Global Markets: Alphabet set to open at record high; mobile ads drive revenue

New revenue streams such as mobile and video advertising should continue to propel earnings of Google parent Alphabet Inc (GOOGL.O), whose shares were set to open at a record high on Friday following better-than-expected results, analysts said.

The company's search traffic on mobiles surpassed desktop traffic worldwide for the first time in the latest quarter.

Alphabet's shares were up nearly 10 percent at $746.95 in premarket trading, far above the $713.33 record high set by Google - the company's former name - in regular trading in July.

A 10 percent rise equates to about $46 billion in market value. This would give Alphabet a market cap of about $519 billion, cementing its position as the second-most valuable stock after Apple Inc (AAPL.O), worth about $660 billion.

Shares of Amazon.com Inc (AMZN.O) and Microsoft Corp (MSFT.O), which also posted better-than-expected quarterly results on Thursday, also jumped in premarket trading, pushing up U.S. stock index futures.

At least 14 brokerages raised price targets on Alphabet's stock on Friday. J.P. Morgan and Jefferies were the most bullish, both raising their targets to $900.

"We think it's not long before mobile clicks surpass desktop, which we expect will provide a nice tailwind to cost-per-clicks, magnified by a tighter gap between mobile and desktop ad pricing," J.P. Morgan analyst Doug Anmuth said.

Alphabet said the number of paid clicks, which require advertisers to pay only if a user clicks on the ad, rose 23 percent, compared with 18 percent in the previous quarter.

With rivals such as Facebook Inc (FB.O) nipping at its heels, Alphabet had been trying to pump up advertising revenue from its mobile and video businesses, which have been much less profitable than its desktop business.

In a sign the company was becoming more sensitive to shareholders, Alphabet also announced on Thursday a $5.1 billion share buyback, its first ever.

Alphabet's new transparent reporting structure, to come into effect in the current quarter, also shows the company is becoming more shareholder-friendly, analysts said.

"The market has wanted four things from GOOGL – consistent revenue growth, margin stabilization, greater disclosure and cash back. What the market wants, the market gets," said RBC Capital Markets analyst Mark Mahaney.  — Reuters

Google still a top pick for Wall Street, despite mobile ad challenges

Google Inc's disappointing first-quarter results left Wall Street unfazed about the internet giant's ability to come to grips with the shift to the fast-growing mobile advertising market.

Google shares were down about 3 percent in early trading on Thursday, and at least 12 brokerages cut their target price on the stock. But most analysts kept a "buy" rating or equivalent on the company's shares.

"Despite an expectations-miss quarter, Google remains one of the best-positioned stocks for many of the secular growth drivers in the Internet space," RBC Capital analyst Mark Mahaney, who kept his "outperform" rating on the stock, said in a note to clients.

Of the 46 analysts covering Google, 35 have a "buy" or equivalent rating on the stock. Nobody has a "sell".

Google, Facebook Inc and Twitter Inc are revamping their products and advertising business to try to take advantage of a global shift to mobile phones and tablets.

For investors in Google, accustomed to the company enjoying one of the highest ad margins in the business, mobile ads have translated to a steep drop in ad rates.

Advertising rates on mobile phones are typically cheaper than traditional online ads because of their smaller screens. But mobile advertising continues to make up a bigger slice of the revenue of Internet companies.

Google company reported a 26 percent increase in paid clicks volumes but the average cost-per-click declined 9 percent.

"Google remains a core internet holding and we reiterate our "overweight" rating," Morgan Stanley said in a note titled "Keep calm and search on".

Analysts highlighted core revenue growth from Google websites and YouTube, higher contribution from rest-of-world revenue, strong sales of digital apps and content in Google's Play Store and Chromecast TV dongles.

Many also expect Google's Enhanced Campaigns advertisement program and other ad products to improve monetization from mobile and noted management's view that location and other data would help mobile pricing over time.

"We continue to recommend GOOGL due to the strength of the core search business, continued product innovation, and improving monetization, which should allow GOOGL to take a growing share of the desktop and mobile online ad markets," Susquehanna analyst Brian Nowak said.

Piper Jaffray analyst Gene Munster also remained upbeat.

"We continue to view Google as the best long term large cap story in our coverage space given the company's focus on innovation," he said.

However, Goldman Sachs, which has a "neutral" rating on Google's shares, said it expected the stock to remain range-bound in the near-term as the market waits for mobile cost-per-click rates to improve.

Google shares were trading at $545.22 shortly after the opening on the Nasdaq after closing at $563.90 on Wednesday. - Reuters

source: gmanetwork.com