Google and Alphabet Will Become Bigger

Alphabet (GOOG) (GOOGL) announced fourth quarter ended December 31, 2015 total revenue of $21.3 billion, up 18 percent year-over-year from $18.1 billion during the same period last year.

Alphabet declared fourth quarter of 2015 non-GAAP net income of $6.0 billion or $8.67 per diluted share, up 30 percent year-over-year from $4.7 billion or $6.76 per diluted share in the fourth quarter of 2014.

The key technology company reported continued growth in both its top and bottom lines primarily driven by significant revenue contributions from the company’s mobile search segment along with superior programmatic advertising and YouTube.

Smart moves    

Google think tank, earlier referred to as Google Ideas is believed to become a key technology incubator, distinct from the recognized Google search company.
The latest Alphabet division which is expected to be referred as Jigsaw is targeted on discovering and developing advanced technology to sort out the key problems like online attacks and digital censorship. Hence, being a key technology incubator, Jigsaw is estimated to invest into and develop technology to improve access to key information for highly exposed population around the globe and prevent against the highly advanced global security threats.

Recently, the shares of Alphabet, Inc. took a hit after the rumors of the company’s key autonomous driving contract with Ford Motor Company seems nullified as the latter has already entered into a key agreement with Amazon Inc. which were discussed with no clue about any intention to make a deal with Alphabet, Inc.

The strategic restructuring of Alphabet, Inc. by breaking the parent company into other key technology brands is believed to further enhance the company’s brand value while delivering attractive shareholder returns.

What’s driving growth?

Alphabet significant earnings for the quarter are expected to make the parent company of Google globally the most valuable company leaving behind Apple. Importantly, Alphabet has successfully exceeded the key consensus earnings estimate of Estimize since its past two quarters and the company is believed to continue to outperform the strategic earnings estimate of the key investment analysts, going forward. Further, Alphabet shares have grown 2% since the last quarter in spite of major market weaknesses that have forced S&P 500 to decline 7.5%. Since previous year, Alphabet’s shares have grown 48%, hugely outperforming the key 5% downfall of the index.

Moving ahead, the key investment analysts project YouTube as the major earnings contributor for the company and could deliver nearly $3 to $5 of EPS till 2018. However, there are mixed results from paid clicks and Cost per click (CPC) with total CPC having declined by 13% year-over-year as against the consensus estimate for a decline of 6%, still paid clicks grew 31% year-over-year and somewhat better than the consensus analyst’s growth estimate of 22%.

Crucially, Gmail has exceeded 1 billion count for active users in a month and Alphabet bought back $1.8 billion worth of its common stock in the previous quarter and in line with the company’s continued commitment towards delivering attractive shareholder returns.

Soon, Google is forecasted to become the world’s most valuable company surpassing Apple as the former’s significantly effective growth moves are believed to deliver sustainable long-term company growth while delivering impressive stockholder returns.

According to a recent comScore report, “Google Sites” had ruled 63.9% of the key search market in the U.S. during November 2015. However, its competitors, recorded much smaller market shares with “Microsoft Sites” having captured 20.9% of total market share, whereas “Yahoo Sites” having dominated nearly 12.5% of the overall market share.

Considering Alphabet’s sheer size coupled with significant growth initiatives being undertaken by the company to grow and expand its market share is bound to benefit all the key shareholders over the longer term as illustrated from the recent jump in the stock’s price and phenomenal amount of returns delivered till date.

Recently, Alphabet bought back 2.4 million shares of its common stock for a total purchase price of $1.8 billion in the fourth quarter of 2015. Further, during January 2016, the board of directors at Alphabet have reiterated a share buyback authorization to buy back an extra 514 thousand shares and with net remaining share buyback authorization of about $3.7 billion which is in line with its continued commitment to deliver attractive shareholder returns.


Overall, the investors are advised to “Buy” equity in Alphabet Inc. considering the company’s significantly attractive long-term growth prospects along with hugely impressive financial position with notable total cash of $71.93 billion against smaller total debt position of $7.65 billion only, encouraging the company to make future growth investments while delivering attractive shareholder returns. The profit margin of 21.80% seems attractive. The PEG ratio of 1.27 signifies healthy company growth and somewhat better than the industry’s growth average of 0.94.
Published on Mar 22, 2016
By Vinay Singh

Copyrighted 2020. Content published with author's permission.

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