Alphabet Inc (NASDAQ:GOOG), Google's parent company, saw its shares rise on Friday after its third-quarter sales growth beat analysts’ estimates after-hours on Thursday as businesses resumed advertising with the internet’s biggest supplier of ads after an initial drop off at the start of the coronavirus pandemic.
The group's third-quarter sales were $46.2 billion, up 15% from a year ago, compared with the average estimate of $42.9 billion. Alphabet’s profit was $11.2 billion, or $16.40 per share, compared with the average estimate of $7.698 billion, or $11.18 per share. Earnings benefited from cutbacks in marketing and travel and in particular a 20% drop in spending on equipment and workspace construction.
Google ad sales accounted for 80% of Alphabet’s revenue, with gains across each of the ads businesses where Google technology dominates the online landscape, including search, YouTube and the broader web.
Alphabet’s bounce-back followed its first sales decline compared with a year-earlier period in the second quarter since going public in 2004. Google’s billions of users are spending more time online transacting and entertaining themselves this year as they try to avoid the coronavirus.
Ad sales surged across all regions and industries, with US revenue up 15% in the third quarter compared with 1% in the second quarter.
Google’s cloud business was about flat, however, compared with the second quarter, as were the company’s sales of apps, hardware and content subscriptions.
Alphabet said it would elevate cloud into a separate reporting unit starting in the fourth quarter, effectively dropping cloud financial results from its Google unit and giving investors their first view into the business’ profitability.
In reaction to the numbers, analysts at Wedbush raised their price target for Alphabet to $1,850 and repeated an outperform rating on the stock.
In a noted to clients, they said: "Alphabet handily beat our and consensus estimates, driven by broad-based growth in advertiser spend across both brand and direct response advertisers, along with continued momentum across Cloud, Play, and subscriptions."
The analysts noted: "As expected, management did not provide formal guidance for Q4. Despite the significant uptick in brand advertiser spending that clearly benefitted Q3 results, management noted a high degree of uncertainty in the macro-environment that limits future visibility.
"With respect to Google Play, management also referenced signs of moderating user behavior from the heightened levels of engagement that have benefitted growth in the Google Other segment year-to-date."
Alphabet shares were 3.8% higher in early New York trade on Friday at $1,626.23, having risen by 13% in the year to date.