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Google Alert: Search Engine Marketing Checks Point To Surprise Q1 Upside

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The latest search engine marketing (SEM) numbers suggest that Alphabet Inc GOOGL 0.16% may have had a better Q1 than the market is anticipating.

Pacific Crest analyst Evan Wilson sees significant early positive momentum following two impactful changes to Google search results.

In Q3 of 2015, Google added a third paid link at the top of mobile search engine results pages (SERPs). After careful testing, the company added a fourth paid link early in Q1 and removed the text ads to the right of the desktop SERPs.

According to Pacific Crest’s latest checks, the number of ad clicks in Q1 was up significantly year-over-year and the cost per click (CPC) was down. The overall result was an increase in search spending in the quarter.

Specifically, the two SEMs most highly correlated to Google revenue, Merkle and Kenshoo, saw year-over-year paid search spending jump 25 percent and 13 percent, respectively in Q1.

“The dynamics shown from the SEMs support our view that these changes are likely good for Alphabet’s results, and we think the risk/reward is favorable ahead of Thursday’s earnings report if this signals health in the core business,” Wilson concludes.

Related Link: Amazon, Facebook, Blackstone Lead Morgan Stanley's '30 Picks For 2019' List

Pacific Crest maintains an Overweight rating and $910 price target on Alphabet.

Disclosure: the author holds no position in the stocks mentioned.

DateFirmActionFromTo
Apr 2016Credit SuisseMaintainsOutperform
Apr 2016Pivotal ResearchUpgradesHoldBuy
Apr 2016Morgan StanleyMaintainsOverweight

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