Alphabet, the parent company of Google, has reported better-than-expected revenue growth, while social media platform Snap has experienced a decline. Analysts at KeyBanc have pointed out that the recovery in advertising is not equal for all technology companies.
According to KeyBanc analyst Justin Patterson, Alphabet’s revenue growth for its Search and YouTube platforms exceeded expectations. He highlighted the increasing popularity of YouTube Shorts, which now reaches 2 billion logged-in users every month, up from 1.5 billion the previous year. Patterson also noted that brand advertisers are starting to test ads on the platform. As a result, he raised the target price for Alphabet to $145 from $140, and reiterated an Overweight rating on the stock. The target price is based on a price-to-earnings ratio of 21.5 times for 2024, which is below its five-year median of 24.6 times. In premarket trading, Alphabet’s stock was up 6.6% at $130.28.
However, the situation is different for Snap, as its third-quarter revenue forecast disappointed analysts. While the number of active advertisers on Snap increased by 20% in the second quarter compared to the previous year, Patterson remarked that large advertisers seem to be reluctant to return. He expressed caution regarding the investment cycle for Snap to win back advertiser budgets, as larger companies have advanced in terms of measurement, AI capabilities, and budgets. Furthermore, Alphabet could potentially become a competitor for Snap in the augmented-reality business. Patterson highlighted Alphabet’s tools that allow users to virtually try on clothing and other items as an advertising opportunity, which directly competes with similar products from Snap. As a result, Patterson maintained a Sector Weight rating on Snap stock, without providing a target price. In premarket trading, Snap’s shares were down 18% at $10.24, despite a 40% increase in value so far this year.
In conclusion, the advertising recovery is not uniform across the technology sector. While Alphabet’s revenue growth for its Search and YouTube platforms surpassed expectations, Snap experienced a decline in its third-quarter revenue forecast. The differing performance can be attributed to factors such as the popularity of YouTube Shorts and the caution of large advertisers in returning to Snap. The augmented-reality business also poses a potential challenge for Snap, as Alphabet has introduced tools that compete directly with its products.
