Alphabet: 80%+ EBIT Growth In Q3 Unaffected By iOS 14 Or Macro Issues

(Preview) Company Update (GOOG US) (Buy)

Summary

• Alphabet revenues grew 41.0% and EBIT grew 87.6% year-on-year in Q3 2021, driven by strong growth across its advertising businesses.

• Two-year Google Advertising revenue growth was relatively consistent across Q3 and Q2, at more than 55% for both quarters.

• Alphabet was relatively unaffected by iOS 14's anti-tracking changes and saw little impact from the global supply chain and labour challenges.

• On last-twelve-month financials, Alphabet is trading at a blended P/E of 25.1x and a Free Cash Flow Yield of 2.7%, attractive in our view.

• With Class C shares at $2,793.44, we expect a total return of 82% (18.2% annualized) by 2024 year-end. Buy.

Introduction

We review our Alphabet investment case after Q3 2021 results overnight (Tuesday, July 28). Alphabet's Class C shares down 0.5% in pre-market trading at the time of writing at 8 am EST. We initiated our Buy rating on Alphabet in January 2021. Since then (Class C) Alphabet stock has gained 47%, more than double the gain in S&P 500.

We belie…