Alphabet sources up after releasing first quarter 2020 results

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Alphabet shares climbed more than 9% on Wednesday after the company announced profits that surpassed revenue expectations, allaying investor fears about the impact of the pandemic on advertising. The stock movement adds more than $ 70 billion to its market capitalization, which brings up more than $ 927 billion.

Google’s parent company announced Tuesday earnings per share of $ 9.87 and revenue of $ 41.16 billion, falling short of analysts’ earnings expectations but exceeding revenue estimates, according to compiled data. by Refinitiv. The stock initially picked up after the report showed 13% revenue growth over the previous year, decelerating from 17% growth in the same quarter last year, but with significant headwinds .

Analysts were encouraged by comments from executives suggesting that the biggest impact on revenue could be behind them. On call from the company’s analyst, CFO Ruth Porat said there was an “abrupt” drop in advertising revenue in March, but Alphabet has yet to see “a further deterioration in the percentage year-over-year revenue decline ”.

Porat said the company is also seeing “early signs” of users returning to more commercial behavior “, but warned that they did not yet know how long this behavior would last or whether it would be monetizable.

Direct response ads on YouTube in particular remained strong throughout the quarter. YouTube advertising grossed $ 4.04 billion in the quarter, up 33% from a year ago. While brand advertising slowed down in mid-March, direct response ads, which are used to entice users to take action such as visiting a website, continued to grow.

With more people spending time indoors, executives said Google products are seeing increased engagement on platforms like Android, YouTube and Google Classroom. The company has also expressed confidence in its buyout program, which Porat says will continue as planned.

Raymond James analysts maintained a buy price and price target of $ 1,425, citing strong long-term revenue growth and momentum in the cloud.

Before the report, analysts were bracing for poor results, in part because travel websites are among Google’s biggest advertisers. Expedia president Barry Diller previously told CNBC the company would spend less than $ 1 billion on advertising in 2020 after $ 5 billion in 2019. RBC Capital Markets analyst Mark Mahaney said the parent company of Booking.com Booking Holdings would likely cut spending on Google from $ 4 billion in 2019 to $ 1 billion or $ 2 billion this year.

“While exit rates were low in absolute terms, given GOOG’s high exposure to travel and SMEs [small and medium-sized business], we thought these results were favorable, “wrote Pivotal Research Group analyst Michael Levine in a note to clients on Wednesday, giving the stock a bid rating and increasing its price target from $ 1,425 to $ 1,575. Although the street numbers are decreasing, we believe that the numbers were much better than expected. “

Canaccord Genuity Capital Markets analysts have said the pandemic may actually end up helping parts of Google’s business, such as the cloud.

“Beyond the short-term financial impact of COVID-19, we think Google will likely benefit because the pandemic could be a tailwind for ad budgets moving online, the momentum in Google Cloud supporting the Consolidated growth and other bets offering an option to patient investors, ”Canaccord said in a note Wednesday reiterating a purchase note and a target price of $ 1,550.

“This, combined with prudent spending management, a solid balance sheet and share buybacks, reassures us that Alphabet is able to successfully weather this short-term disruption. “

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