ii view: Google returns to form

by Keith Bowman from interactive investor |

Investors are chasing Google parent Alphabet higher after these forecast-beating results and share buyback. 

Second-quarter results to 30 June 2019

  • Revenue up 19% to $38.9 billion
  • Net income up 210% to $9.95 billion
  • Earnings per share up 213% to $14.21

Chief executive Sundar Pichai said:

"From improvements in core information products such as Search, Maps, and the Google Assistant, to new breakthroughs in AI and our growing Cloud and Hardware offerings, I'm incredibly excited by the momentum across Google's businesses and the innovation that is fuelling our growth."

ii round-up:

Alphabet is a holding company for the Google search engine business.

Google includes the instantly recognisable internet products, such as Search, Ads, Google Cloud, Commerce, Maps, YouTube, Android, Chrome and Google Play, as well as its hardware initiatives. 

The Other Bets business sells internet and television services through Google Fibre, sales of Nest products and services, and licensing and research and development (R&D) services through Verily.

In June 2018, Google was fined €4.3 billion for illegally tying its Android operating system to a raft of other requirements, preventing handset manufacturers from shipping phones without pre-installing Google's search and browser apps.

The firm has just reported impressive progress in its second quarter. Both revenue and earnings beat analyst forecasts, rebounding from a disappointing first quarter when year-on-year sales growth below 20% triggered a share price crash. This time, revenue was up 19%, or 22% at constant currency, and there's been solid growth in mobile ads, YouTube ads and cloud computing services.

Alphabet also announced a $25 billion (£20 billion) stock buyback programme. 

The share price rose by more than 9% in after-hours US stock market trading. 

ii view:

If Apple (NASDAQ:AAPL) is smartphones and Microsoft (NASDAQ:MSFT) operating and business software, Alphabet's Google is synonymous with the internet and the ability to search its endless data. Allowing companies to advertise and display their services using its technology has underwritten phenomenal growth. Now, a move to host the data of those same corporations is central to its story. 

For investors, a return to better-than-expected forecast revenue growth compared to the disappointment of the first quarter is a welcome development. Yet, Alphabet stock has underperformed the other FAANG stocks in 2019 by some margin, so a forward price/earnings ratio (PE) ratio below the three-year average and a $25 billion stock buyback programme offer plenty of encouragement. 

Positives

  • Dominant position in online advertising
  • Google Cloud business is a major global player
  • Artificial Intelligence offers enormous opportunity

Negatives

  • Weak Q1 revenue showed Google not invincible
  • Technology giants under scrutiny of governments and regulators globally
  • No dividend currently

The average rating of stock market analysts:

Buy

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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