Alphabet (NASDAQ:GOOGL) is set to report its third-quarter earnings after the market closes tomorrow (Tuesday), marking a key moment for investors eager to gauge its performance in the September quarter.
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Among the optimists is Truist analyst Youssef Squali, who holds a “constructive” stance on Alphabet’s upcoming results. Squali anticipates the company’s numbers will meet or slightly exceed expectations, bolstered by robust user engagement on Search and YouTube, year-over-year gains in ad rates, and sustained momentum in Cloud services.
However, Squali does note that tougher year-over-year comparisons could lead to a deceleration in growth. Even so, he expects double-digit expansion, driven by a resilient digital ad market, despite broader macro volatility. Insights from discussions with ad agencies and SEO firms indicate that while US Search spending remained strong for the quarter, its year-over-year growth moderated sequentially to the low double digits.
Partly boosted by increased search spending from APAC-based retailers (most notably Shein and Temu), Google Ad revenue growth last year accelerated from 3% in Q2 to 9% in Q3. Specifically in Search, GOOGL will be up against 11% y/y growth in 3Q23, compared to the 5% uptick seen in 2Q23. Squali is expecting total Google ad revenue (including sites and YouTube) to show a 9% y/y increase, indeed slowing from 11% in Q2 and a 13% gain in Q1.
While the shares have underperformed vs. most other tech giants this year on concerns around “AI evolution in Search and regulatory pressures,” Squali thinks the stock still has plenty to offer investors.
“We believe Google’s Search remains one of the most important customer acquisition and growth channels for most advertisers, a position likely to strengthen as the company grows its user engagement from AI improvements to Search, its foray into CTV with YouTube TV, its scaling of Shorts, and investments in the creator economy,” Squali summed up.
Quantifying his stance, Squali rates Alphabet shares a Buy, alongside a $220 price target. Should the figure be met, investors will be pocketing returns of 32% a year from now. (To watch Squali’s track record, click here)
As for broader sentiment, Alphabet holds a Strong Buy consensus rating, with 22 Buys against 7 Holds. The average target stands at $200.37, indicating a potential 12-month return of 20%. (See GOOGL stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
