Source: Davit Kirakosyan

Analysts Maintain Neutral Stance on Alphabet

Cantor Fitzgerald analysts have reiterated a Neutral rating, coupled with a $190 price target, on Alphabet Inc (NASDAQ:GOOGL). This rating precedes Alphabet’s forthcoming third-quarter earnings report, which is set to be released on October 22. The analysts have adopted a cautiously optimistic stance, expecting the tech giant to deliver a robust performance in line with market expectations. The forecast predicts that Alphabet’s Earnings Per Share (EPS) will likely outperform the Visible Alpha consensus estimates.

Positive Ad Trends to Boost Revenue

One of the key drivers of Alphabet’s projected top-line growth in Q3 is the positive advertising trends for both Search and YouTube. Alphabet’s advertising revenue, which forms a significant part of its total revenue, is expected to witness a surge. Google Search and YouTube, two of Alphabet’s primary platforms, have seen a steady uptick in ad revenue in recent times, which is projected to continue into the third quarter.

Besides advertising, Alphabet’s other ventures, such as cloud computing and hardware, also contribute to its revenue. However, the analysts’ focus on Search and YouTube’s ad trends indicates the significant role these platforms play in Alphabet’s overall growth narrative.

Favorable Legal Expenses to Aid Earnings Upside

Another factor that may boost Alphabet’s earnings in the third quarter is the potential reduction in legal expenses. Alphabet has been embroiled in various legal battles over the years, leading to substantial legal costs. However, the Cantor Fitzgerald analysts believe that the company’s legal expenses could be favorable in the upcoming quarter, aiding the earnings upside.

Antitrust Concerns and Upcoming Remedies

While the analysts acknowledge the potential upside, they also recognize the ongoing antitrust issues that Alphabet faces as a potential headwind. The company has been under scrutiny from the Department of Justice (DOJ) and other regulatory bodies globally due to its massive market share and dominance in the tech industry.

However, the analysts anticipate that the upcoming remedies from the DOJ’s Search trial could offer more clarity on this front. These remedies could potentially alleviate some pressure on Alphabet’s stock in the near term. This development, if it materializes, could bring some relief to Alphabet’s investors who have been concerned about the potential impact of antitrust issues on the company’s financial performance and stock price.

Outlook Under Alphabet’s New CFO

As Alphabet transitions under the leadership of its new CFO, the analysts are not expecting significant shifts in the company’s guidance. However, they will be observing closely for updates on Alphabet’s expense growth outlook beyond fiscal 2024. This insight is crucial, as it will determine the company’s profitability in the long run.

Medium-Term Risks and Risk/Reward Profile

Despite the medium-term risks related to antitrust issues and competition in the AI sector, the analysts view the current risk/reward profile as favorable heading into the third-quarter earnings announcement. They believe that Alphabet’s robust business model, combined with its diverse revenue streams and strong market position, present a favorable risk/reward profile, even amidst potential challenges.

In conclusion, the Cantor Fitzgerald analysts’ reaffirmation of their Neutral rating on Alphabet reflects a balanced view of the company. While acknowledging the potential risks and challenges, they also recognize the company’s strong fundamentals and growth prospects. The upcoming Q3 earnings report will provide further insights into Alphabet’s performance and future outlook.

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