You Can Rely on Alphabet

Alphabet Stock

Not all quarterly reports for the third quarter are moving investors at the moment. Even companies such as Apple and Amazon, which are so used to success, have not been able to meet expectations in recent weeks. However, investors were so enthusiastic about the Alphabet (NASDAQ:GOOG) stock’s quarterly report that they sent the share price to a new all-time high.  

Sensational Growth Rates in Sales and Profits for Alphabet

Normally, the growth rate of companies decreases noticeably with increasing size. Alphabet, on the other hand, is currently shining with growth rates that are typically only seen from much smaller companies.  

The internet giant increased its sales in the third quarter by 41% to $65.12 billion. Earnings per share (EPS) shot up by 71% to $27.99. These numbers clearly exceeded analysts’ forecasts of $63.50 billion in revenue and $23.75 in EPS.

Alphabet Advertising Business Continues to Dominate

The advertising business continues to account for the lion’s share of revenue ($53 billion). The YouTube subsidiary now contributes $7.2 billion to this and is growing even faster than the conglomerate as a whole. The cloud division is also growing at a slightly faster pace (44% year-on-year), with quarterly revenues of $5 billion.  

Two more figures demonstrate the enormous size the company has now reached: In the third quarter, Alphabet’s workforce exceeded 150,000 for the first time. If one factors in freelancers, the number of total Alphabet employees is probably about double that. Alphabet’s cash balance has now increased to $142 billion, which could be used to make some very interesting acquisitions.

Market Leadership in Important Future Trends

Even though the advertising business will remain Alphabet’s most important division by far in the coming years, the company has made provisions for the future. Subsidiary Waymo, for example, is one of the pioneers and market leaders in autonomous driving and could soon be worth billions on its own.

Alphabet also plays a leading role in artificial intelligence. While it will likely take a few more years for these areas to make significant revenue contributions, they will eventually.   

Underlying Investment in the Technology Sector

Of course, such high growth rates will be impossible for Alphabet to sustain forever. But even at half the current growth rate, Alphabet would still be on a good path. I could imagine Alphabet challenging Apple for the title of the world’s most valuable company in the next few years. 

For me, the stock remains a basic investment in the technology sector. In the short term, the stock could take a breather after the rapid upward movement this year, which would offer a welcome entry opportunity for long-term investors who are not yet on board.

Dr. Gregor Bauer
Dr. Gregor Bauer
Dr. Gregor Bauer credits his trading success to combining fundamental aspects of a trade with expert technical analysis. A Certified Financial Technician from the International Federation of Technical Analysts (IFTA), he’s rated as one of Germany’s top 300 economic experts.
Dr. Gregor Bauer
Dr. Gregor Bauer
Dr. Gregor Bauer credits his trading success to combining fundamental aspects of a trade with expert technical analysis. A Certified Financial Technician from the International Federation of Technical Analysts (IFTA), he’s rated as one of Germany’s top 300 economic experts.

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