On Wednesday, Oppenheimer adjusted its price target for Alphabet Inc (NASDAQ:GOOGL) shares, the parent company of Google, reducing it to $185 from the previous $210 while maintaining an Outperform rating on the stock. The revision comes amid investor concerns regarding Google Search's dominant market position and its exclusivity deal with Apple (NASDAQ:AAPL).
Alphabet generates a significant portion of its gross search revenue, amounting to $61 billion, through Apple devices, with 36% of this revenue paid to Apple for maintaining exclusivity. This arrangement accounts for 19% of Alphabet's net advertising exposure. Despite potential challenges, Oppenheimer's analysis suggests that Google would only need to retain 65% of search activity on Apple devices without Traffic Acquisition Costs (TAC) or 75% if TAC drops to 15%.
A recent survey in April indicated strong user preference for Google, with 75% of participants stating they would choose Google as a default search engine and 78% willing to download the Chrome browser if Google Search was not available in Safari. This user inclination could mitigate some of the risks associated with losing exclusivity on Apple devices.
The firm also noted that the separate Department of Justice case against Google's advertising technology practices represents less than 2% of the company's equity value. The new price target of $185 is based on a 20x multiple of Alphabet's projected 2026 earnings, discounted at 8%, or 21x the projected 2025 earnings. This valuation is compared to the NASDAQ's average price-to-earnings ratio of 25x.
In other recent news, Uber Technologies (NYSE:UBER) has partnered with Chinese self-driving technology firm WeRide to introduce robotaxis in the United Arab Emirates. This collaboration, set to commence in Abu Dhabi later in 2024, is a significant step for Uber in integrating autonomous vehicles into its services.
Alphabet Inc.'s Google has also been active, teaming up with Volkswagen (ETR:VOWG_p) to launch an artificial intelligence assistant for drivers. This assistant, developed using data from Volkswagen owner’s manuals and YouTube tutorials, is currently available to owners of Volkswagen’s Atlas (NYSE:ATCO) and Atlas Cross Sport models.
Simultaneously, Google has entered the carbon offset market by purchasing 50,000 metric tons of nature-based carbon removal credits from the Brazilian startup Mombak. This move represents Google's commitment to achieving these credits by 2030. In regulatory news, Google, along with other major tech companies, is engaging with the European Union to shape the enforcement of the upcoming AI Act. The companies are aiming to influence the rigor of this legislation, which could impose significant fines for non-compliance.
Lastly, the UK's Competition and Markets Authority (CMA) has announced collaboration with Google to address competition concerns related to the tech giant's management of third-party cookies in its Chrome browser. The outcome of this partnership could influence how digital advertising operates across the Chrome browser, impacting a significant portion of internet users and advertisers worldwide. These are some of the recent developments in the tech sector.
InvestingPro Insights
As Alphabet Inc (NASDAQ:GOOGL) navigates the evolving digital landscape, recent data from InvestingPro sheds light on the company's financial health and market position. Alphabet holds a commanding presence in the Interactive Media & Services industry, supported by its robust balance sheet, which features more cash than debt, and liquid assets that comfortably exceed its short-term obligations. These strengths are reflected in the company's ability to cover interest payments with its cash flows, a key indicator of financial stability.
Alphabet's valuation metrics reveal a mixed picture. The company is currently trading at a P/E ratio of 23.29, which is considered low relative to its near-term earnings growth. This aligns with an InvestingPro Tip highlighting Alphabet's attractive valuation in light of its earnings potential. On the flip side, the company's Price / Book multiple stands at 6.67, which is on the higher end, suggesting a premium valuation in terms of its net assets.
InvestingPro Data indicates that Alphabet's revenue growth remains strong, with a 13.38% increase over the last twelve months as of Q2 2024. This growth is bolstered by a healthy gross profit margin of 57.64%, signifying the company's efficiency in managing its cost of goods sold relative to its sales. Moreover, analysts forecast profitability for Alphabet this year, a sentiment backed by the company's solid track record of profitability over the last decade.
For investors seeking further insights, there are additional InvestingPro Tips available, including the company's high return over the last five years and its status as a profitable entity over the last twelve months. These tips, along with more detailed analytics, can be explored at InvestingPro's platform for Alphabet Inc.
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