Alphabet: Ad Revenues Up 69% And EBIT Tripling In Q2 2021 (Preview) (Corrected)

Company Update (GOOG US) (Buy)

Summary

• Alphabet Q2 results showed dramatic growth and strong operational leverage, with EBIT tripling year-on-year; H1 EPS is 168% higher.

• All business lines grew between 29% to 84% year-on-year in Q2; Google Advertising revenues grew 69%, and Google Cloud grew 54%.

• Google Advertising benefited from steady volume growth and a jump in price in Q2; Google Cloud benefited from unique Alphabet advantages.

• We expect future Alphabet growth to decelerate from current record highs but remain strong enough to drive double-digit EPS growth.

• With Class C shares at $2,780.64, we expect a total return of 67% (14.2% annualized) by end of 2024, in under 3.5 years. Buy.

Introduction

We review our Alphabet investment case after Q2 2021 results overnight (Tuesday, July 28). Shares are up in morning trading, by 1.6% for Class C and by 4.6% for Class A (as of 11 am EST).

We initiated our Buy rating on Alphabet in January 2021. Since then (Class C) Alphabet stock has gained 46%, more than double the gain in S&P …