Alphabet's Q2 Earnings Sell-Side Roundup

Alphabet Inc GOOG GOOGL shares dropped 3 percent on Tuesday after the company’s second-quarter earnings report disappointed the market.

A number of Wall Street analysts weighed in on Google following the report. Here’s a rundown of what they had to say.

Voices From The Street

JMP analyst Ronald Josey said higher-than-expected traffic acquisition costs and an uptick in spending weighed on Alphabet’s gross margins. “We continue to believe Alphabet is among the best positioned Internet companies in our coverage universe due to its leadership position in AI an ML an its exposure to mobile,” Josey wrote.

Citi analyst Mark May said Google has strong underlying growth trends and the stock trades at a reasonable valuation. “While growth was slightly below some expectations and margins declined y/y, growth was still strong on a large base, and commentary about new opportunities suggest continued high growth and progress,” May wrote.

Wells Fargo analyst Peter Stabler said yet another quarter of 20 percent top-line growth from Google is impressive. “Though we expect to hear concern from investors over the higher-than-anticipated traffic acquisition costs, we view Google as well-positioned to continue its online advertising share gains and believe the company’s widening application of machine learning will yield efficiency improvements for marketers, further fueled by Google’s increasing application of user signals from across its 1B+ user product platforms,” Stabler wrote.”

Credit Suisse analyst Stephen Ju said the report wasn’t as straightforward as he would have liked, but he saw nothing that threatened his bullish thesis. “The key item of focus will be the continued increase in distribution TAC due primarily to mobile search. With this in mind, however, the higher-than-expected revenue despite the lower flow thru does result in stable profit dollars for 2018, and overall our investment thesis for GOOGL shares does not change.”

UBS analyst Eric Sheridan said investors should focus on Google’s long-term opportunities rather than its short-term growing pains. “Despite the stock outperforming the SPX over the past 12 months, we view Alphabet as a favorable risk/reward with sustained revenue momentum, increased transparency and exposure to key secular growth ahead,” Sheridan wrote.

BMO Capital Markets analyst Daniel Salmon said Alphabet should remain a core holding but that Amazon.com, Inc. AMZN has more upside in the next 12 months. “We believe Google can continue to grow revenue at 15-20% over the mid- and long term but see lower potential magnitude and likelihood of beats as Amazon rises,” Salmon wrote.

KeyBanc analyst Andy Hargreaves said Q2 was mostly strong despite the disappointed uptick in TAC. “Alphabet's ad growth outlook remains strong and we see large incremental growth opportunities in YouTube and cloud,” Hargreaves wrote.

Cantor Fitzgerald analyst Kip Paulson said Google demonstrated yet another quarter of underlying momentum and global dominance. “Although TAC was a bit higher than expected due to strong growth in higher TAC areas (mobile and programmatic), we believe faster top-line growth will offset slightly lower gross margins over time,” Paulson wrote.

Related Link: The Sell-Side Weighs In On Blue Apron

Ratings And Price Targets

Wall Street is still mostly bullish on Alphabet’s stock following the mixed quarter, but some firms are more bullish than others:

• JMP has an Outperform rating and $1,077 price target.
• Citi has a Buy rating and $1,180 price target.
• Wells Fargo has an Outperform rating and $1,150 price target.
• Credit Suisse has an Outperform rating and $1,100 price target.
• UBS has a Buy rating and $1,080 price target.
• BMO has a Market Perform rating and $970 price target.
• KeyBanc has an Overweight rating and $1,100 price target.
• Cantor Fitzgerald has an Overweight rating and $1,100 price target.