Why Alphabet Is a Winning InvestmentGOOG) (GOOGL) announced first quarter ended March 31, 2016 total revenue of $20.3 billion, up 17 percent year-over-year from $17.3 billion during the same period last year.
Alphabet declared first quarter of 2016 non-GAAP net income of $5.25 billion or $7.50 per diluted share, up 18 percent year-over-year from $4.46 billion or $6.47 per diluted share in first quarter of 2015.
The key technology company reported continued year-over-year growths in both its top and bottom lines primarily driven by notable customer traction for the company’s new and innovative developed technologies which are expected to expand over time.
Google’s actual earnings have continued to outperform the Street analyst’s earnings estimates over the last few quarters, excluding the first quarter of fiscal 2016.
Strong recent growth
Further, the class A shares of Alphabet have improved 8% during the previous three months, somewhat smaller than the S&P 500 gain of 13% during the same period. However, the Alphabet stock has grown 43% in the previous year, hugely exceeding the 0.3% expansion witnessed by S&P 500. Moving ahead, the investors must look for Google’s key business growth capabilities to deliver significant profitability for its mobile business, expand against its key competitors Microsoft and Amazon for cloud, and minimize non-core expenditures to grow cash.
A majority of the key investment analysts are extremely positive about the long-term growth prospects of Alphabet, Inc. considering the latest stock price movements which signifies that the company is well-positioned for delivering notable long-term growth, much better than its key competitors while offering attractive shareholder returns.
Google has successfully been able to grow the total number of paid clicks for first quarter of 2016 compared to the same period last year while minimizing the total cost-per-click during the period. Paid clicks on Google websites and on Google Network Member’s websites for first quarter of 2016 increased 38% and 2% respectively year-over-year compared to the first quarter of 2015, signifying the robustness of the company operations.
Importantly, Alphabet bought back 3.2 million shares of its Class C capital stock at a total purchase price of $2.3 billion and including $2.1 billion that was paid in the quarter. Going forward, the company still has nearly $1.4 billion of total share repurchase authorization remaining and with no expiration date.
The continued year-over-year improvement in the total number of paid clicks was somewhat offset by a decline in the aggregate cost-per-click and thus, reduced overall company’s profitability. Still, Alphabet is focused on returning a majority of the invested capital to its shareholders in the form of dividends and strategic share repurchases.
The strategic restructuring of Alphabet, Inc. has hugely grown its stock price to a notable $748.40 per share and particularly made easy for the management to look after these separate enterprises individually with enhanced independence and focus while reducing the risk for Alphabet’s core search engine business.
Moving ahead, Alphabet and Ford are believed to declare a strategic partnership in the beginning of 2016 to plan and manufacture self-driving vehicles. This key deal would combine the software proficiency of Alphabet and car-manufacturing proficiency of Ford while allowing both the companies to save billions of dollars that would have been required in research and development otherwise.
The planned restructuring of Alphabet is expected to drive sustainable long-term company growth while giving the management a deeper understanding about the processes involved in the functioning of different company’s segments. The strategic foray into fully-automated vehicle design and development key market growth segment is expected to provide a unique niche for Alphabet above its key competitors.
Overall, the investors are advised to “Hold” their position in Alphabet Inc. considering the company’s significant long-term growth prospects being supported by its robust financial position with significant total cash of $73.45 billion and smaller total debt position of $7.38 billion, encouraging the company to make future growth investments while delivering attractive shareholder returns. The profit margin of 21.85% is impressive. Further, the PEG ratio of 1.28 indicates healthy company growth.
Published on May 26, 2016By Vinay Singh