"As consumers seek alternative forms of entertainment within the confines of their homes, they are likely to increasingly consider subscription products offered by Google," says BMO's Daniel Salmon.
BMO Capital Markets analyst Daniel Salmon on Monday upgraded his stock rating on Google parent company Alphabet, arguing that more consumers would amid the coronavirus crisis look at paying for its subscription services, such as YouTube Premium.
Salmon moved his rating on the technology giant's shares from "market perform" to "outperform" after "a historic sell-off" that has seen the stock drop from a 52-week high above $1.530 in February to a 52-week low of $1,008.87 last week. He left his price target on the stock at $1,400.
"As consumers seek alternative forms of entertainment within the confines of their homes, they are likely to increasingly consider subscription products offered by Google, including YouTube Premium, YouTube Premium Music, and YouTube TV," he wrote in a report whose title included the comment: "We See Relative Outperformance Upon Rebound."
"Shelter-at-home lifestyles promote greater digital media consumption," Salmon wrote. "Consumers staying at home and consuming increased quantities of digital media has already prompted YouTube, Disney, Apple TV+, Amazon Prime, and Netflix to cut the quality of their video streaming services in order to reduce the internet traffic load on telecommunications infrastructure (YouTube has additionally cut its default setting to standard definition worldwide)."
The analyst also noted that, "higher viewership of general content on YouTube will drive a greater number of impressions for the app/site’s ad business, though as rising unemployment and lower overall consumption puts pressure on ad buyers, declines in (ad rates) and cost per click rates could offset higher site traffic on YouTube’s flagship property."
Salmon on Monday also highlighted that there was no change to his top stock picks beyond Alphabet. "In fact, we have more conviction than ever," he wrote. "We continue to recommend buying all the global streamers (Disney, Amazon, Netflix), and part of the reason we nudge Alphabet onto our recommended list is YouTube's related exposure to these themes."
