Al­pha­bet shares up; over­takes Ap­ple in value

The Pak Banker - - COMPANIES/BOSS -

Al­pha­bet Inc eas­ily beat Wall Street's quar­terly profit fore­casts on Mon­day, helped by strong mo­bile ad­ver­tis­ing sales, send­ing the shares of Google's par­ent higher in af­ter­hours trad­ing to sur­pass Ap­ple Inc as the most valu­able U.S. com­pany. For the first time, the com­pany dis­closed the prof­itabil­ity of Google's search en­gine and its other on­line ser­vices, and how much it is spend­ing on am­bi­tious tech­nol­ogy projects such as self­driv­ing cars.

The num­bers were lapped up by in­vestors, who saw room for growth in Google's tra­di­tional busi­ness, and were re­lieved to see that spend­ing on new projects it calls ' Other Bets' was not as lav­ish as some had feared. "It's pretty in­ter­est­ing that 80 per­cent of YouTube views come from out­side of the United States. I didn't think it would be that high," said Kevin Kelly, man­ag­ing part­ner at Re­con Cap­i­tal. "It demon­strates that the value of YouTube can con­tinue to be ex­tracted," he said.

The op­er­at­ing profit mar­gin for its Google unit was 31.9 per­cent in the most re­cent quar­ter, com­pared to 25 per­cent for Al­pha­bet. Al­pha­bet spent $869 mil­lion on cap­i­tal ex­pen­di­tures for the Other Bets in 2015, up from $501 mil­lion in 2014. It has not made any pro­jec­tions about if or when those bets cu­mu­la­tively would be­come prof­itable. "As long as the core busi­ness con­tin­ues to op­er­ate well with ac­cel­er­ated rev­enue... in­vest­ment in those busi­nesses can con­tinue," said Ron­ald Josey of JMP Se­cu­ri­ties.

The com­pany said con­sol­i­dated rev­enue jumped 17.8 per­cent to $21.33 bil­lion in the fourth quar­ter ended Dec. 31, from $18.10 bil­lion a year ear­lier. An­a­lysts had ex­pected $20.77 bil­lion, ac­cord­ing to Thom­son Reuters I/B/E/S. Rev­enue for Other Bets was $151 mil­lion, up 29.8 per­cent from $106 mil­lion in the same quar­ter last year, pri­mar­ily from its smart-home mon­i­tor­ing unit Nest, Google Fiber, which pro­vides high­speed In­ter­net ac­cess, and its life sci­ences busi­ness Ver­ily. Ad­justed earn­ings of $8.67 per share hand­ily beat an­a­lysts' av­er­age es­ti­mate of $8.10 per share.

In a call with an­a­lysts, Chief Fi­nan­cial Of­fi­cer Ruth Po­rat at­trib­uted the strong earn­ings to "in­creased use of mo­bile search by con­sumers," as well as "on­go­ing mo­men­tum" in YouTube and pro­gram­matic ad­ver­tis­ing, re­fer­ring to the au­to­matic buy­ing of ads. Kelly at Re­con Cap­i­tal said he would not be sur­prised if YouTube saw a surge in ad­ver­tis­ing rev­enues be­yond the 17 per­cent in­crease it saw dur­ing the 2015 fis­cal year. To­tal op­er­at­ing losses on the Other Bets - which in­clude glu­cose-mon­i­tor­ing con­tact lenses and In­ter­net bal­loons - in­creased to $3.57 bil­lion in the 12 months ended Dec. 31, and $1.2 bil­lion in the fourth quar­ter.

The Google unit houses its In­ter­net and re­lated busi­nesses such as search, ads, maps, YouTube and An­droid as well as hard­ware prod­ucts such as its low-cost Chrome­book lap­tops. Google Chief Ex­ec­u­tive Sundar Pichai said on the call that its Gmail ser­vice crossed one bil­lion monthly ac­tive users last quar­ter, join­ing Search, An­droid, Maps, Chrome, YouTube and Google Play in top­ping that mark.

He also touted the com­pany's per­for­mance dur­ing the hol­i­day shop­ping sea­son, say­ing that pro­gram­matic video im­pres­sions dou­bled this sea­son com­pared to last, and that 60 per­cent of them came from mo­bile devices. But Po­rat, with­out pro­vid­ing fig­ures, said the com­pany planned to ac­cel­er­ate cap­i­tal ex­pen­di­tures in 2016 com­pared to the pre­vi­ous year. Google's shares rose al­most 5 per­cent in af­ter­hours trad­ing. Al­pha­bet's com­bined share classes were worth $549 bil­lion, com­pared with Ap­ple, which had a value of about $534 bil­lion.

Al­pha­bet will of­fi­cially over­take Ap­ple in mar­ket value if both com­pa­nies' shares open around cur­rent lev­els on Tues­day. Google's ad­ver­tis­ing rev­enue in­creased nearly 17 per­cent to $19.08 bil­lion, while the num­ber of ads, or paid clicks, rose 31 per­cent, the com­pany said.

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