Alphabet's (GOOG, Financial)(GOOGL, Financial) core Google advertising business continued to reaccelerate, growing +22% during the December quarter. This rate of growth is faster than the pre-pandemic growth rates as digital advertising adoption has turned into a critical customer acquisition lifeline for businesses of all sizes in regions around the world. While this growth is hardly unprecedented at Alphabet, we are encouraged by the emerging operating leverage that the Company has exhibited over the past few quarters. As our largest portfolio holding, we continue to expect Alphabet to significantly "under-earn" relative to its potential, often running expenses significantly higher than top-line growth, sometimes to sustain noncore, money-losing projects in its "Other Bets" segment, but also to invest in long-term opportunities such as cloud infrastructure as a service and streaming services (YouTube TV). Despite being a well-known holding in many growth portfolios, we think there is quite a bit of pent-up value in the core Google business that makes this attractive to investors of all stripes.
From David Rolfe (Trades, Portfolio)'s Wedgewood Funds first-quarter 2021 shareholder letter.
