Although Alphabet (GOOG, Financial) (GOOGL, Financial) was almost flat in 2016, the stock is off to a great start in 2017 as it is up an estimated 13% year to date.
Alphabet reported strong first-quarter results Thursday. For the first quarter, the company shared earnings per share of $7.73, easily beating the analyst’s estimate by 35 cents. On the other hand, the company’s revenue came in at $24.75 billion, again beating the consensus by $530 million. Moreover, that figure also represents 22.2% growth year over year.
The most significant thing to notice is that despite its massive size, the company has successfully managed to grow its revenue at a robust rate. Through the past 12 quarters, the company’s revenue surged at an average of 16% which looks quite impressive.
Google is the leading search engine with around 90% market share around the globe. In the first quarter, the revenue generated from Alphabet’s Google segment was $24.5 billion, representing a surge of 22% year over year. As a matter of fact, that revenue growth was driven mainly by mobile search, highlighting the shift to mobile due to the increased utility of smartphones for advertisers and users.
On the other hand, Alphabet’s Other Bets revenues came in at $244 million, primarily generated by Verily, Fiber as well as Verily. Moreover, operating loss from this segment was $855 million. Though this segment is not profitable yet, it will likely turn profitable in the foreseeable future.
According to the latest forecast from emarketer.com, the overall revenue from digital ad spending will grow to $83 billion in the U.S. this year, signifying a surge of nearly 16%. Moving ahead, Google is expected to account for 40.7% of overall U.S. digital ad revenue this year. Apart from this, Google is also anticipated to claim approximately 78% of overall U.S. search ad revenues in 2017.
Considering the above figures, it can be said that Google relishes an unbeatable lead over its competitors and will continue leading the U.S. advertising market in the long run.
Furthermore, as per research report from Global Market Insights Inc., the intelligent virtual assistant market is projected to grow to $11 billion by 2024, representing a compound annual growth rate (CAGR) of 35% throughout the period 2016-2024. Keeping this in mind, Google recently launched Home, a smart-home speaker.
Moving onward, Google Home is powered by a Google Assistant and presently works with components from four smart-home partners comprising SmartThings, Nest, IFTTT and Philips Hue. Amazon’s (AMZN, Financial) Echo is the most popular device of the virtual assistant market, but one massive advantage with Google Home is that it is incorporated with Google Search.
As a result, Google Home recognizes detailed questions and requests instead of the specific skills commands required by AIexa. Although Google Home currently has fewer features than Amazon’s Echo, the company plans to add additional features in the future.
Conclusion
Alphabet disappointed investors in 2016, but the stock has displayed strong signs of upward momentum this year. Alphabet’s core business – Google –Â is well established and performing well. Therefore, the company is now aggressively focusing on its “Other Bets” business.
Moreover, the company also has the huge amount of free cash flow that will help it capitalize on profitable new growth opportunities. As an outcome, investors should continue holding the stock as its long-term prospects still look good.
Disclosure: I do not hold a position in the stock mentioned in this article.
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