Faced with the antitrust target, Google shares are still at record highs because ad sales are sizzling

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Alphabet Inc. is the most vulnerable Big Tech company on the regulatory front, but don’t expect that to matter when the search giant reports Q2 financial results Tuesday.

Leading digital advertising company and Google GOOGL, + 3.53% GOOG, + 3.69% parent company faces at least five government antitrust lawsuits, primarily over its dominance in the search market. And this domain, unsurprisingly, makes it the top seller in the multi-billion dollar online advertising market.

Read more: Google is in antitrust’s hottest place, but Apple and the rest of Big Tech shouldn’t breathe easy

The latter is proving more important to investors as the stock closed at a record high on Thursday, only to gain again on Friday morning after Snap Inc. SNAP, + 24.33% and Twitter Inc. TWTR, +4, 12% reported quarterly spikes in online ad sales, market dominated by Google and Facebook Inc. FB, + 5.92%

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Following Snap’s digital travel ad sales, Morgan Stanley analyst Brian Nowak noted that Google is a dominant player in that $ 10 billion market segment, which should bode well for Google when it reports. .

Cowen analyst John Blackledge estimates that Google Search and other revenue will grow 56% year-on-year in fiscal year 2021, benefiting from the ad market recovery, cloud momentum, increased e-commerce and recovery of the travel market.

We expect strong growth as the post-pandemic reopening continues, Blackledge said in a July 14 note that raised Google’s price target to $ 2,900 from $ 2,700 while maintaining a higher rating.

Blackledge is among 45 analysts surveyed by FactSet who, on average, have a buy rating and a $ 2,809 price target for Alphabet stock. They are generally unaffected by a number of regulatory issues, which go beyond the five federal and state antitrust lawsuits against the search giant.

Opinion: who is more anti-competitive than the Alphabet or the Apple?

On Tuesday, President Joe Biden appointed Google antagonist Jonathan Kanter to head the Justice Department’s antitrust division. Kanter represented companies like Microsoft Corp. MSFT, + 1.16%, and Yelp Corp. YELP, + 3.86% which prompted law enforcement to sue the search giant. Kanter joins a daunting team that also includes Federal Trade Commission head Lina Khan and Tim Wu, the antitrust architect for the Biden administration who is an outspoken critic of Big Tech.

See Also: New FTC Lina Khan Chair Is Big Tech’s Biggest Nightmare

And regulatory concerns don’t end in the US Google has amassed $ 9.72 billion in EU antitrust fines linked to price comparison shopping cases and two other cases involving its Android and search activities in the latest decade. On November 10, a European court is expected to rule on Google’s challenge against a European Union antitrust fine of $ 2.8 billion, according to a Reuters report on Tuesday.

What to expect

Earnings: Analysts on average expect Google to report earnings of $ 19.24 per share, up from $ 10.13 a year ago. Analysts were expecting $ 15.46 per share at the end of March.

Contributors to Stimize, a crowdsourcing platform that collects estimates from Wall Street analysts, as well as buy-side analysts, fund managers, business executives, academics and others, expect earnings averaging $ 19.12 per share.

Revenue: Analysts on average expect Google to report $ 56.2 billion in revenue in the second quarter. Traffic acquisition costs are estimated to be around $ 10 billion, which would give Alphabet $ 46.18 billion in revenue once mined; under that standard, Alphabet posted sales of $ 38.3 billion a year ago.

Stima contributors expect revenue of $ 46.18 billion after removing traffic acquisition costs.

Stock Movement: Google’s stock topped 47% this year, closing Thursday at a record $ 2,568.43. The S&P 500 SPX Index increased by 16% in 2021.

What analysts say

Google may be surrounded by regulators in the US and Europe, but analysts and investors don’t seem to care.

We prefer Google and Snap to print among our digital advertisers, Wedbush Securities said in a July 19 note to clients, summarizing sentiment among financial analysts.

If anything, according to Morgan Stanley analyst Brian Nowak, Google’s influence in retail is growing despite regulatory exposure. In a July 19 note assigning a $ 3,060 price target for Google stock, Nowak cites survey data that 54% of retailers ranked Google Search, including YouTube, as the first place to search for products online. , compared to 50% of past polls.

However, the appearance of antitrust action, albeit slow developing in Congress and the courts, will weigh on Google and its Big Tech siblings in the future.

While a major tech firm is not typically expected to dissolve within the next five years, close scrutiny of the industry is likely to suspend mergers that may be in the gray zone and change the economy around market concentration that could foster spin. -off of large established companies, Raymond James Analyst Ed Mills wrote in a July 14 note to clients.

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