Analysts reveal new price targets for Google ahead Q4 earnings report

Google still dominates the $500 billion digital advertising market, but AI technologies are forcing big changes.

Jan 30, 2024 - 20:30

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Analysts reveal new price targets for Google ahead Q4 earnings report

Updated at 9:41 AM EST

Google parent Alphabet's (GOOG) - Get Free Report shares nudged lower Tuesday ahead of a fourth-quarter-earnings report, slated for after the close of trading, that's likely to highlight the tech giant's ongoing drive to infuse its digital-ad business with AI technologies.

Google, which has held a commanding lead over Microsoft (MSFT) - Get Free Report, in the global search market over the past decade, lost some of that position when its rival added the AI-powered ChatGPT to its Bing search engine in February of last year.

Still, Google's eponymous search engine remains the undisputed market leader – as well as the default search tool on Apple (AAPL) - Get Free Report iPhones – with a 91.6% share of the global search market, according to data analytics firm StatCounter.

Bing, meanwhile, boosted its overall market share by just one percentage point to 3.4%, a gain that nonetheless likely added around $2 billion in extra revenue for the world's most-valuable tech company.

That is likely to provide Google with a solid cushion against fading revenue from its cloud division, which faces stiff competition from the likes of Amazon's (AMZN) - Get Free Report AWS and Microsoft's Azure, in both its fourth-quarter earnings report and its 2024 revenue outlook.

Google's search engine, as well as its YouTube division, contributed $59.65 billion in overall ad revenue for the three months ended in September.
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But Google, sensing the change in online search that is soon to come from generative AI tools, is nonetheless preparing a major shakeup of the world's biggest advertising platform and its 30,000-strong team by increasing its reliance on AI-generated ads.

The sales, which are largely automated, generate tens of billions in sales at a much wider margin than traditional ad-related revenue overseen by human employees.

JMP Securities analyst Andrew Boone notes that "with Meta recently reporting that AI helped return on ad spend improve 32%, Meta's Advantage+ Shopping Campaigns reaching a $10B+ run-rate last quarter, and Google recently extending its AI-powered bidding ... we think AI is improving results for advertisers."

"This is consolidating more spend onto Meta and Google as we expect walled gardens to take share of ad budgets in 4Q23," added Boone, who carries a market overweight rating with an improved $150 price target on Google shares.

Google 2024 ad spending outlook is solid

Wall Street estimates suggest Google's fourth-quarter ad sales rose nearly 12% from a year earlier to just over $66 billion, while total group revenue rose about 8.2% to $85.3 billion.

Google's overall bottom line likely rose 51.5% from a year earlier to $1.59 a share, according to Wall Street forecasts.

Looking into 2024, analysts see the looming presidential elections, alongside the Summer Olympics in Paris and the UEFA Euro 2024 soccer tournament, as boosting global ad sales.

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KeyBanc Capital Markets analyst Justin Patterson, who yesterday raised his price target on Google by $12, to $165 per share, sees stronger ad revenue offsetting a slowdown in the cloud division. That would put Alphabet on a "a clear path to 2024 and 2025 earnings of $7/$8 per share."

"Our sense is retail and travel benefited search spend in 4Q, while YouTube benefited from a stronger brand market," Patterson added. "Cloud appears to have had cost optimizations later than peers and now laps a Workspaces price increase in 1Q."

CFRA analyst Angelo Zino, who carries a $157 price target on Google, is slightly more cautious, noting that while "positive digital ad trends for search and greater monetization initiatives across YouTube are supporting segment growth rates ... concerns about regulatory risks, competitive threats, and the Department of Justice case remain major risks for headwinds."

Alphabet faces two key DoJ trials this year

Google parent Alphabet faces the likelihood of two separate trials this year linked to U.S. Department of Justice lawsuits accusing it of abusing its monopoly position in online advertising technology and its dominant position in search.

Still, Zino says that among the megacap tech names, Google "may be the most underappreciated story given its multiple and current forecasts."

Alphabet shares trade at a forward PE multiple of around 29.5 times, nearly half the average PE multiples of its Magnificent 7 peers.

The group also has the lowest price-to-earnings-growth ratio of the Mag 7 group, suggesting investors could pay less for near-term earnings growth than its megacap rivals.

Alphabet shares ticked 0.15% lower in early Tuesday trading to change hands at $154.60 each, a move that would trim the stock's six-month gain to around 16.3% and value the Mountain View, Calif., tech giant at just under $2 trillion.