Daily Management Review

Credit Suisse: Alphabet will get ahead of Facebook, Amazon and even Apple


04/18/2017


Dynamics of Alphabet Inc.’s shares may not have pleased investors in recent years, but analysts at Credit Suisse say that the situation will soon change.



Marcin Wichary via flickr
Marcin Wichary via flickr
Last year, Facebook’s shares rose 29%, Amazon - 44%, while Alphabet - only 10%. Yet, this lag may disappear, as YouTube and Google Cloud will be bringing more revenue.

On Monday, Credit Suisse analyst Stephen Ju said he predicts a 12-month target price for Alphabet shares at $ 1,100, MarketWatch reports. At that price, the corporation’s market cap would reach $ 757 billion, more than that of Apple. Today, Tim Cook's capitalization is $ 740 billion, although analysts at RBC Capital Markets said that the figure could grow to 824 billion in 2017. 

At the close of trading on Monday, Alphabet’s shares rose by 1.8%, to $ 855.13. They have grown by 3.3% over the past three months, which roughly coincides with the S&P 500 index. Shares of Amazon, Apple and Facebook for the same period increased by 11%, 18% and 10.5%, respectively.

According to FactSet’s poll, the average target for Alphabet shares is $ 982.26. According to Credit Suisse, the company's revenues will grow significantly thanks to cloud computing and innovations on YouTube. The video service soon launches IPTV broadcasting service YouTube TV in the US. It is designed for a young audience that is actively using mobile applications. 

The company’s Head, Susan Wojcicki, said: "Millenials love TV content, but we see that they do not want to consume it in a traditional way". YouTube TV will offer access to the four main broadcast networks of the US - ABC, CBS, Fox and NBC - and cable TV channels. The service will cost $ 35 a month, users will also receive a free subscription to the YouTube Red service.

In addition, analysts forecast an increase in revenue from the Alphabet business, not related to the search, such as Google Cloud and Google Play. According to Credit Suisse, YouTube, Google Play and Google Cloud will become the source of a third of the total revenue of Alphabet within three years. In the last quarter, Google's websites brought in nearly $ 18 billion, representing 85% of total sales. In its most recent earnings report, the corporation attributed most of its revenue growth to mobile search and YouTube, but so far Alphabet has not disclosed how much the video service brings.

Quite recently, at the end of March, Alphabet's capitalization fell due to the fact that large companies refused to advertise on YouTube.

The shares of Google’s parent company in a week fell more than 4%. Thus, Alphabet’s market cap become cheaper by $ 25 billion during this time, since large media holdings, in particular, AT & T and Verizon Communications Inc. refused to advertise on YouTube.

Cooperation with the video hosting has been suspended due to the fact that ads of major brands were sometimes demonstrated along with extremist videos. This event has had almost no impact on the main business, and hence the income of Alphabet, but investors began to worry, writes Recode.

Marks & Spencer, McDonald's, HSBC, Lloyds and The Guardian also refused to advertise on the service. Once news of the dissolution of the first contracts were published, GOOGL shares fell 4%. For Alphabet, this means a $ 25 billion decrease in the company’s value.

At the same time, even if YouTube's profit is reduced by 10%, Google's revenues will fall by less than 1%.

source: marketwatch.com






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