On Monday, Evercore ISI made a revision to its price target for Alphabet Inc. (NASDAQ:GOOGL), reducing it to $200 from the previous $225. The firm has, however, maintained its Outperform rating on the tech giant's shares. The adjustment comes amid concerns regarding the potential outcomes of the ongoing Department of Justice (DOJ) antitrust trials involving Alphabet's Google and their potential remedies.
The firm's stance remains positive on Alphabet's long-term prospects despite the lowered price target. The new target is partly based on a 20-times multiple of the projected 2026 earnings per share (EPS) of $10.16. The forecast takes into consideration the medium-term uncertainties that could arise from the DOJ's antitrust trials against Google, which may affect the company's valuation in the near to medium term.
Evercore ISI's analysis follows a legal expert webinar held on September 6 and a review of Judge Mehta's decision regarding the case. The firm suggests that a "worst-case" scenario is more probable than the market expects. In this scenario, Google could be prohibited from bidding for exclusive search distribution deals in the U.S., potentially leading to a significant loss of market share if competitors like Microsoft (NASDAQ:MSFT) were to secure these deals.
Despite the possibility of Google losing between 20% to 50%+ of its search access point share, which represents about half of the U.S. search market, Evercore ISI believes that the impact on Alphabet's EPS would be minimal. Even with a 60% loss in market share, the effect on earnings could be in the single-digit percentage range, due to the substantial savings in Traffic Acquisition Costs (TAC) that would accompany the loss of these deals. This financial cushion is a key reason for the firm's continued confidence in Alphabet's stock performance.
In other recent news, Alphabet Inc's Google is under scrutiny by European Union antitrust officials over its advertising technology practices. While a breakup of the company was previously suggested, sources indicate that this is not expected at this time. Instead, the EU is focusing on halting Google's alleged anti-competitive actions in the adtech sector. Simultaneously, the Data Protection Commission in Ireland is investigating Google's compliance with EU data protection laws in its development of the artificial intelligence model, Pathways Language Model 2.
In the U.S., a former Google executive's intention to "crush" competition in the online advertising market came to light during an ongoing antitrust trial. Evidence presented at the trial indicates Google's aggressive strategy towards its competitors. On the financial side, Truist Securities maintained a Buy rating on Alphabet shares, citing the shift in search engines due to generative AI technologies. Goldman Sachs also reaffirmed its Buy rating on Alphabet stock, highlighting the potential growth of Alphabet's Cloud business driven by AI.
InvestingPro Insights
Alphabet Inc. (NASDAQ:GOOGL) continues to be a topic of discussion among investors, especially with its recent price target revision by Evercore ISI. To further enrich this conversation, InvestingPro offers a couple of insights that could be pertinent for investors considering Alphabet's stock. According to InvestingPro, Alphabet holds more cash than debt on its balance sheet, which may provide a degree of financial stability amidst the uncertainties of the DOJ antitrust trials. Additionally, the company is trading at a low P/E ratio relative to its near-term earnings growth, which suggests that its stock might be undervalued when considering its growth potential.
From a data perspective, Alphabet's market cap stands at an impressive $1.94 trillion, and the company has a P/E ratio of 22.52, with a slight adjustment in the last twelve months as of Q2 2024 to 21.43. The revenue growth during this period was 13.38%, indicating a strong financial performance. Furthermore, Alphabet's gross profit margin was 57.64%, showcasing its ability to maintain profitability. For those looking for more in-depth analysis, InvestingPro offers additional tips on its platform, including insights into Alphabet's position as a prominent player in the Interactive Media & Services industry and its ability to generate strong returns over the last decade.
For investors wanting to delve deeper into Alphabet's financials and forecasts, they can find more than ten additional InvestingPro Tips on https://www.investing.com/pro/GOOGL, which may aid in making more informed investment decisions.
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