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Alphabet Shares Still Cheap; Victory Anthony Raises Target To $990

Alphabet Inc GOOGL reported its 2Q16 revenues and EPS ahead of expectations on accelerating ad growth and margin expansion, Axiom’s Victory Anthony said in a report. He maintained a Buy rating on the company, while raising the price target from $970 to $990.

Alphabet reported 2Q net revenues of $17.53B, representing 22.1 percent y/y growth, up from 18.4 percent recorded in the previous quarter. The figure beat expectations by 4 percent. Google segment operating margins expanded by 105bps y/y and 186bps sequentially to 40.3 percent, versus 34.1 percent for the company as a whole.

Non-GAAP EPS came in at $8.42, ahead of expectations. Google websites growth accelerated to 24.2 percent, driven by 37 percent y/y growth in paid clicks and a 9 percent y/y decline in pricing, which was lower than the 12 percent decline recorded in 1Q16.

Multiple Revenue Drivers Ahead

In 3Q16, revenue growth “should benefit from Expanded Text Ads (iProspect saw 10-20% higher CTRs), device bid modifiers, and responsive display ads,” analyst Victory Anthony mentioned. He expects growth in the coming quarters to be boosted by increases in mobile pricing, growth of search in emerging markets, YouTube, growth of the Google Display Network, shopping ads and new initiatives in verticals like hotels, autos, and finance.

The adj. EBITDA estimates for 2016 and 2017 have been raised from $36,197mn to $35,977mn and from $42,887mn to $42,493mn, respectively. Anthony added, “The shares are cheap relative to growth and relative to the peer group.”

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