Alphabet Inc (GOOGL) Stock Hits All-Time Highs on All-Star Q1

Advertisement

Alphabet - Alphabet Inc (GOOGL) Stock Hits All-Time Highs on All-Star Q1

Source: Shutterstock

Investors don’t need to worry about Alphabet Inc (NASDAQ:GOOGL). Yet again, Google’s parent put out a strong quarterly earnings report rife with growth, and GOOGL is popping Friday morning to extend its double-digit 2017 run.

Alphabet Inc. (GOOGL)

Source: Shutterstock

It’s simple: The core search engine business is driving user activity, which in turn is attracting online advertisers. We’ll get into the details, but right now, that premise alone is driving Alphabet shares ever closer to the $1,000 mark.

Alphabet Earnings By the Numbers

Alphabet reported first-quarter revenues that shot 22% higher year-over-year to $24.75 billion. Net income climbed 28% to $7.73 per share. Both figures smashed estimates of $24.22 billion and $7.39 per share, respectively.

GOOGL generated a 27% operating margin despite jacking up its headcount from 64,115 to 73,992.

Google segment, advertising and properties were the three top contributors to revenue, and they more than offset the loss of $855 million in the “Other Bets” division. Investors may excuse Alphabet’s weakest division by revenue, though — Alphabet’s advancements in artificial intelligence, mobile and its internet search moat should ensure continued profit growth.

Online ad revenues improved thanks to two developments: It succeeded by refining the way it tabulated paid clicks and cost-per-click. The combination of testing trial ad formats and adding more TrueView engagement ad categories lifted paid clicks. It also lowered cost-per-click.

GOOGL Stock Still Is a Reasonable Value

Despite the YouTube ad customer exodus over the quarter, Alphabet’s revenues managed to exceed the consensus easily. And looking forward, analysts expect 30% earnings growth, implying a forward P/E of roughly 23.

Growth investors should have no problems justifying a buy in GOOGL stock at that kind of P/E. Google is the dominant search engine on desktop and mobile, and advertisers have no choice but to spread budget between it and Facebook Inc (NASDAQ:FB).

While the YouTube division might be hurting right now, a fix to its systems that allows more targeted advertising — away from the hate speech and other questionable content that sent advertisers packing in the first place — will set things right.

Business Beyond Advertising

Alphabet knows that the company faces significant risks if it relies solely on advertising revenue for growth. It is even keeping the online advertising business clean by cutting out poor-quality advertisers.

Building an ad-blocker and enabling it by default may hurt Google’s business. Yet by weeding out advertisers who push poorly designed ads, everyone benefits. Auto-playing videos consume bandwidth and slows down web page load times. Pop-ups hurt the user-experience.

Still, Chrome browser users should not assume Alphabet is completely altruistic. The company may still track user behavior, selling that data to the highest bidder.

Google’s inclusion of the ad blocker also will hurt third-party providers of the same service. This eliminates them from the competition, leaving only Google as the provider of ad-blocking services.

Takeaway on Alphabet

Alphabet recorded a solid quarter that justifies the 12%-plus gains in GOOGL stock, and apparently a little more, if today’s pop is any indication.

Investments in its own business and innovating on the advertising algorithm, search and Android, the mobile operating system, are all paying off. If Alphabet continues growing the business at this pace, the stock could easily reach $1,000 per share by the end of this year.

Maybe some profit-taking of Apple Inc. (NASDAQ:AAPL) shares will help GOOGL reach that landmark first.

As of this writing, Chris Lau did not hold a position in any of the aforementioned securities.

Chris Lau is a contributing author for InvestorPlace.com and numerous other financial sites. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. He shares his stock picks so readers get actionable insight to achieve strong investment returns.


Article printed from InvestorPlace Media, https://investorplace.com/2017/04/alphabet-inc-googl-stock-hits-all-time-highs-on-all-star-q1/.

©2024 InvestorPlace Media, LLC