Written by Ophir Gottlieb
This article is a snippet from the original published to CML Pro members on 4-30-2017.
LEDE
Earnings season is upon us and today we will focus on Spotlight Top Pick Alphabet Inc (NASDAQ:GOOGL).
ALPHABET INC (NASDAQ:GOOGL)
While we never know what a company will report in these short-time bursts called quarters, if ever there was a company we were confident would beat, it was Alphabet Inc (NASDAQ:GOOGL) this quarter.
On April 25th we wrote: Apple and Google are Heating Up
On March 8th we wrote: Google's Upside Is Absolutely Enormous and Unaccounted For
On November 29th we wrote: Wall Street is Blind to Google's Upside
We stand by all of those dossiers and continue to see upside potential in Alphabet Inc, even given the enormity of its market cap. The stock will certainly drop in a market correction, but for the next several years, we still hold a very strong bullish thesis for the company. Now on to some details about this earnings release:
Alphabet Inc Earnings Details
Google parent Alphabet Inc (GOOGL.O) reported a 22.2 percent rise in quarterly revenue, driven by a surge in advertising on mobiles and its popular YouTube video service. For Wall Street, this quelled any "panicky" feeling about YouTube advertiser attrition.
* Revenue was $24.7 billion, up from $20.2 billion in the year-earlier period and above the FactSet consensus of $19.7 billion.
* EPS was $7.73 per share, up from $6.02 per share, in the year-earlier period. The FactSet consensus was for earnings per share of $7.38.
This was a total earnings blowout. Here is a 3-month stock chart for Alphabet:
But there was more to learn, and it was all good.
The business, categorized as "Other Revenue" posted a 49.4 percent jump in revenue to $3.10 billion. The business now represents about 13 percent of Alphabet's total revenue, compared with 10 percent a year earlier. This is just the beginning of Alphabet's diversification away from advertising.
"Google is doing a good job, a much better job in diversifying revenue than Facebook is," said analyst James Wang of ARK Investment Management. "We think that is quite an impressive achievement."
Alphabet does not break out revenue contribution within the "Other Revenue" segment. But analysts have said that cloud is the most prominent among the category's clutch of businesses.
I would say that the cloud and the Pixel phone were both responsible for this increase. We see Alphabet Inc (NASDAQ:GOOGL) hitting the five largest themes of technology's future: (1) Cloud (2) Smartphones (3) Self-driving cars (4) Online video and (5) Artificial intelligence. We discus those in detail in the prior dossier Google's Upside Is Absolutely Enormous and Unaccounted For.
Here are the words from the CEO and CFO that caught our eye:
* Growth in advertising revenues was again driven by mobile search, with ongoing strength in YouTube and programmatic.
* The results by region highlight the strength of our business around the globe.
* Last quarter we talked about our bigger investment areas, and you can see the strong momentum here, reflecting contributions from each of Play, hardware, and Cloud.
* Hardware continues to have strong growth and remains an important area for us, with our family of products extending geographically.
* Google Cloud continues to drive sizable growth, with Google Cloud Platform remaining one of the fastest-growing businesses across Alphabet.
* The strong performance in our advertising business allows us to take bigger bets within Google to fuel the growth of additional revenue streams, including those from Cloud, hardware, and YouTube subscription offerings.
* I'm really happy with how we are transitioning to an AI-first company. The Google Assistant is one of our first steps towards that future.
* Advances in machine learning are helping us make many Google products better.
* YouTube, where we continue to see extraordinary growth and opportunities. People around the world are watching more content on YouTube than ever before.
* Every day, users watch over a billion hours on YouTube.
* This quarter we announced YouTube TV, which offers live TV from major broadcast and cable networks, a cloud-based DVR without storage limits, and streaming on all of your devices.
* We are finding that people who buy products like Pixel and Google Home are not only incredibly happy with their purchase but also very likely to recommend it to others. Sales continues to be strong.
We maintain our Spotlight Top Pick status on Alphabet Inc.
WHY THIS MATTERS
Alphabet Inc (NASDAQ:GOOGL) continues to be a marvel, but it's finding the technology gems that will turn into the 'next Google,' 'next Apple,' or 'next Amazon,' where we have to get ahead of the curve. This is what CML Pro does. Our research sits side-by-side with Goldman Sachs, Morgan Stanley and the rest on professional terminals as a member of the famed Thomson First Call.
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Thanks for reading, friends.
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