Alphabet Inc. shares rose 0.4% in premarket trading on Thursday following a significant improvement in return on ad spend (ROAS) for its customers after a recent event.
Analyst Insights
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BMO Capital Analysts’ Expectations:
- Analysts now expect Alphabet to generate $6 for every dollar invested in GOOG’s search ads, up from a previous estimate of $5.50.
- The growth is attributed to Alphabet’s utilization of artificial intelligence (AI), which is enhancing performance across regions such as Asia-Pacific and Europe.
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Daniel Salmon’s Commentary:
- BMO Capital analyst Daniel Salmon stated, "We believe AI is key to GOOG’s success."
- He maintained a $200 price target and an Outperform rating on the shares, anticipating that Alphabet’s advertising business will continue to drive growth despite increasing competition from Meta Platforms Inc. and Amazon.com Inc..
Event Impact on ROAS
- The specific event hosted by Alphabet was not detailed, but it reportedly had a positive impact on ROAS, with marketers generating more revenue per dollar spent than before.
Google Cloud Growth
- BMO Capital noted that Google Cloud is gaining traction with both large enterprises and small businesses due to its competitive pricing compared to Amazon Web Services (AWS).
- Despite challenges, including shifts in ad budgets due to brand safety concerns amid geopolitical tensions, BMO Capital remains optimistic about Alphabet’s future.
Future Prospects
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Salmon expressed confidence in continued growth across all three segments:
- Search & Other Revenues
- YouTube
- Other Revenues
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Potential Growth Areas:
- Cloud computing services like Google Cloud Platform (GCP)
- YouTube TV
- Google Maps
- Hardware products such as Pixel smartphones
Challenges and Strategic Responses
- Alphabet’s core search business has been underperforming relative to underlying trends, but improvements are expected if there are no further changes related to Apple’s iOS privacy policy or ongoing antitrust investigations.
- The company has upgraded its ad formats and introduced new tools to help advertisers reach specific audiences based on demographics, interests, or behaviors, as well as to reduce fraud associated with click-through and conversion rates.
Conclusion
BMO Capital sees strong potential for Alphabet moving forward, particularly in cloud adoption and advertising. Salmon emphasized the importance of authenticating users for transparency in online advertising, which could be a "game changer" for GOOG. The firm expects continued strength in search and other revenues throughout 2023, driven by increased advertising spending.
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