Alphabet (GOOGL) (GOOG) 'Buy' Maintained at SunTrust Following Solid Q3
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Peck commented, "Alphabet reported a solid quarter decelerating growth to 23% which was less than feared based on tougher comps. Google Sites continue to drive the growth with paid clicks accelerating to 42% from 37% in 2Q. Further, impressively, the company did this on better margins (41.7% versus 41.2% expectation). Lastly, the company continues to balance LT growth investments (i.e. Cloud), with capital returns (announcing a $7B buyback). We remain a Buy with our $900 target (~19x 2018 PE)."
Peck's 3Q Key Points. 1) Revenue growth decelerated ~2-pts to +23% YoY ex-FX despite 3-pt tougher comps. Sitesgrew 23% YoY, led by Mobile and YouTube, with paid clicks up 42% and CPC down 13%. 2) Network growth of 1% YoY reflected growth in Programmatic and AdMob, offset by legacy declines. 3) Other Google revenue accelerated to +39% from 33% in 2Q, led by Play and Cloud. 4) US grew 22% YoY, UK 18% ex-FX, and RoW 25% ex-FX. 5)Total TAC rate declined modestly due to mix, but was UP for Sites and Networks to a record for 3Q. TAC to distribution partners grew to ~10% of Sites revenue versus 8% in the year ago period, primarily on Mobile growth. Network TAC increased to ~70% from ~68% over the same period, on higher Programmatic revenue. 6) Operating margins improved ~110bps despite higher TAC and investments. Core Google margins were down ~95 bps YoY on higher Other Cost of Revenue (data centers and YouTube content). 7) FCF was $7.5B or ~33% of revenues. GOOGL ended 3Q with ~$83B in cash, including ~$50B abroad. 8) In October, Board authorized ~$7B in share buybacks.
Shares of Alphabet closed at $795.35 yesterday.
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