Alphabet (GOOGL) (GOOG) Core Margins Offset Losses Caused by Other Bets; PT to $950 - Evercore ISI
Evercore ISI analyst, Ken Sena, highlighted that the strength of Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) core margins offset the growing loss from "Other Bets", He upped his PT to $950 from $915.
Alphabet consolidated delivered a strong quarter with gross revenues of $21b (18% y/y, 24% y/y x-FX), 3% ahead of consensus. FCF was $4.3bn (or 20.4% of revenues) driven by CapEx of $2.1bn.
Sites Revenues, which constitutes ~85% of net revenues, and where core Search and YouTube are booked, accelerated to 27% y/y x-FX on our math from 24% in the previous quarter and 17% in the prior year. The Sites revenue acceleration again showed the largest y/y and q/q acceleration in at least two years, with mobile Search, followed by YouTube, highlighted once more as the sources of the noted inflection. While the continued benefit of a third mobile ad slot released in the third quarter was mentioned, better mobile ad formats and targeting seemed to rule the day.
Geographically the strength was broad based with US up 48% y/y, UK up 16% y/y (20% y/y x-FX) and RoW up 12% y/y (26% y/y x-FX). Advertising revenue beat across both Sites and Networks with total advertising revenue of $19bn (17% y/y), which was 2% above expectations. Sites revenue led the beat at 3% ahead of consensus, or $14.9bn (20% y/y, 27% x-FX. Strong increases in the number of paid click (up 40% y/y vs. 25% est.) were also witnessed, reflecting continued adoption of lower priced TrueView YouTube ads. As such, CPCs were -13% vs. –8% estimated.
For 2017, total net consolidated revenues increases by 2% to $82.85bn (14% y/y) driven by 2% higher Sites revenue, now growing 14% from 12% previously. On the bottom-line, EBITDA, EBIT, and EPS all come up by 1%, with higher Core margins offsetting larger losses in Other Bets, For 2016 we are similarly increasing consolidated net revenues by 2% to $72.75bn (20% y/y), and there is a similar mix shift to ‘17 between Core and Other Bets profitability.
The new $950 target (from $915) implies shares can trade at 14x adj. EBITDA and 23x adj. EPS on 2017 estimates.
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Shares of Alphabet closed at $752.00 yesterday.