Considered the world’s biggest digital ad player, 80% of Alphabet’s (GOOGL) 1Q22’s revenue was generated via Google Advertising. Furthermore, in an industry that has been rattled by Apple’s privacy initiatives, namely its App Tracking Transparency (ATT), despite YouTube Ads taking a bit of a hit, generally speaking, Alphabet’s advertising business has withstood the changes rather well.
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However, Monness’ Brian White thinks there are too many negative macro developments which even Alphabet won’t manage to fend off.
Over the next 12-18 months, the 5-star analyst anticipates soaring inflation, supply chain woes, a tightening monetary policy, unwanted geopolitical surprises, and the “potential bursting of a decade plus asset bubble” to negatively affect worldwide economic growth. And that is all set to impact a segment “ultra-sensitive to the economy.”
“As the global economy weakens and the geopolitical backdrop grows more treacherous,” says White, “we expect digital ad spending to come under increased scrutiny this year.”
Additionally, while still expected to grow at a “respectable rate,” in such an environment, White expects cloud spending to be impacted too (Alphabet is rated amongst the top-three public cloud vendors, with 9% of 1Q22’s revenue coming from Google Cloud).
The result of all these negative developments is a reduction of White’s GOOGL estimates. For 2Q22, White now sees revenue coming in at $69.12 billion (up year-over-year by 12%), down from the prior $70.42 billion, while the EPS forecast is also brought down from $26.12 to $25.95. For the full-year 2022, the revenue forecast is lowered from $292.96 billion to $284.66 billion (up 10%) while the EPS projection is brought down from $107.70 to $104.22.
Accordingly, there’s also a reduction to the price target. The figure drops from $3,500 to $2,900, now suggesting shares have room for 21% growth over the one-year timeframe. There’s no change to White’s Buy rating. (To watch White’s track record, click here)
That said, despite operating in the treacherous macro terrain, GOOGL is that rare beast – a stock with large coverage where everyone is in agreement; all 30 reviews are positive, naturally providing the stock with a Strong Buy consensus rating. The average price target currently stands at $3,090 and change, implying shares will be changing hands for a 29% premium in a year’s time. (See GOOGL stock forecast on TipRanks)
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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.
