Alphabet Inc (GOOG, GOOGL) is undoubtedly on a roll, reviving feelings of the old days when Google could seemingly do no wrong.
On the heels of Alphabet’s third-quarter earnings report, GOOGL stock is up some 10% in Friday’s premarket trading. The quarterly momentum is no fluke, either, as Alphabet is following up on a Q2 that saw a strong beat as well.
Before today’s open, GOOGL shares were already up nearly 30% for the year-to-date. This morning’s run will only extend those gains much further.
And even at what should be an open at all-time prices around $750, there is plenty to love about GOOGL stock going forward, making the tech titan a clear buy in the tech sector.
Alphabet Earnings
A rundown on the most recently reported numbers:
- Alphabet reported adjusted earnings of $7.35 per share, which beat Street estimates of $7.20 per share.
- Alphabet revenues came to $18.7 billion to clear an analyst bar of $18.54 billion.
Part of Alphabet’s success has been a focus on cost cutting. New CFO Ruth Porat has emphasized this on several occasions, including on the Q2 earnings call; on a year-over-year basis, operating expenses have remained at 37% of overall revenues.
The reorganization of the company into Alphabet is another key part of the company’s strategy. The idea is that we should get more transparency into Google’s actual business, which should help improve discipline in the long run.
Yes, Google has had challenges moving to the mobile world, and that has manifested itself in GOOGL stock. Still, the company has made substantial investments in making the transition.
“Alphabet is executing on all cylinders,” said Ron Heinz, who is the founder and managing director at Signal Peak Ventures. “With six different Google products having more than 1 billion users around the world and an open ecosystem in the newly minted Alphabet, there is a strong growth story here.”
Google also has been aggressive with implementing new monetization systems. For example, the company has recently introduced install ads (GOOGL gets a fee when a user downloads an app) for Google Play and the introduction of new ad formats.
Such efforts probably have been critical for the nice lift in aggregate paid clicks, which were up about 23% on a year-over-year basis. The consensus was for about 18.6%.
GOOGL Stock Was a Buy Before, And It’s a Buy Now
My thesis on Alphabet is much the same as it was when I discussed GOOGL a couple weeks ago:
- “For the most part, Alphabet stock offers investors a way to capitalize on a variety of mega-trends, such as mobile apps, cloud computing and video. There are also some speculative opportunities like self-driving cars and even drone delivery.”
Sure, GOOGL’s valuation is a lot pricier now, but the company appears to think there’s still reasonable value to be had: Alphabet also just announced the first buyback in company history, with plans to repurchase $5.1 billion in shares.
And even at a forward price-to-earnings ratio of 19 — which isn’t cheap — Google still looks like a decent value when compared to other tech stocks like Facebook (FB) at 36X and Twitter (TWTR) at 47X.
Google and a few other players are making life tough for operators like Yahoo (YHOO) and Twitter. As advertisers are looking to go digital, there is a priority on first-tier properties like Google and Facebook.
Alphabet’s momentum will last for some time. Buy GOOGL stock and don’t look back.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
