The share price of Google’s parent company Alphabet (GOOGL) rose to an all-time high this week after its second-quarter earnings beat analysts’ expectations.
The company reported a strong rise in revenues for its advertising and cloud services, even taking into account the favourable comparison with 2020’s COVID-affected results.
What does the company’s performance indicate as to the direction of the share price? This article provides an overview of the results and looks at the latest Alphabet stock predictions from analysts.
Alphabet earnings results: strong Q2 growth beats estimates
The second-quarter Alphabet earnings report on 27 July beat Wall Street expectations on the key metrics. Alphabet revenue totalled $61.88bn, up by 62% from $38.3bn in the second quarter of 2020, and well above analysts’ estimates of $56.16bn. The company reported a net income of $18.53bn, more than double the $6.96bn reported in the same period of 2020. Earnings per share of $27.26 beat expectations of $19.34 per share.
The company reported its first-ever revenue decline in the second quarter of 2020 as the onset of the COVID-19 pandemic put a pause on advertiser spending.
According to the earnings release, Google’s YouTube advertising business reported an 84% year-on-year increase in revenue to $7bn, approaching Netflix’s second-quarter revenue of $7.34bn. Advertisers are using YouTube to reach audiences that do not watch TV.
Philipp Schindler, senior vice president and chief business officer at Google, said: “According to Nielsen’s Total Ad Ratings Reach reporting, from Q4 2018 to Q4 2020, on average, 70% of YouTube’s reach was delivered to an audience not reached by the advertiser’s TV media.”
Revenue from the Google Cloud business climbed by 54% year-on-year to $4.6bn. Wall Street had expected YouTube revenue of $6,37bn and Google Cloud revenue of $4.4bn, CNBC reported.
With the growing adoption of cloud-based services across enterprises, Google is adding customers such as PayPal (PYPL), Johnson Controls (JCI) and Whirlpool (WHR) to the Google Cloud platform. The business shrank its operating loss to $591m from $1.43bn, the company said.
“This quarter, we saw three distinct trends,” Sundar Pichai, chief executive officer of Alphabet and Google, said on the company’s earnings webcast.
It remains to be seen how the company’s future revenue growth will hold up after the comparison with the decline in 2020 plays out.
Ruth Porat, chief financial officer at Alphabet and Google, said on the webcast: “For Google Services, the benefit to revenue growth in Q2 from lapping the effect of COVID last year will diminish through the balance of the year as we begin to lap stronger performance in the second half of 2020.
Alphabet share price reaches new highs
The GOOGL share price climbed by more than 3% in response to the Alphabet quarterly report, reaching an all-time intra-day high of $2,765.94 a share on 28 July. The stock has been trending higher since the recovery from the March 2020 market crash, having previously reached a record high in February 2020. The stock has gained 4,914% since the company went public in 2004.
The rise in the share price has accelerated in 2021 so far, gaining 57.3% year-to-date compared with a 29.4% increase in 2020. The stock has gained 11.2% in the past month alone.
The share price retreated from Wednesday’s high, closing at $2,721.88 a share at the end of the session and slipping further to close at $2,715.55 a share on 29 July.
What is the outlook for the share price for the rest of the year and beyond, based on the latest Alphabet profits?
Alphabet share price forecast: can the stock breach $3,000?
On 28 July, analysts at US investment bank Needham said that “2Q21 demonstrated GOOGL's enormous fundamental upside during an [advertising] recovery”. They upgraded their Alphabet share price forecast to $3,200 a share, from $2,700 a share previously. That would indicate an upside of around 18% from the $2,700-a-share level.
Analysts said in their latest GOOGL share price analysis: “We raise our GOOGL estimates and price target (PT) based on advertising strength (driven by YouTube), profit margin upside and continuing cyclical improvement offshore post-COVID. We calculate that YouTube would add 45% to GOOGL’s share price if traded separately.”
Based on YouTube’s strong second-quarter advertising revenue growth, the Needham analysts raised their estimate for YouTube’s total gross revenue to $40bn in 2021, up by 62% year-on-year from $24.6bn in 2020. They take the view that the company would benefit if EU or US regulators broke up Google, and that the businesses – including YouTube, Google Cloud and Waymo – would be worth more if they traded separately.
Of the 44 Wall Street analysts that have issued an Alphabet Inc stock forecast, 43 have issued buy ratings for the stock, with one analyst recommending investors hold, according to MarketBeat. At least 17 analysts have upgraded their price targets since the second-quarter earnings report, from a range of $2,500–$3,100 a share previously to $3,000–$3,600 a share.
MKM Partners upgraded its Alphabet stock price forecast from $2,500 to $3,150 a share, while Susquehanna Bancshares upgraded its price target from $3,100 to $3,600 a share, the MarketBeat data shows.
Over the long term, algorithm-based forecasting site WalletInvestor predicts the company’s share price will continue to climb. It forecasts the stock will rise from $2,726.69 at the start of August to $2,886.82 by the end of December, then soar to $3,290.34 by the end of 2022 and $4,500.31 by the end of 2025.
The Alphabet share price is rising on the company’s strong financial performance in generating advertising revenues and developing its cloud business.
After the company’s strong second-quarter 2021 earnings report, analysts predict the GOOGL share price will rise above $3,000 a share. Over the long term, the stock could rise to $4,000 a share. You should keep in mind, however, that analysts can get their predictions wrong, and it is important to do your own research to develop a view of the company’s performance.
Whether Alphabet is a good investment for you depends on your personal circumstances, portfolio composition and risk tolerance. You should research the stock and decide whether it is a good fit for your financial situation and investing goals.
How to trade GOOGL shares with Capital.com
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