Alphabet: More Upside Ahead

Alphabet (GOOG) (GOOGL) announced second quarter ended June 30, 2016 total revenue of $21.5 billion, up 22 percent year-over-year from $17.7 billion during the same period last year.

Alphabet declared second quarter of 2016 non-GAAP net income of $5.9 billion or $8.42 per diluted share, up 21 percent year-over-year from non-GAAP net income of $4.8 billion or $6.99 per diluted share in second quarter of 2015.

The global technology company reported continued year-over-year expansion in both its top and bottom lines primarily driven by the strategically successful investments made by the company since several years in continually growing segments such as video and mobile.

A closer look  

The recent downfall in Alphabet’s earnings for the quarter that narrowly missed the earnings estimate for the period is primarily attributable to enhanced spending by the company in strategic advertisements or traffic acquisition expenditures to expand its top line.
The key costs grew 6% in the last quarter with Alphabet continuing to invest significantly in mobile.

Importantly, the Alphabet stock has continued to outperform the S&P 500 index with Alphabet shares having grown 8.1 percent during the previous three months compared to 4.5% growth in S&P 500 index. Further, upon considering the last year, Alphabet shares have grown a notable 16% and greatly outperformed a minor 4% gain recorded in the index.

The impressive stock price performance of Alphabet over the past several years, outperforming the S&P 500 index, is mainly due to significant customer traction for the company’s consistently innovation delivering attitude and a zeal to implement out of the box thinking in developing its products and services while delivering attractive shareholder returns.

Alphabet was ranked the third most valued global brand by Forbes in March 2016 with a supreme dominating power among several other search engines. Alphabet has a dominating market share with 88.3 percent of worldwide internet users exploring the web leveraging Alphabet’s search engine followed by Bing, the key search engine of Microsoft Corporation with just 4.85% share of the worldwide search engine market.

In addition, Alphabet masters global search ad market capturing approximately 54.5% of total market as per eMarketer which is a research firm. Next to Alphabet is Baidu Inc. which gains hugely from the China prohibition on Alphabet and has 8.8% of total market share.

A look at the advantages

The superior brand value of Alphabet gives it a unique competitive advantage and thus, an industry-leading market share to continue to dominate the international computing technology market while offering attractive shareholder returns.

Another attractive growth opportunity for Alphabet lies in the globally expanding cloud computing demand with key market leaders such as Microsoft Corporation (MSFT) and Amazon Inc. (AMZN). According to the latest survey by Synergy Research Group, the global cloud computing market is estimated to grow to about $27.4 billion during 2016 as against $14.9 billion during 2014 and primarily driven by a notable revenue expansion witnessed in infrastructure as a service (IaaS) growth segment.

Driverless cars are expected to be another major growth area for Alphabet in which the company has invested massively since last few years. As per Boston Consulting Group research, the global autonomous car market is estimated to grow to approximately $42.0 billion through 2025 and could deliver a quarter of worldwide auto sales through 2035.

The significant new growth opportunities for Alphabet are expected to continue to deliver sustainable long-term company growth while offering impressive shareholder returns.


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 superior innovation delivering capabilities coupled with a significant total cash position of $78.46 billion against smaller total debt position of $6.27 billion only, encouraging the company to make future growth investments. The profit margin of 22.00% also seems impressive. Further, the PEG ratio of 1.23 depicts healthy company growth.
Published on Aug 15, 2016
By Yaggyaseni Mittra

Copyrighted 2020. Content published with author's permission.

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