Alphabet Rises 6.5% On Robust 3Q Results; Street Sticks To Buy

Shares of Google-parent Alphabet rose 6.5% in extended trading on Thursday after the tech giant reported robust 3Q financial results, aided by a rebound in the advertising business.

The company’s 3Q earnings of $16.40 exceeded the Street estimates of $11.29 per share and increased 62% year-on-year. Its revenue of $46.2 billion grew 14% year-over-year and also topped analysts’ expectations of $42.9 billion.

Alphabet’s (GOOGL) CFO Ruth Porat said that 3Q results reflect “broad based growth led by an increase in advertiser spend in Search and YouTube as well as continued strength in Google Cloud and Play.”

During 3Q, Google’s advertising revenue, which accounts for about 80% of its total revenues, increased to $37.1 billion, compared to $33.8 billion in the year-ago quarter. YouTube ad revenues grew 32% year-on-year to about $5.04 billion, compared with Street estimates of $4.4 billion. The Google cloud business jumped 44.8% year-on-year to $3.4 billion, higher than analysts’ estimates of $3.3 billion. Meanwhile, the “Google Search & Other” advertising category showed a 6% growth in 3Q to $26.3 billion. (See GOOGL stock analysis on TipRanks).

Following earnings Stifel Nicolaus analyst Scott Devitt maintained a Hold rating on the stock but took his price target up $100 to $1,700 (9% upside potential) saying: “A rebound in the global economy, and particularly in the digital ad market, has led to a faster-than-expected upward revision in the company’s growth rate.”

He has now increased his 4Q gross revenue estimate higher by +5% to $54.6B, representing +18.6% y/y growth. And Devitt’s 4Q operating profit estimate rises +13% to $12.0B with a margin expectation of 22.0% (as a percentage of gross revenue) from 20.4% previously.

Currently, the Street has a bullish outlook on the stock. The Strong Buy analyst consensus is based on 30 Buys and 1 Hold. The average price target of $1,811.07 implies upside potential of about 16.3% to current levels. Shares have increased by 16.2% year-to-date.