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Alphabet (GOOGL) Follows Amazon to the Esteemed $1000 Club

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Shares of Alphabet Inc.GOOGL crossed the $1000 milestone shortly after the opening bell on Monday, surging to an all-time high of $1007.40. Shares closed a tad lower at $1,003.88.

Alphabet is the sixth company to have a quadruple digit price tag after Berkshire Hathaway's Class A shares, Seaboard, NVR Inc., Priceline PCLN and Amazon AMZN .

The company has had an impressive run on the bourse since its restructuring into a conglomerate in Oct, 2015. The stock has gained an impressive 52.8% since its restructuring and 37.3% over the last one year.

Restructuring a Good Decision

Restructuring helped Alphabet to improve accountability and better manage finances between the Google business and other areas. Some of these other areas include Google Fiber, Project Loon, self-driving cars, biotech, Nest, X Labs (an incubation center for new products), Google Ventures and Google Capital.

Each unit that shows promise was converted to a separate company under the Alphabet umbrella. Since Google is held by Alphabet under this structure, these units became sister companies of the core Google business. The core Google business includes search, advertisement, apps, Google Play and YouTube. Independent operating heads (CEOs) allotted to each unit are managing the respective businesses with the goal of commercialization and profit generation.

In the last reported quarter, other bets segment revenues, which the company broke out in the March quarter of 2016, comprising mostly of its non-core segments, grew a massive 47.9% year over year.

Innovation Shows Clear Path to Profitability

If you ask what's driving Alphabet's growth, the answer is innovation. Its focus on innovation has enabled it to launch products and services for multiple industries.

The development and enhancement of its search technology over time has created win-win situations wherein buyers, sellers and the public at large have benefited. But Google has continued to adapt and change on the strength of its technological prowess. Not only did it take the mobile market transition in its stride, but also started developing machine learning and artificial intelligence.

Alphabet Inc. Net Income (TTM)

Alphabet Inc. Net Income (TTM) | Alphabet Inc. Quote

Some of the innovations outside the core search business include technology for high-speed Internet (its Fiber and Balloon initiatives), healthcare (partnership with Johnson & Johnson for the development of surgical robots), genomics (studying aspects of human genes to develop cancer cures), self-driving cars (partnership with Ford and Lyft), voice-controlled platforms, cloud computing, drones, glass and others.

Alphabet's ability to innovate has translated into strong growth for the company and is strongly expected to drive growth in the foreseeable future.

Artificial Intelligence (AI) to Back Innovation

Google's speed and scale of technological improvements clearly indicate that it refuses to rest on its past laurels and continues to adapt to changing market trends. Most of its innovations outside the core search business are driven significantly by machine learning. Google is surely banking on these for much of its future growth. We believe Google is just starting to scratch the surface of what it could do with AI.

Search and Advertisement Remains Strong

Google is the undisputed leader in the online search market and is the top-ranked website in the world. A May 2017 global desktop search market share report from netmarketshare.com says that Google had almost 78% of market share, followed by Microsoft's MSFT Bing with 7.8%, Baidu's 7.7% and Yahoo's 5.1%. In mobile and tablet, Google was even more dominant with almost 95% share of the search market globally, compared to Yahoo's 1.7% and Bing's 1.5%.

As ranked by Alexa, Google and YouTube are the first and second most visited sites, respectively around the world.

The strength in the core search business was supported by the successful integration of major acquisitions (AdMob, DoubleClick, YouTube, ITA and Nest to name a few). Google also has a dominant position in the fast-growing Internet advertising space because of the superior user experience that it provides.

In the last reported quarter, Google-owned sites and partner sites grew 21.5% and 8.6% year over year, respectively, and brought in 70% and 16% of quarterly revenues.

The company is leveraging its Android OS not just to build search market share but also to drive sales of apps and digital products through Google Play. The company continues to bring improvements with each version of the OS, at the same time encouraging app development. Its Android OS is used by more than a billion Android device owners across the world.

Google search and some other apps remain highly popular on even non-Android devices. Its app support continues to drive Chromebook sales growth from all leading device makers into enterprise, academic and other markets. It is also taking steps to improve advertising tools by facilitating linking of search results with apps as well as deep linking between apps.

Cash Flow Impressive

While the company never hesitated investing in areas that show real promise, it took some of the boldest decisions to curb down unprofitable businesses such as its decelerating fiber broadband service and drones. It also sold its imaging satellite business.

The end result is significant cash from operations and a huge cash balance with which management has the flexibility to pursue growth in any area that exhibits true potential. This flexibility, along with its technological prowess, allowed it to pursue opportunities in different markets.

Alphabet had $92.4 billion in cash and securities on its balance sheet as of Mar 31.

Google is the Most Valuable Brand

Google Tops the BrandZ Top 100 Most Valuable Global Brands ranking. Alphabet's technological prowess, ability to innovate and adapt to changes in market has enabled it to deliver value to investors regardless of economic, political or regulatory hurdles. The company has built its brand on strong and innovative technology platforms that enabled it to expand across sectors and grow value at an extraordinary rate.

Wrapping Up

With an unparalleled history of execution, huge cash balance, continuous focus on innovation, technological prowess, futuristic approach to business and fingers in almost every pie, we see a clear path of profitability for Alphabet in the foreseeable future.

So, it's worth investing in the new $1000 club member.

Alphabet currently is a Zacks Rank #2 (Buy) stock. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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