Alphabet Target Price Lifted 19% at Evercore as Market for Online Ads Grows

Evercore says Google's ad dominance continues but `we hesitate to grow overly bullish on positive inflection in the cloud business.'
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The price target on Alphabet GOOGL was lifted nearly 20% at Evercore, which said the Google and YouTube parent "continues to compound on its defensible dominance in search and video advertising."

Evercore ISI analysts led by Benjamin Black increased their Alphabet target to $1,600 from $1,350. The new price target represents 13% potential upside from the stock’s Friday closing price near $1,429.

At last check Google shares were trading 0.5% higher.

The addressable market for online advertising will continue to expand, the analysts said.

Evercore sees U.S. digital advertising rising 18.1% in 2020, compared with the 19.4% growth the industry saw in 2019. 

The firm estimates that Alphabet will increase global revenue by 18% in 2020, with cloud and YouTube ad revenue outpacing growth in search ad revenue.

“The shift in large advertiser’s brand spend from TV to digital remains a secondary driver of digital ad spend growth,” Evercore analysts said.

Evercore sees potential “punitive new regulation” as the biggest risk factor for megacap internet stocks, including Alphabet.

“We share the consensus view that in the U.S., Facebook (FB) - Get Report is most exposed, followed by Google, with Amazon (AMZN) - Get Report as a distant third," the analysts wrote. 

"In terms of real outcomes, as opposed to changes in perception, we believe state attorneys general will look to employ novel interpretations of existing laws,” Evercore said.

"In Europe, our concern is around increased appetite among tax authorities for revenue-based digital-service taxes as set to be imposed in France and being discussed in the U.K.," they wrote. 

"Even if such measures don’t pass, we would expect the European Commission continues to find ways to levy fines against large U.S. tech companies, effectively acting as taxes by another name."

As for Alphabet's cloud business, the analysts said they "hesitate to grow overly bullish on positive inflection" there. The "margin trajectory likely remains biased lower, though growth in absolute OI dollars should remain in the mid-teens,” Evercore said.