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Citi’s Jason Bazinet repeated his Buy rating on Alphabet shares while lifting his target for the GOOGL stock price to $1,600, from $1,400.
American multinational investment bank and financial services corporation Citigroup Inc (NYSE:C) announced it had raised its stock price target on Alphabet Inc (NASDAQ: GOOGL) on Tuesday to $1,600 from $1,400. Citi added it expects Alphabet revenue to pick up strongly in 2021. This entails a 13% rally in the next 12 months from Alphabet Monday’s closing price of $1,403.59 per share. Citi said it raised its 2021 free cash flow estimate to $64 per share and continues to apply a 25x forward cash flow multiple.
Citi Believes in Alphabet
Citi analyst Jason Bazinet said in a note to clients:
“We are updating our model to reflect 1Q20 results and latest post COVID outlook. We now model 5% year-on-year growth in 2020, with full-year revenue reaching $169.6 billion, and we expect 20% year-on-year rebound in 2021, with full-year revenue reaching $203.4 billion.”
However, Citi lowered revenue estimates for the second quarter because they believe the second quarter, and not the first will genuinely mirror the effect of coronavirus pandemic, which has hurt ad revenues at the most.
Google said on its first-quarter earnings call that its search revenues were down by 15% during March and April, while YouTube revenue growth declined to high single digits by the end of March.
The note also said:
“We assume revenue deceleration stays at similar levels for rest of 2Q20, with a moderate recovery to start during 2H20 with the phased opening of the broader economy.”
At the time of writing, Alphabet (GOOGL) stock was falling by 0.14% to $1,401.60.
Google’s Profits Damaged More Than Expected
But let’s be completely clear. Google’s profits were damaged even more than expected at first. Coronavirus outbreak surely caused “a significant slowdown in ad revenues,” as Alphabet revealed in its quarterly earnings report.
First-quarter earnings were $6.84 billion, or $9.87 a share, compared with $6.66 billion, or $9.50 a share, in the year-ago period, though the 2019 results took a hit from a large fine levied by the European Commission. Revenue after removing traffic-acquisition costs grew to $33.7 billion from $29.48 billion in the year-ago period.
Last month, Alphabet Chief Executive Sundar Pichai said to his employees the company would reduce spending the rest of the year, starting with hiring.
Light at the End of a Tunnel
Be it as it may, there is a light at the end of the tunnel. It seems that nowadays, in the middle of a shared economic crisis, Facebook Inc (NASDAQ: FB) and Google are playing a larger role in the future of news publishers. The analysis shows that during the next few months, Google and Facebook will, combined, spend close to a quarter-billion dollars supporting local news.
Google said it expects its relief funds will reach at least 4,000 different publishers.
Richard Gingras, VP of news at Google said:
“The money we make with our advertising tools is entirely dependent on the success of publishers.”
Rasmus Kleis Nielsen, director of the Reuters Institute commented that even though Google and Facebook in many cases represent news publishers’ most important business and distribution partners, “most publishers are still unhappy with this situation. They feel that this is unsatisfying and unfair.”