Analyst Note| Ali Mogharabi |
Strong performances by Alphabet’s YouTube, cloud, and Google Play helped partially offset a decline in search ad revenue and resulted in second-quarter numbers above our expectations and the FactSet consensus. The firm has begun to see slight month-over-month improvement in search ad spending, although the business remains heavily dependent on an economic recovery. We continue to expect slight improvement in Google’s total ad revenue during the remainder of 2020 as the decline in search slows a bit and demand for direct-response ads continue to increase for YouTube. Google’s other segment is likely to continue to grow strongly this year, further diversifying Alphabet’s total revenue. Given the better-than-expected top- and bottom-line results in the second quarter and our assumption that Google will successfully monetize some of its other properties in the long run, we have increased our projections, resulting in a $1,690 fair value estimate, up from $1,520. This wide-moat and high-uncertainty name appears fairly valued, but we would not hesitate to accumulate shares during a pullback.