Alphabet's Stock Can Rise 25%, Analyst Says. Here's Why.

Connor Smith Technology MS Alphabet. 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value BARCONSUMER canbedisplaysubject true name Consumer title Consumer status modified code BARCONSUMER wordcount 712 wordcount|712 Photograph by Alastair Pike/AFP/Getty Images Google Parent Alphabet’s Stock Can Rise 25%, Analyst Says Google Parent Alphabet’s Stock Can Rise 25%, Analyst Says Google Parent Alphabet’s Stock Can Rise 25%, Analyst Says

Google Maps, Google Discover, and its e-commerce plans combined could add $5 billion in revenue in 2020, boosting the share price, a Morgan Stanley analyst says.

Alphabet’s Stock Can Rise 25%, Analyst Says. Here’s Why.

Google Maps, Google Discover, and its e-commerce plans combined could add $5 billion in revenue in 2020, boosting the share price, a Morgan Stanley analyst says.

mailto:connor.smith@barrons.com Google Parent Alphabet’s Stock Can Rise 25%, Analyst Says By Connor Smith Photograph by Alastair Pike/AFP/Getty Images

Morgan Stanley’s Brian Nowak is a big-time bull on Google’s parent Alphabet. His price target for shares of the internet behemoth shows a more than 25% increase from current levels.

Now, the analyst believes Google Maps, Google Discover, and its new e-commerce products combined could drive $5 billion in revenue in 2020. His estimate for 20% revenue growth (not counting currency fluctuations) for the company’s websites, which is above Wall Street’s consensus, “may prove conservative if all of these products come through,” he wrote in a note on Tuesday.

Shares are down 0.20% to 1,168.79 in afternoon trading. Nowak’s price target is $1,450 over the next 12 to 18 months. The 25.8% share gain estimate is based on the closing price on Aug. 23, according to the note. Here’s how Nowak thinks Google (ticker: GOOGL) can pull it off.

Google Maps is “a $1.6 billion opportunity in 2020,” according to Nowak. He called the popular navigation platform “the most under-monetized asset that we cover.”

He wrote that he’s bullish on Alphabet’s ability to “monetize the platform through local, national, and branded advertising money,” adding that a “broader roll-out of sponsored listings” can help turn Google Maps into a multi-billion dollar earner. Features like targeted promotional pins on its maps and augmented reality will accomplish this, he wrote.

Google Discover could add $2 billion in revenue in 2020, he wrote.

Alphabet said in May that its Discover feed reaches 800 million monthly users, which Nowak wrote is on track to be its latest product to pass 1 billion users.

The feed appears on the home page of the Google app and Google.com on mobile phones. Anyone with a Google account can customize their feed to display news, sports, videos and music, he notes. The company plans to monetize this feature through advertisements, which Nowak believes could be “a material driver of top-line.”

News feed monetization ranges from $3 (Pinterest) to $20 (Facebook) per user a year, according to Nowak.

New e-commerce products could bring $1.3 billion to 2020 revenue, according to Nowak.

He cites Google’s new shopping campaigns with partners, “deep linking,” more showcase shopping ads, and Google’s new shopping interface and cart functionality as reasons to be excited about the company’s e-commerce efforts.

Google is getting brands more involved in understanding how their products are shown in searches. This could lead to more effective advertising, and more cash available for brands to spend on Google advertising, he says.

Deep linking means users who click on products posting in Google can be brought to the seller’s mobile app rather than their website. It’s easier for customers since they’re more likely to have their payment and shipping information stored on the mobile app.

Google is also expanding showcase shopping ads, which act like a shopping catalog within search results. Nowak calls this format more “visually-engaging,” noting that 80% of the traffic the feature drove to retailers’ websites was from new visitors. Google is bringing this feature to image search YouTube and Discover.

Google Shopping’s updated interface provide more personalized suggestions and details about the products. It’s also better at bringing customers through the shopping site, or to third-part retailers, Nowak says. Google’s also rolling out an improved shopping cart that lets users add items found in Google searches, Google images, and through YouTube advertisements.

By improving the shopping experience, as well as completion rates, Nowak says, retailers will be more willing to fork over more money for better placement in Google’s shopping sites. Corrections & Amplification: The Morgan Stanley analyst’s name is Brian Nowak. An earlier version of this article misspelled his last name in three instances.

Write to Connor Smith at connor.smith@barrons.com

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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