet, 2-day Bernstein analyst Mark Shmulik also chooses to stay neutral, rating Alphabet market-perform. Though the analyst sees Alphabet’s second-quarter earnings setup as “remarkably similar” to the first quarter, the difference now is that the stock has “largely shaken off” the risk of generative AI. Looking ahead, Shmulik anticipates that a “potentially adverse” verdict by the Department of Justice against the company for monopolizing search and search advertising could come out “over the next few weeks.” “Margins in the near term should be supported by layoffs earlier in the year, and consolidation efforts,” Shmulik wrote. “However, higher GenAI infrastructure and talent cost longer term could weigh on [operating expenses], with regulatory and legal expense likely to continue to tick up with the DOJ Network case set to begin in September.”
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