Global Markets Comment

Alphabet is our top pick within the big cap internet names tactically as it has been a laggard with improved fundamentals. We see upsides to its digital advertising recovery (in part driven by upsides on travel ad spend – which could happen near term), upside from its push into eCommerce (integrating search and eCommerce), localizing advertising offerings via Local & maps and revenue & margin upside from scaling up of its cloud offering. After a strong set of results, Alphabet has seen earnings upgrades & rising price targets and we con􀆟nue to expect re-rating to continue over the next few weeks / months.

Company Profile

Alphabet is a holding company composed of Google and a collection of businesses called Other Bets. In 2018, Google Sites were the most visited internet properties in the world, led by visits to its core search engine. Google leads the development of the Android mobile operating system and owns YouTube. In 2018, 76% of Alphabet

Investment Case

Growth in mobile search & YouTube will sustain solid growth in Alphabet's core Google operations with growing momentum from Cloud. Longer term, achieving a balance btwn innovation (e.g., "Other Bets") & SH expectations will be key to the investment story. We believe investors will be satidfied if GOOG can deliver a) greater clarity and consistency in core OI margins; b) low-to-mid teens rev growth; and/or c) a consistent SH return policy over the LT.

Risk in Investment Case

The rapid pace of evolution in the Internet and Technology sectors, including the emergence of new competition and new form factors of hardware devices, could cause a shift in user behavior that diverts traffic away from Alphabet. Additional key risks include regulatory scrutiny over anti-competitive practices, intellectual property claims, a failure to effectively integrate and manage acquisitions, macroeconomic impacts on global advertising budgets, currency fluctuations, interruption of information technology and communications systems (i.e., natural disasters, terrorism, denial of service attacks, etc.), damage to the Google brand, concentrated voting control, and regulatory risks (particularly ongoing antitrust investigations in the EU).

* Total return including dividend yield. For an ADD idea: positive performance if price went up. For a REDUCE idea: positive performance if price went down.
Source: UBS. Prices correct as of latest data available on the date indicated. Company Profile, Investment Case and Risks in Investment Case as of 24 Aug 2020