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3 days Alphabet Is ‘the Internet Stock Left Behind.’ The Case for Buying Shares Now. Reddit     

Heading into the heart of the third-quarter earnings season, you might do well to buy shares of Google parent Alphabet.

Bernstein analyst Mark Shmulik on Friday weighed in with an earnings preview for the social-media stocks, lifting his price targets for Facebook (ticker: FB) to $300 from $285, Pinterest (PINS) to $41 from $35, Snap (SNAP) to $32 from $28, and Twitter (TWTR) to $45, from $42. He keeps Outperform ratings on Facebook and Snap, and Market Perform ratings on Pinterest and Twitter.

But the story Shmulik likes best is Google. “If you’re looking for upside potential, it’s hard to look past Google,” he writes in a research note. “The mid cap stocks (Twitter, Snap, Pinterest) have had quite the run these past few months and the embedded expectations are sky high. Facebook should do just fine, but again the expectations appear embedded in the price.

“That leaves Google, the ‘Internet stock left behind’ during the recovery off the bottom. If Google can inflect search revenue growth back into positive territory, close the revenue growth gap with Facebook, and create positive momentum on Cloud/YouTube, that should be enough.”

The analyst notes that search is still about 60% of Alphabet’s revenue, and remains “the heart and soul of the company” and the key focus for investors. “If search misses, beats elsewhere don’t matter,” Shmulik writes, pointing out that management has said search exited June flat year over year, with modest improvement in July. “That’s the bar.”

He notes that there is some recovery off the bottom in travel-related searches, and retail-related queries are reaching new heights. “With Amazon now consistently participating in product-related searches, keyword clearing prices are up 15%+,” he writes. “We take search up to up 4% [for the quarter]—right around the bogey.” Shmulik maintains his Outperform rating and $1,800 target price on Alphabet shares (GOOGL).

For the broader group, he writes, “the 10,000 foot view suggests a cautious path forward.” Shmulik notes that Facebook and Alphabet have pulled back a bit this quarter, “with regulatory activity heavy enough to weigh over the stocks and an election on the horizon.” And he notes that the mid-cap names in the group are trading at or near all-time highs.

“It’s nice to think that 2021 is all easy comps and we’ll have a bigger digital ad TAM [total addressable market], yet we still don’t have clarity on if and when revenues get back on the pre-Covid track. What’s already priced in? The only certainty remains uncertainty.”

Source: Barron’s

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