Alphabet (GOOGL) Crushes Q2 Expectations to Send Shares Higher as Search and YouTube Excel, Attracts a New Street-High Price Target

July 28, 2021 7:37 AM EDT
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Price: $2,816.00 -1.96%

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    30 Buy, 2 Hold, 0 Sell

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Shares of Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) are up more than 4% in pre-open after the company smashed analysts’ expectations for the second quarter.

GOOGL reported EPS of $27.26 per share to demolish $19.34 per share expected from the surveyed market analysts. Sales were reported at $27.26 billion to top the $19.34 billion expected from Street.

“In Q2, there was a rising tide of online activity in many parts of the world, and we’re proud that our services helped so many consumers and businesses. Our long-term investments in AI and Google Cloud are helping us drive significant improvements in everyone’s digital experience,” commented Sundar Pichai, CEO of Google and Alphabet.

“Our strong second quarter revenues of $61.9 billion reflect elevated consumer online activity and broad-based strength in advertiser spend. Again, we benefited from excellent execution across the board by our teams,” said Ruth Porat, CFO of Google and Alphabet.

The company delivered a strong beat across the board with revenue from YouTube coming in at $7 billion vs $6.37 billion projected. Cloud generated $4.63 billion to again top the $4.4 billion expected. Traffic acquisition costs (TAC) came in at $10.93 billion, higher than $9.74 billion the market was looking for.

Full Google ad revenue exploded 69% to $50.44 billion.

YouTube has continued to excel with Google’s chief business officer Philipp Schindler noting the company has 120 million people who watch YouTube on their TVs on a monthly basis. Shorts, developed by YouTube to compete with TikTok, soared from 6.5 billion daily views in Q1 to 15 billion in Q2.

Susquehanna analyst Shyam Patil raised the price target to a new Street-high of $3,600.00 per share (up from $3,100.00) on continued Search and YouTube strength.

“2Q was another beat across the board, with Search and YouTube putting up massive performances. Although the comps will be more difficult in the 2H, we don’t see any reason why the strong execution shouldn’t continue. We continue to remain positive on: 1) the secular ad growth story driven by mobile search and YouTube, 2) the Cloud ramp, 3) generally better expense management, and 4) a more shareholder-friendly capital allocation approach,” Patil said in a note.

BMO analyst Daniel Salmon pushed the price target to $3,000.00 per share from $2,700.00 as the Q2 print sailed past analysts’ estimates.

“The outperformance of search/DR revenue is driving a step change in Google Services OI margins this year. We assume they ease back off in 2022 as normal operating costs fully return; we bake in more investments (especially at YouTube), but we are still well above 2019 levels. GOOGL's own risk disclosures remind investors margins should decline over time, and we do not yet see why that should change; but at the very least, a higher perch from which to glide appears to have been set,” Salmon wrote in a report on GOOGL.

In addition to these two analysts, their colleagues at Raymond James, Oppenheimer, Truist Securities, Needham & Company, Wolfe Research, BofA Securities, Credit Suisse, Barclays, Jefferies, Morgan Stanley, and Stifel have raised their PTs on GOOGL this morning.



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