On Wednesday, Oppenheimer has revised its price target for Alphabet (NASDAQ:GOOGL) Inc. (NASDAQ:GOOG) shares, the parent company of Google, reducing it to $185 from the previous $210. Despite the price target adjustment, the firm maintains an Outperform rating on the stock.
The reduction in the price target comes amid investor concerns over Google's search engine being labeled a monopoly and the potential loss of its exclusivity with Apple (NASDAQ:AAPL) devices. Google is responsible for generating 31% of its gross search revenue, amounting to $61 billion, through Apple devices. It pays Apple 36% of that revenue to maintain exclusivity, which translates to 19% of Google's net ad exposure.
Oppenheimer's assessment suggests that Google would only need to retain 65% of search activity from Apple users if no Traffic Acquisition Costs (TAC) are paid, or 75% if TAC drops to 15%. This comes in the context of a survey from April indicating that 75% of users would choose Google as their default search engine, and 78% would download Chrome if Google Search was not available in Safari.
The firm also noted the separate Department of Justice case against Google's Adtech business, estimating it to represent less than 2% of Alphabet's equity value. The new stock price target of $185 is based on a 20x multiple of the company's expected 2026 earnings, discounted at 8%, or a 21x multiple of the 2025 estimated earnings, compared to the NASDAQ's average P/E ratio of 25x.
In other recent news, Alphabet Inc., Google's parent company, is facing a $9.3 billion antitrust lawsuit in the UK, which it has asked a tribunal to dismiss. The suit alleges Google has abused its dominance in the online search market. Simultaneously, Alphabet Inc. has successfully overturned a 1.49 billion euro ($1.66 billion) antitrust fine imposed by the EU, originally levied for practices that allegedly hindered rivals in the online search advertising market.
In the realm of financial analysis, TD Cowen has maintained a Buy rating for Alphabet, suggesting that potential changes in Google's default search engine status on Apple's Safari browser may not significantly affect Google's 2026 U.S. Search revenue. Meanwhile, DA Davidson has initiated a neutral rating for Alphabet, outlining potential challenges and opportunities for the company, particularly in areas like artificial intelligence.
In terms of regulatory actions, the EU is currently directing Google to cease anti-competitive actions within its advertising technology sector, with a breakup order not expected at this time. However, the European Commission may consider such a measure in the future if Google continues its anti-competitive behavior. These are the recent developments surrounding Alphabet Inc. and its subsidiary, Google.
InvestingPro Insights
As investors digest Oppenheimer's revised price target for Alphabet Inc. (NASDAQ:GOOG), it is valuable to consider some key financial metrics and expert analysis that could further inform their decisions. Alphabet's market capitalization stands robust at $2.02 trillion, reflecting its significant presence in the tech industry.
Notably, Alphabet is trading at a P/E ratio of 23.1, which is attractive when paired with its near-term earnings growth prospects. This aligns with an InvestingPro Tip highlighting the company's low P/E ratio in relation to its expected earnings expansion.
Another InvestingPro Tip worth mentioning is the company's strong financial position, as it holds more cash than debt on its balance sheet, which could provide resilience against market volatility and strategic flexibility. Moreover, Alphabet's revenue growth over the last twelve months as of Q2 2024 stands at an impressive 13.38%, with a gross profit margin of 57.64%, indicating efficient operations and a strong market position.
For investors seeking more comprehensive insights, InvestingPro offers additional tips, including Alphabet's status as a prominent player in the Interactive Media & Services industry and its ability to cover interest payments comfortably with its cash flows. In total, there are 10 more InvestingPro Tips available for Alphabet, which can be found at https://www.investing.com/pro/GOOG, providing a deeper dive into the company's financial health and market outlook.
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