Alphabet Inc Still Is an Incredible Buy Even North of $1,000
Despite having no play in the social networking space like Twitter Inc (NYSE:TWTR) or Facebook Inc (NASDAQ:FB) Alphabet Inc (NASDAQ:GOOGL) is doing more than fine. Chances are high that even at 35 times earnings and a share price of over $1,033, the stock has room to go up further.
The company shared some insight in its third-quarter results that investors should appreciate.
Google gave one key figure that outlines the success of YouTube. Viewers spent 100 million daily hours on YouTube from the living room, up by an incredible 70 percent year-over-year. The over 1.5 billion users spent an average of 60 minutes a day on mobile.
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Google is working quickly to monetize the growing user activity. It is investing on YouTube Red, a subscription model for content. It will release more than 40 original shows.
YouTube TV, a subscription service for live TV, is expanding into new markets. In the U.S., the subscription service is available to two-thirds of households.
Realistically, investors cannot assume success will come immediately for YouTube’s subscription model. The site has to compete with Netflix, Inc. (NASDAQ:NFLX), a streaming media from that will willingly go into debt to buy original content and to attract more subscribers.
Still, YouTube has a good chance of thriving in the subscription market. Consumers want choice and may consider services besides Netflix.
Staggering Income Growth
Alphabet’s Operating income rose 35 percent to $7.8 billion, compared to last year while operating margins were 28 percent. The company benefited from Google’s revenue growing 23 percent to $27.5 billion.
Higher mobile search activity drove ad revenue in that channel. Desktop search continued to shine while YouTube was a star performer. TAC, or traffic acquisition costs, rose 32% to $5.5 billion. Mobile search drove TAC number higher.
Other Bets a Drag
The Other Bets segment underperformed by losing $812 million on revenue of $302 million. Next, Fiber and Verily are the primary drivers of the unit. Despite the operating loss, Next’s product expansion will lead to the unit’s market share growth for secure alarm.
On paper, Other Bets does not look like a winner but Alphabet needs the unit to expand its business know-how beyond search. The hardware and software produced will make sure that the company is up-to-date with AI developments.
Although Google gained first-hand experience with AI solutions through the development of self-driving cars, the automotive industry is now investing heavily in AI.
Alphabet’s CEO, Sundar Pichai, said the company is thinking about how to build products around machine learning. He cited Google Search and the Assistant as real-world examples of how the company is applying AI.
Retailers benefit from Alphabet’s AI developments. Walmart Stores, Inc. (NYSE:WMT) and Target Corporation (NYSE:TGT) both support Google Home, which allows its users to order items from them.
AR on Mobile
To push the technology forward, Alphabet released Android 8.0 in the third quarter along with a preview of ARCore. ARCore brings augmented reality functionality to Android phones.
Samsung is partnering with the search giant such that Galaxy devices will all have ARCore. Already, Samsung Note 8 will have ARCore. Given the success of Galaxy sales, adoption for AR on Android will likely accelerate once it is ready.
Takeaway on GOOGL Stock
Alphabet may have surpassed the critical $1,000 share price but the stock could have more upside in the years ahead. So long as the Google division continues to improve its TAC figures, profits will grow and investors will be happy.
As of this writing the author has no positions in any of the stocks mentioned.
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