GOOGL had another strong quarter led by accelerating growth in mobile search. Alphabet recorded revenue growth of 24% and EPS of $9.57, both ahead of consensus estimates. The company’s diversified product base has successfully expanded geographically as growth numbers were higher than expected in all major regions. While Alphabet remains an information company, they are focused on driving innovation with products like Google Cloud and Google Home. Reviewing price target.
Current Price: $1052 Price Target: $1020
Position Size: 4.5% TTM Performance: +29%
1.) Alphabet continues its fast paced growth trajectory with revenues of $27.8 billion for the quarter, a growth of 24% year-on-year
a. Geographical performance was strong across the board
i. U.S. revenues up 21% yoy
ii. EMEA revenues up 23% yoy
iii. APAC revenues up 29% yoy
iv. Other Americas revenue up 33% yoy
b. Mobile search accelerated for the 2nd straight quarter, and YouTube mostly recovered from its brand safety issues in Q2
c. Alphabet showed strong profitability upside with net income of $6.7 billion and EPS of $9.57, both ahead of consensus estimates
2.) GOOGL continues its strong pace of innovation and made progress in its three areas of “Other Bets”
a. YouTube – now has over 1.5 billion users, and on average users spend 60 minutes a day on mobile; there has been an increase in its subscription based model and the rate of living room viewing has gone up 70% since last year.
b. Google Cloud – the company has been able to win over large enterprise customers including Nielsen, Kohls, and PayPal, and they recently announced a collaborative partnership with Cisco.
c. Hardware Business – earlier this month launched second generation “Made by Google” hardware products focused around AI technology. This year the goal was to bring together the best AI software and hardware to give people a great user experience.
3.) Alphabet is exposed to some of the best secular trends within tech, including mobile search, video (YouTube), and enterprise cloud computing
a. GOOGL deserves a premium multiple as we expect EPS and FCF growth in the high teens (plus) for the next couple of years
b. At quarter end, cash and marketable securities were $100 Bn. Alphabet has begun to return capital to shareholders. The board recently authorized a $7Bn buyback plan (priority for Alphabet is to continue investing in the existing business and M&A)
Thesis on GOOGL:
• Online advertising’s share of overall Ad budgets will continue to grow as:
1. People spend more time on the internet/mobile internet vs tv, radio, newspapers etc
2. Higher ROI (+ easier to measure) per marketing dollar spent online vs other ad mediums
• Alphabet is the Industry Search Leader
• Well positioned to benefit from smartphone explosion via increased Android adoption and mobile search
• Flexible business model provides operating leverage with high returns and huge free cash flow generation ($25Bn and growing) à Future returns of capital to shareholders
• Well positioned to monetize online video usage via YouTube
$GOOGL.US