Company overview - Alphabet Inc. is a holding company. The Company's businesses include Google Inc. (Google) and its Internet products, such as Access, Calico, CapitalG, GV, Nest, Verily, Waymo and X. The Company's segments include Google and Other Bets. The Google segment includes its Internet products, such as Search, Ads, Commerce, Maps, YouTube, Google Cloud, Android, Chrome and Google Play, as well as its hardware initiatives. The Google segment is engaged in advertising, sales of digital content, applications and cloud offerings, and sales of hardware products. The Other Bets segment is engaged in the sales of Internet and television services through Google Fiber, sales of Nest products and services, and licensing and research and development (R&D) services through Verily. It offers Google Assistant, which allows users to type or talk with Google; Google Maps, which helps users navigate to a store, and Google Photos, which helps users store and organize all of their photos.


GOOGL Details
 
Delivered outstanding Revenue Performance in the First Quarter of 2017:Alphabet Inc (NASDAQ: GOOGL) has reported a 22% growth in the revenues to $24.8 billion in the first quarter of 2017. In constant currency, the consolidated revenues grew 24% as compared to the first quarter of 2016.  The growth in advertising revenues was driven by the mobile search, with ongoing strength in YouTube and programmatic.  The company also reported a substantial growth in Other Revenues from Play, Hardware and Cloud. The group’s Google Network Members' properties revenues enhanced $316 million during the first quarter of 2017 boosted by solid programmatic advertising buying and AdMob, which offset the fall in their traditional AdSense for Search business. As per the geographic performance, the U.S. revenues grew up 25% year-over-year to $11.8 billion.  EMEA revenues were $8.1 billion, which is a 13% growth year-over-year.  On the other hand, U.K. continued to report weak revenues on the back of the ongoing weakness of the British pound with revenues rising only over 5% on a year-over-year basis to $2 billion on a reported basis. But UK reported an increase of 16% in fixed FX terms. APAC revenues were $3.6 billion, up 29% as compared to the last year, and up 26% in fixed FX terms, reflecting the strength of the Australian Dollar and Yen.  Other Americas revenues, which include results from Canada and Latin America were up 34% to $1.3 billion against the prior corresponding period.  In fixed FX terms, revenues were up 29% year-over-year with fixed FX growth reflecting strength in the Brazilian real.

Meanwhile, the group has reported 23% growth in the operating income to $6.6 billion during the quarter while the operating margin reached 27%. The net income in the first quarter was $5.4 billion and earnings per diluted share of $7.73. Moreover, the Cash Capex for the quarter was $2.5 billion. The Operating cash flow was $9.5 billion with free cash flow of $7 billion in the first quarter.  GOOGL continues to maintain their solid cash position while ended the quarter with cash and marketable securities of $92.4 billion, of which over $55.7 billion, or 60%, is held overseas.


First Quarter 2017 Results; (Source: Company reports)

Rising mobile contribution: The group reported that the Google Sites revenues grew 21% to $17.4 billion in the quarter.  The biggest contributor to growth again in the first quarter was mobile search, reflecting the secular shift to mobile due to the greater utility of smartphones for users and advertisers. The group has already positioned itself for this shift and constantly enhanced their features and functionality.  YouTube revenues continued to grow at a significant rate, driven primarily by video advertising.


Google Pixel (Source - Google)

The results benefited from a slower rate of decline in the traditional network business than in prior periods, although it continues to be negatively affected by both the ongoing shift by advertisers to programmatic and the ongoing policy efforts. Other revenues for Google grew 49% to $3.1 billion.  On the other hand, GOOGL's "Other Bets", separate business units including the Waymo self-driving car business, Google Fiber, thermostat-maker Nest and the life sciences firm Verily has continued to post large losses and modest revenues.


Paid clicks and cost-per-click on advertisements; (Source: Company reports)

Increasing costs: On a consolidated basis, the total cost of revenues, including TAC, grew 28% to $9.8 billion. Other cost of revenues on a consolidated basis was $5.2 billion, which is a growth of 34% year-over-year. This growth was primarily on the back of the Google-related expenses, specifically costs related with operating in the data centers, which comprises depreciation, and content-acquisition costs, primarily for YouTube and the Hardware related costs. This shows the ongoing solid performance of the new Made by Google product line. Furthermore, the total traffic acquisition costs grew 22% to $4.6 billion.  The total TAC as a percentage of Total Advertising Revenues was up on a year-over-year basis as a result of an increase in the Sites TAC rate, given the shift to mobile, which was again partially offset by a favorable revenue mix shift from Network to Sites, which carries lower TAC. In addition, Google's non-advertising revenue, which consists mainly of the cloud computing business, the Pixel smartphones and the Play store, grew 49.4 percent to $3.10 billion during the first quarter of FY 17. Meanwhile, the headcount at the end of the first quarter was 73,992, up 1,939 people from last quarter.  The growth in consolidated headcount was somewhat muted due to an internal reallocation of people from Fiber to Google.

Strategic Investments for Growth: GOOGL has that continuously enhanced the advertising business which is reflected by the ongoing growth of Sites revenues.  On a dollar basis, the increase in Sites revenues reflects the healthy growth in mobile search, which is adding meaningfully to the profit dollars. Moreover, the robust performance in the advertising business allowed the company to take bigger bets within Google to fuel the growth of additional revenue streams, including those from Cloud, Hardware and YouTube subscription offerings. The Cloud is one of the company’s most important strategic priorities given the scale of opportunity in a rapidly evolving sector and the fact that the requirements for success align with many of GOOGL’s strengths. The company will continue to invest here for the long-term opportunity, as well as, hardware remains an exciting growth opportunity for the company as seen the early indicators again this quarter.  Finally, in Other Bets, the company is determining the size and pace of investment appropriate to each Bet given their stage of development and achievements against milestones. Additionally, GOOGL expects to increase near-term investment in certain areas while continuing to calibrate the pace of investment in others as they move along a path to commercialization. GOOGL has continued investments in machine learning and AI research.  The company has introduced a new technique for training deep neural networks on mobile devices called Federated Learning. The developers and researchers are building on the TensorFlow platform, there are more than 6,000 GitHub projects and counting. Next the company is investing on the platforms, such as Android and the advertising platform.


Google Mobile Search (Source - Google)

Stock Performance:The stock has recently crossed the $1,000 mark, while the bullish sentiment in the stock is ongoing.  The group’s recent first quarter of 2017 performance showed that Google is not facing any slowdown in online ad growth, as ad revenue continues to be driven from the migration to non-traditional platforms. During the March quarter of 2017, the group reported that the Aggregate paid clicks enhanced over 44% against the same period of last year. Google is also heavily investing in several other ventures like Waymo, the self-driving car unit of Alphabet, whose prospects looks very lucrative. Other Bets revenues account only 1% of the group’s overall revenue as of March quarter of 2017 but improved from 0.8% in the prior corresponding period. This indicates that as the group starts commercializes its other bets, the revenue streams of the group could grow rapidly. We believe the stock has more room for growth and accordingly give a “Buy” recommendation on the stock at the current price of $1001.59


GOOGL Daily chart; (Source: Thomson Reuters)
 

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