Alphabet, Inc. (NASDAQ:GOOG) (NASDAQ:GOOGL) managed to see strong ad revenue growth in the fourth quarter, defying fears of a slowdown amid fluid macroeconomic conditions.
An analyst at Morgan Stanley attributed Alphabet's outperformance to its retail search innovation.
The Alphabet Analyst: Brian Nowak maintained an Overweight rating and $3,450 price target for Alphabet shares.
The Alphabet Thesis: Alphabet managed to bring about improvements that included deeper, more local user search experiences, and more merchants and SKUs, Nowak said. Given that retail search made up about 25% of search revenues in 2019, improvements here moved the needle, he added.
The analyst expects the company to persist with its search innovation to continue to improve user and merchant experiences and drive ad growth into 2022 and 2023.
Travel and autos, Nowak said, are two categories to monitor, with these making up about 23% of pre-COVID search revenues.
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Google sees travel as a search category it is currently focusing on, the analyst said, citing comments from the company's executives at Morgan Stanley's TMT conference. The analyst also noted the company has since then made updates within travel to suggest that improving the user and hotelier experience will be core to Google's travel strategy.
Online auto search accounted for about 13% of the 2019 search spend, the analyst noted. Google has recently announced changes to the new vehicle ads format on search to show nearby cars for sales and allow advertisers to promote their entire inventory of vehicles on search, he added.
"Here again, GOOGL's efforts to aggregate fragmented, local and complicated SKU information and connect it to buyers could lead to faster GOOGL ad revenue growth," Nowak said.
Alphabet Price Action: At last check, Alphabet shares were down 1.44% to $2,757.01.
