Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL), the artists formerly known as Google, reported earnings April 28 that sent the market into raptures.
Net income of $6.84 billion, $9.87 per share, on revenue of $41.16 billion, gave traders hope the worst of the pandemic is over. This, despite most of the money coming in before the national lockdown in March.
Traders sent shares up nearly $95 each during the evening. They floated down the next morning but were still up over 7% as trading began April 29.
The Alphabet Bump
GOOG stock shares rose only 3% on the earnings release, but rose another 6% during the company’s earnings call. Admitting that March revenues dropped off a cliff, CFO Ruth Porat said things didn’t get any worse in April. She said consumer “engagement” with the company’s services remained high.
In addition to the main search engine, Google got a big bump from its Google Play store, which serves Android devices. App downloads were up 30% in March, and there are now 2.5 billion Google Play accounts. Future growth can be expected from Google Meet, a video conference service that competes with Zoom Video Communications (NASDAQ:ZM). CEO Sundar Pichai said Meet is adding “millions of users per day.” And Meet is free.
“We’re seeing some early signs at this point that users are returning to more commercial behavior,” Porat concluded. This sent the whole market off to the races. The NASDAQ was up 1.08% by early morning, and the S&P Futures rose .9% to nearly 2,900.
Those numbers might decline after the first quarter GDP report, due at 8:30 a.m. on April 29. But that could spur yet another rise in Alphabet shares, based on the company’s relative strength.
It’s Not All Great for GOOG Stock
Not all the news was stellar. Revenue from “other bets,” start-ups like its Verily health, Loon balloon Internet and Wing drone businesses, fell to $135 million from $170 million.
Google seems more dependent on Web advertising than ever, and those cash flows remain under threat. The government of Australia is demanding it share revenue with its struggling news companies. France has done the same. The European Union keeps hitting it with billion-dollar fines over the business model.
Google has responded in the past by dropping news snippets from search results. When governments demand payment for links Google just doesn’t link, blinding the global audience to the content. This controversy could come to the U.S., where news outlets are going completely out of business.
YouTube advertising grew 25% but that may under-rate the unit’s success. Its subscription revenue, a paid streaming service called YouTube Premium, was put under a category called “Google Other,” whose revenue was up 20% to $4.4 billion.
Google Cloud revenues were up by one-third, but off a small base. Total revenue for the unit was $2.77 billion, and it has yet to gain market share against rivals Microsoft (NASDAQ:MSFT) and Amazon (NASDAQ:AMZN), with China’s Alibaba Group Holding (NASDAQ:BABA) gaining on it.
The Bottom Line on GOOG Stock
Analysts had been expecting much worse news. Alphabet’s rise from the March lows has trailed that of the other Cloud Czars. Chart analysts focused on April’s high of $1,294 as a key figure, but results sent GOOG stock well past that.
Even with its first quarter beat, Google stock still has room to rise. The shares were trading at over $1,500 in February. The price to earnings ratio remains in the mid-20s, against nearly 30 for Microsoft. Take out the $117 billion in cash and the company’s worth $730 billion, with operating cash flow on pace to top $45 billion.
In a world where great companies are falling apart, that seems like performance worth its premium. If GOOG stock had even a small dividend it would blow past the February high of $1,536.
Dana Blankenhorn has been a financial and technology journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in BABA, AMZN, and MSFT.
