Alphabet Inc (GOOG, GOOGL) is showing no signs of getting crusty and old, and all the signs of a scrappy startup.
Well … a scrappy startup that’s also a dominant player in the mega-growth markets of mobile, digital ads and video.
Alphabet Inc announced fourth-quarter earnings on Monday night, and for the third time in a row, its figures beat Wall Street estimates. GOOGL earnings of $8.67 per share on revenues of $21.3 billion topped expectations for $8.10 per share and $20.8 billion, respectively.
As an unsurprising result, GOOGL stock — which already was beating the market with a slight 2% loss so far this year — was up 5% in after-hours trading. That in turn will fuel the headline that investors will be seeing all day long Tuesday, which is that Google’s market cap (now at $557 billion) has surpassed that of Apple Inc. (AAPL).
What investors should be focused on instead is how Alphabet fared — or the fact that this was the first time the company has broken out its Google results from its “Other Bets” pool of projects. This move is part of a recent trend in the tech industry to provide better transparency, which should help improve estimates and keep valuations in line. This follows in the footsteps of Amazon.com, Inc. (AMZN) and Netflix, Inc. (NFLX), which have also opened up their disclosures.
The bulk of Alphabet’s earnings are still coming from the core Google business, which includes assets like search, Android and YouTube. The good news is that — despite the maturity of these businesses — the growth remains healthy. Last year, revenues came to $74.54 billion, up 13.5% year-over-year, and it produced sizzling profits of $23.4 billion.
GOOGL has been able to use this windfall to plow money into its “Other Bets” unit, which includes speculative efforts like autonomous cars, Nest and biosciences. The annual revenues were only $448 million (up about 37%) and the losses came to $3.57 billion (up from about $1.94 billion).
Still, given the massive size of Google — and its whopping $73 billion in the bank — this doesn’t seem like an unreasonable amount to invest for the long haul.
“These expenditures are well inline with a company investing in its future,” said Ron Heinz, who is the founder and managing director at Signal Peak Ventures. “I believe investors will both appreciate the disclosure, as well as garner a greater understanding of the context when compared to Google’s core business.”
Bottom Line on Alphabet Earnings
The key for investors is that the mobile revolution continues to grow at a rapid clip. As long as millions of people have supercomputers in their pockets, advertisers have little choice but to aggressively shift their budgets to digital — and the “must have” options are really just Alphabet and Facebook Inc (FB).
And despite the continued run-up in GOOGL stock, Alphabet’s valuation still is reasonable, with shares trading at 23 times earnings, compared to 28X for FB and 32X for Twitter Inc (TWTR).
Today will be a day for Alphabet investors to celebrate, and it certainly won’t be the last. Bet on GOOGL’s growth ramp to continue as its core business soaks up ad dollars.
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.
