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Alphabet Shares Racing to the $1,000 Mark

Posted on Tuesday, May 2nd 2017

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The unstoppable Alphabet (Nasdaq: GOOG) appears to be moving fast to break the $1000 a share price tag. Its consistently stellar performance has helped drive its market cap north of the $600 billion market cap level for the first time. And, it doesn’t look like the growth will slow down soon. According to eMarketer, US digital ad spending will increase 16% this year to $83 billion and Alphabet and Facebook will continue to claim the largest share in the industry. Alphabet’s overall share of digital ad spending is estimated to be 40.7% this year compared with Facebook’s 19%.

Alphabet’s Financials

Alphabet’s first quarter revenues grew 22% over the year to $24.75 billion, ahead of the Street’s forecast of $19.78 billion. EPS of $7.73 was also significantly ahead of the market’s forecast of $7.38 for the quarter.

By segment, revenues from the Google segment grew 22% to $24.5 billion. Within the Google segment, revenue from Google properties increased 21% to $17.4 billion, Member’s websites grew 8% to $4 billion, advertising grew 19% to $21.4 million, and Other revenues which includes revenues from non-ad businesses including the Play Store, cloud app, infrastructure sales, and hardware grew 49% over the year to $3.1 billion. Revenues from Other Bets grew 48% to $244 million.

Among operating metrics, aggregate paid clicks grew 44% over the year and 2% sequentially. Paid clicks on Google websites grew 53% over the year and paid clicks on member’s websites grew 10% over the year. Aggregate cost per click fell 19% over the year with a 21% decline registered on Google properties and a 17% decline on Network Members’ properties.

Alphabet’s YouTube Controversy

Alphabet does not break out its YouTube revenues separately. But analysts estimate that the service will see an increase of 26% in revenues this year to $7 billion. That number may get a bit of a dent though, given the recent controversy surrounding YouTube ads. Last month, several advertisers, including big brands like McDonald’s, AT&T, GSK, Johnson & Johnson, and Verizon announced their intention to boycott ad placement on Alphabet’s ad network including YouTube. The boycott was initiated in response to reports of ads appearing alongside controversial and unsavory content that included videos of hate speech and ISIS recruiting propaganda.

Analysts estimate that the boycott could result in Alphabet losing $750 million to $1 billion in revenues this year. Alphabet, however, was quick to work on resolving the issue. It announced that it would increase its employee strength and would develop new tools using AI and machine learning technology to increase its capacity to review questionable content for advertising. It also introduced additional brand safety measures promised by Alphabet include video-level reporting across YouTube that would give advertisers a full list of specific videos against which their ads appeared, including the number of times their ads were displayed on each video.

The effort is a drop in the ocean considering that Alphabet sees an addition of thousands of sites to its ad network, and more than 400 hours of video uploads to YouTube every minute. But YouTube’s massive reach could also be its saving grace. Currently marketers looking for video ad space have only two big options – Facebook or YouTube – and Facebook isn’t immune to controversy either.

Alphabet’s Advancements in Google Home

Alphabet continued to improve the Google Home service. The device now recognizes up to six voices. Users will first have to register their voices by speaking a few sentences so that the Assistant will create a voice profile and attach that voice to all the mail, news, and music associated with it. Post that, whenever any of the six registered users ask for assistance, Google Home will respond appropriately. Currently the feature is only available on Pixels and the latest Android phones.

Alphabet is also working on monetizing Google Home through the release of voice ads. Recently it tested voice ads when Google Home reported the opening of Disney’s live action Beauty and the Beast after giving the users details on the time, weather, and travel update as part of its My Day feature. Alphabet is still not certain on whether it wants to use ads as part of the monetizing strategy for Google Home and is experimenting with options.

Alphabet’s Cloud Focus

Meanwhile, Alphabet continued to surge forward in its cloud focus. It announced a collaboration with SAP that will bring its enterprise applications to the Google Cloud Platform (GCP). The agreement will help customers get access to real-time insights based on Big Data and they will be able to offload more complex tasks to GCP when constrained for memory. The transition will be complete within a few months when SAP will make its own cloud run on GCP and begin offering G Suite products including Gmail and Google Calendar to its own customer base of more than 345,000 companies.

Alphabet also released some new enterprise-focused Google Drive tools including Team Drives that will allow administrators to create, add, and delete team members and assign permissions to them within a shared space that will retain shared files even when members change. Other new services include Google Vault for Drive – that stores data on Google Drive for companies to export, search, hold, and retain as required; Drive File Stream – that allows users to work directly with files on Drive using applications like Microsoft Word and Adobe Photoshop; and Quick Access with Team Drives – that uses artificial intelligence based on an analysis of activity, interactions between colleagues, and workday patterns to serve the most relevant Google Drive files at any given time. Finally, it released Hangouts Chat, an enterprise version of Hangouts aimed at corporate communications.

Alphabet’s stock is currently trading at $912.57 with a market capitalization of $662.17 billion. It touched a record high of $916.85 soon after its result announcement. The stock has been climbing steadily from a year low of $663.28 in June last year.

Photo Credit: Alli/Flickr.com

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