Alphabet (GOOG) Stock Faces Price Target Cut

  • Technology stalwart Alphabet (GOOG, GOOGL) is up nearly 2% in early afternoon trading.
  • Monness Crespi Hardt reduced the price target for GOOG stock to $2,900 from $3,500 while maintaining a “buy” rating.
  • Positive digital advertising revenue is clashing with brewing recession fears.
GOOG stock - Alphabet (GOOG) Stock Faces Price Target Cut

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Technology powerhouse Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) is basically the king of the internet with its Google search engine and ecosystem. After all, when have you ever heard someone say they’ll Yahoo something? But that crowning achievement might not be enough to skyrocket GOOG stock at the moment. That’s the implication behind sell-side brokerage firm Monness Crespi Hardt’s latest assessment on Alphabet.

To be clear, the firm is still overall bullish on GOOG stock, maintaining a “buy” rating. However, Monness Crespi Hardt analyst Brian White trimmed his 12-month price target to $2,900 from $3,500. As MarketWatch pointed out, adjusted for the 20-for-1 stock split scheduled for after the closing bell on July 15, White’s target translates to $145.

While keeping the “buy” rating is significant, many seasoned investors consider price target adjustments to be more meaningful, particularly as they typically align with earnings forecasts and assumed valuation multiples. Nevertheless, GOOG stock has performed well in the early afternoon session, popping up nearly 2%.

How, then, should investors respond to the seeming contradictions involved?

GOOG Stock and the Broader Economy

Fundamentally, White sees myriad positives undergirding GOOG stock. In a research note, the analyst wrote, “We believe Alphabet will benefit from long-term digital ad trends, experience healthy secular growth in the cloud, and repurchase stock at a generous pace.”

At the same time, White cautioned that “the economy appears to be in a recession, regulatory headwinds persist, equity markets are in turmoil, and we expect the geopolitical landscape will grow more precarious.” Put another way, the main strengths supporting GOOG stock (i.e., the power of the internet) clash with demand erosion sidelining multiple industries.

As CNBC pointed out, the Google brand enjoys a massive $150 billion advertising footprint. Further, search represents Google’s most lucrative unit. “In 2020, the company generated $104 billion in ‘search and other’ revenues, making up 71% of Google’s ad revenue and 57% of Alphabet’s total revenue.”

However, in order for it to continue being lucrative, it must attract deals with companies willing to invest money to broaden their exposure. Unfortunately, with consumer sentiment in the toilet, businesses everywhere are encountering a reduced total addressable market, boding poorly for the economy.

As good as GOOG stock is, the underlying firm is not its own self-sustaining ecosystem.

Longer-Term Optimism

Significantly, White believes that Alphabet is positioned to emerge stronger “on the other side.” Presumably, most analysts feel the same. As the New York Times stated in December 2020, Google provides an “unrivaled view of the web.”

It’s not easy to usurp such dominance. Therefore, patient investors can likely trust GOOG stock to eventually steer them in the right direction. However, in the meantime, the ride might get a little choppy.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.

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