Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) has had more missteps over the last year than the law of the market should allow. But GOOGL stock will not pay for them in the quarterly earnings statement due out on Oct. 27, because the momentum of its base business is just too strong.
The consensus on earnings, which will be released after the market closes, is that Alphabet earned $8.63 per share, on $17.91 billion of revenue for the three months ending in September. That’s more than 1% of its recent price of $831, and the whisper number on those earnings is an eye-popping $8.72.
As its earnings week began, GOOGL stock was on fire, up over $10 a share, and with analysts now predicting it should easily clear $1,000 per share.
Over the past year, the stock has advanced 15% in price, although over half of that gain came in the last months of 2015. Investors were worried about “other bets” like Google Fiber, its autonomous cars and its healthcare operations. Those worries were blown apart by second-quarter earnings, which came in at $8.59 per share in profit on revenue of $21.5 billion.
There are reasons to worry about the company, just not enough to start worrying about Alphabet stock.
Why Worry Now About GOOGL Stock?
Google, whose unofficial slogan was once condensed to “Don’t be Evil,” is now seen as the epitome of evil by many governments and by privacy rights activists.
Google and its search algorithms are synonymous with the internet itself. Its advertising technology is synonymous with fears of freedom being stripped away by private and public entities. It seems to be losing its battle with Europe over the so-called “right to be forgotten,” giving other governments around the world the chance to censor the internet resource for everyone.
Every time GOOGL expands its range of consumer services, or even tweaks them, whole industries feel threatened. Google’s intrinsic advertising has destroyed the newspaper business, and now threatens the remaining telecommunications and television business models.
Everywhere Google turns, it is creating new competitors.
Google’s efforts to go beyond consumer services, into selling cloud to business, is still being hammered by Amazon.com, Inc. (NASDAQ:AMZN), which got into the market first. The unit is now going through a re-branding under VMware Inc. (NYSE:VMW) co-founder Diane Greene, and its business services are being called the “G Suite.”
Alphabet Chief Financial Officer Ruth Porat has worked for the last year to create discipline among what are now called the company’s “other bets,” so investors now know what’s not working. What investors have found is that most of those bets are not working. The Nest thermostat is not working. Google Fiber is not working. Robots are not working. And its medical efforts are also failing to deliver.
All this has some analysts worried.
Why You Don’t Worry
But there are far more reasons to not worry about GOOGL stock.
Alphabet has executed its move to mobile, and more than half its ad revenue now comes from phones rather than PCs. The company is about to add a new subscription revenue stream to YouTube, and is rapidly signing up cable channels.
Google is also becoming a hardware company, announcing the Pixel phone just as Samsung Electronics (OTCMKTS:SSNLF) suffers from problems with its Galaxy 7, delivering a virtual reality headset called the Daydream View and launching Google Home against the Amazon Echo, in part to improve its voice interfaces.
Google is a leader in voice interfaces, in machine learning, in artificial intelligence, in the Internet of Things — all across the entire waterfront of new technology. It is unlikely to win all those battles — even most of them — but it is almost certain to win enough of them to keep its top line and bottom line growing.
Google today is what AT&T Inc. (NYSE:T) used to be … the dominant utility of our time. You would be a fool to abandon GOOGL stock just because not everything the company tries works out.
Dana Blankenhorn is a financial journalist and author of the science fiction story Into the Cloud. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing, he was long AMZN and GOOGL.
