Here’s why one Wall Street firm simultaneously slapped new ‘buy’ ratings on Facebook and Alphabet

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DENIS CHARLET / Contributor
  • Facebook and Alphabet received simultaneous upgrades from the same Wall Street firm on Thursday.
  • Analysts from Stifel boosted the two tech companies’ ratings from “hold” to “buy,” while also raising their price targets.
  • The analysts cited strong revenue growth trends and a robust outlook for the digital advertising market as some of the main drivers for the upgrades.
  • Watch Facebook and Alphabet trade live on Markets Insider.

One Wall Street firm upgraded both Facebook and Alphabet with fresh “buy” ratings on Thursday.

Stifel’s analysts changed their tune on the tech behemoths following strong third-quarter sales growth and a more robust outlook for the digital advertising industry.

“Alphabet & Facebook continue to take share of the online ad market, driven by persistent audience growth, ad product innovation, enhanced targeting, and greater ROI measurement / attribution tools for advertisers,” the firm wrote in a note to clients Thursday.

The chart below depicts Facebook and Alphabet’s continued accumulation of market share in the digital advertising market over the last decade, as well as expected growth over the next several years. Digtial advertising

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Stifel

Stifel analyst Scott Devitt upgraded Alphabet from a “hold” to a “buy” rating and boosted his price target by $200 to $1,525. That figure represents around a 15.6% premium from where the tech conglomerate’s shares closed on Wednesday.

“We are encouraged by Google’s continued share gains of advertising dollars and see a continued runway for healthy revenue growth, leading us to raise our long-term Properties revenue estimates,” Devitt wrote in a note to clients Thursday.

Google has also continued to improve its portfolio of digital ad products to take advantage of the industry’s growth, Devitt added. The company has improved its ad load on the Google Discover feed, YouTube home feed, and Gmail promotions.

John Egbert, Stifel’s analyst who covers Facebook, bumped the social media giant’s rating to “buy” from “hold” and increased his price target to $240 from $215, representing roughly 20.8% upside.

“We are incrementally positive on Facebook’s ability to drive sustained above-market ad revenue growth, maintain healthy levels of user growth / engagement, and better align expenses with top-line growth to deliver operating leverage,” the analyst wrote.

Egbert added that the digital ad industry’s healthy growth should allow Facebook to increase revenue by 20% in 2020 and between 15% and 20% from 2021 through 2023.