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Google Long

by SignalFactory   ·  October 26, 2021 | 12:59:29 UTC  

Google Long

by SignalFactory   ·  October 26, 2021 | 12:59:29 UTC  

Shares of Google parent Alphabet (GOOG) which have risen 24% in six months and 62% year to date, compared with 21% rise in the S&P 500 index, have strongly outperformed their FAANG peers over the past year, netting 80% returns.

The gains have been driven by the tech giant’s cyclical recovery in its advertising business. This was noticeable last quarter when the company delivered an impressive 61% jump in Q2 revenue. Ahead of the company’s third-quarter fiscal 2021 earnings results Tuesday, investors want to know if Google’s gains and positive metrics are sustainable. For now, it appears the market has re-priced the stock based on the company’s growth, but while the increasing multiple seems justified, the stock is no longer cheap.

That said, Google’s recent uptrend in several verticals in online advertising, particularly in areas such as retail, financial services, and travel remain compelling reasons to bet on higher prices. Apple’s changes to the AD privacy policy that limited apps’ access to user information poses a great risk to Google’s ability to scale and adapt to new digital advertising trends.

On Tuesday, the market will want to see if Apple’s changes have had a similar effect on Google’s prospects, particularly in several verticals including online advertising in areas such as retail, financial services, and travel. In that vein, Google relies less on targeting than, say, Facebook and Twitter because of its strong ecosystem. Elsewhere, investors will want to see improvements in the Cloud business, among other areas, which will determine whether the stock can maintain its uptrend or if it’s time to take profits.

For the quarter that ended September, Wall Street is looking for the Mountain View, Calif.-based tech giant earns $23.43 per share on revenue of $63.43 billion. This compares to the year-ago quarter when earnings came to $16.40 per share on revenue of $46.17 billion. For the full year, ending in December, earnings are expected to rise 72% year over year to $101.03 per share, while full-year revenue of $250.94 billion would rise 37.5% year over year.

Before last week’s route of Snap shares, nearly all advertising sectors were on pace to exceed Q3 expectations. Ad recovery in digital ads in the post-pandemic world was set up as a bright spot. That’s no longer the case. Now it’s more about which company can suffer the least impact. For Google, given that Internet advertising accounted for near 60% of global advertising in 2020, and the fact that it relies less on ad targeting, the company is in better shape than its advertising peers.

In the second quarter, the company delivered blowout results, driven by its core search advertising business and better-than-expected profit margins. Second-quarter revenues surged impressively at a 61.88% clip, reaching $62 billion, easily beating analysts’ estimates by almost $6 billion. Q2 EPS rose 169% to $27.26, topping expectations by more than 41%. The revenue gains were driven by, among others, Search (up 68%), YouTube (up 84%), and Google Network (up 60%) which benefited from a rebound in consumer and business activity.

Q2 operating income more than tripled to $19.36 billion, thanks to a 31% jump in operating margin from a previous 17%. On Tuesday, beyond the strong growth in ad revenue and guidance, the market will want to see sustained improvement in the cloud business to assess at which point the cloud can realistically become a more compelling narrative for Google stock.

Google Long (Buy)
Enter at: 2815.41
T.P_1: 2997.64
T.P_2: 3071.15
T.P_3: 3197.85
T.P_4: 3300.77
T.P_5: 3436.60
T.P_6: 3596.18
S.L: 2595.13

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