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Alphabet – Double-Digit Growth

Ingrid Hendershot, president, Hendershot Investments, recently changed her quarterly rating of Alphabet from Hold to Buy.

“Alphabet reported second quarter revenues rose 21%, or 23% on a constant currency basis, to $26 billion with net income and EPS each declining 28% to $3.5 billion and $5.01, respectively.

These results reflect a $2.7 billion fine by the European Commission related to Google’s display and ranking of shopping search results infringing on European competition law. Excluding the substantial fine, net income and EPS would have risen about 28% during the quarter thanks to strong underlying worldwide growth in mobile search and YouTube.

Revenue growth was broad-based on a geographic basis with strong double-digit growth generated in all major geographic regions. Aggregate paid clicks increased 52% with the aggregate cost per click declining 23% due to the shift to mobile search. Other Bets revenues rose 34% during the quarter to $248 million driven by Nest, Fiber and Verily with the operating loss narrowing to $772 million. Headcount increased 14% over the prior year period to 75,606 Googlers as the company continues to invest in the cloud, YouTube and home hardware.

Alphabet recently entered a partnership with WalMart so that WalMart products can be purchased through voice with the Assistant on Google Home or on the Google Express website or app. Free cash flow increased 5% during the first half of the year to $12 billion with Alphabet ending the quarter with $95 billion of cash and investments on its fortress balance sheet with 61% of the cash held outside of the U.S. During the first half, Alphabet repurchased $3.7 billion of its own shares. Management is optimistic that artificial intelligence will solve complex problems in medicine and science and sees tremendous growth in Google cloud. Buy.”

Editor’s Note: Ingrid Hendershot, CFA is the founder and president of Hendershot Investments Inc., an investment management firm established in 1994. She has more than 30 years of experience in the finance and investment profession. She is also the editor of Hendershot Investments, a quarterly investment newsletter designed for long-term investors seeking capital growth at reasonable valuations. For more information visit www.hendershotinvestments.com .


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