Shares of Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) have been on fire, rising as much as 5% to an all-time highs since the technology conglomerate reported better-than-expected first-quarter fiscal 2017 earnings. GOOGL stock closed Monday at $932.82 and is within striking distance of $1,000 — an important psychological mark.
The king of search was rewarded for putting up monster numbers that show that Alphabet’s core search business is driving user engagement.
Advertisers, who are looking for the best bang for their dollars, are compelled to be where users are. And this makes GOOGL stock, despite trading at 52-week highs, a strong bet to reach $1,100 per share, delivering some 20% returns.
Alphabet: A Dominant First Quarter
In the three months that ended March, the Mountain View, California-based company breezed by Street consensus, posting earnings of $7.73 per share on revenues of $24.75 billion, translating to year-over-year growth of 28% and 22%, respectively. Wall Street was looking for earnings of $7.40 per share on revenues of $24.2 billion. Given the size of Alphabet, which is now approaching $650 billion in market cap, this was an impressive beat.
The emergence of Snap Inc (NYSE:SNAP) and the dominance of Facebook Inc (NASDAQ:FB) had raised concerns about its revenue potential. But GOOGL, which remains the dominant force in search on both desktops and mobile, answered the call. And advertisers show they continue to believe in Google assets, which includes YouTube ad revenue, which rose 18.8% YOY to $21.4 billion.
Just as important, Alphabet, which had increased in capital expenses, generated a 27% operating margin, which drove operating income 23% higher to $6.57 billion. There were fears ahead of the quarter that margins would be under pressure, given the rate at which GOOGL had grown its workforce, boosting its headcount from 64,115 to 73,992. Notably, the strong profit improvement also dispelled fears about the company’s money-losing “Other Bets” division, which lost $855 million during the quarter.
With strong results from advertising, combined with advancements in realm of artificial intelligence, mobile and its internet search, Alphabet has many routes towards sustainable growth in the quarters ahead.
Bottom Line for GOOGL Stock
There’s still tons of value in GOOGL stock, despite being priced at 23 times fiscal 2018 estimates of the $39.29 per share.
The shares, which have risen 18.7% year-to-date, while climbing 31% over the past year, aren’t in the bargain bin, but with operating margins on the rise and the company’s ability to surprise analysts with earnings of $42 to $43 per share in 2018, GOOGL stock would reach $1,100 per share, yielding 20% returns.
As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.
