What we think about Alphabet (GOOG)
Alphabet in Three Words: YouTube, Search, Cloud
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Background
Alphabet – the holding company for Google and YouTube – is an iconic business that needs little introduction. The company boasts nine platforms that each have more than one billion monthly active users, including Android, Chrome, Gmail, Google Maps, Google Photos, Google Play, Google Search, and YouTube. These applications, functions, and platforms occupy valuable mindshare with global consumers, giving Alphabet some of the world’s most valuable and monetizable data.
Advertising is Alphabet’s primary source of revenue. Users worldwide use the company’s many applications and services daily, and Google can use its valuable screen real estate to place the most-suitable ads, at the right time, in front of its vast user base.
Alphabet reported strong Q1 2024 results, with revenues growing 15% year-over-year to $80.5 billion, driven by robust performance in Google Search & other (up 14%), YouTube ads (up 21%), and Google Cloud (up 28% to $9.6 billion). The company’s focus on efficiency and cost management, along with strong revenue growth, led to a significant expansion in operating margin to 32%.
Alphabet also made progress in the AI space, with strong adoption of Gemini 1.5 Pro and other AI models by customers and developers. The Board authorized an additional $70 billion share repurchase and initiated a quarterly dividend program. However, the company’s heavy investments in technical infrastructure to support AI efforts resulted in substantially higher capital expenditures of $12 billion in Q1. These expenditures are expected to remain at or above this level throughout 2024.
While AI provides huge opportunities, Alphabet must navigate the challenges of this transition carefully, including potential changes in Search behavior and monetization. We also remain cognizant of regulatory scrutiny and legal challenges related to anticompetitive practices.
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