Alphabet's hardware growth adds to strength in core ad business

Fri Jan 27, 2017 9:56am EST
 
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By Rishika Sadam

(Reuters) - Alphabet Inc's (GOOGL.O: Quote) core advertising business remained strong and its smartphone and home-automation products were gaining traction, analysts said a day after the company missed profit expectations, hurt by a higher tax rate.

Shares were down 1 percent at $849.40 in early trading on Friday, after hitting a record high earlier.

At least 11 brokerages raised their price targets on Alphabet's stock, which now has a median price target of $992.50 - indicating a 15.8 percent upside to the stock's Thursday close.

"From a capital allocation standpoint, we appreciate Alphabet is investing in strategic, promising areas like Google Assistant and hardware, while pausing investment in less rewarding areas like Fiber," Jefferies analysts said.

Alphabet still gets most of its revenue from its advertising business, which rose 17.4 percent to $22.4 billion in the quarter.

"As we reflect upon longer-term trends impacting the company's core advertising business, trends seem pretty clear with Google reinforcing its co-hegemonic position alongside Facebook (FB.O: Quote) on an ongoing basis," Pivotal Research Group analyst Brian Wieser

Over the past few quarters, the company has highlighted its hardware business and Other Bets, which includes broadband business Google Fiber, home automation products Nest, self-driving technology company Waymo, and X, a research facility that works on "moon shot" ventures.

Operating loss in Other Bets narrowed to $1.09 billion from $1.21 billion in the fourth quarter ended Dec 31, while capital expenses rose to $504 million from $193 million a year earlier.   Continued...

 
Attendees wait for the program to begin during the presentation of new Google hardware in San Francisco, California, U.S. October 4, 2016.   REUTERS/Beck Diefenbach