This tech giant continues to post double-digit growth, and with its unparalleled R&D chops, shows no sign of slowing down.
Alphabet, Inc. (GOOG)
From Cabot Benjamin Graham Value Investor
Alphabet, Inc. (GOOG; Max Buy Price 834.52) provides target-based advertisements on the internet. Alphabet is the successor and parent holding company of Google, which operates the world’s leading internet search engine. Google’s unique page ranking and text matching provide superior search results for users.
The company primarily derives revenue from the delivery of advertising to users. Revenue is also gained from the licensing of search technology and enterprise solutions. Google products include Search, Ads, Commerce, Maps, YouTube, Apps, Cloud, Android, Chrome, Google Play, Chromecast, Chromebooks and Nexus. Google’s mobile application allows search by voice, sight or location. Alphabet’s most significant competitors are Facebook, Microsoft and Yahoo.
In 2016, Alphabet introduced several new devices including two new smartphones, a smart home hub, a new streaming device, a virtual reality headset and a new Wi-Fi router. The devices will become the vehicles through which the tech giant is rolling out its biggest product: the new Google Assistant.
The artificial intelligence-powered Assistant is included in Google’s new Pixel phones. Assistant is designed to pull together all of Google’s various services—Google Search, Google Photos, Gmail, Google Voice, Google Translate and others—in a single, easy-to-use voice-based interface. Google is counting on the success of this interface for the company’s next generation of gadgets.
Alphabet reported excellent 2016 results. Sales surged 20% and EPS (earnings per share) jumped 22%, bolstered by substantial gains at You Tube and Mobile Search. Consumers continue to spend more time on smartphones, and advertisers spend more and more money on smartphone ads. More than half of Alphabet’s revenue is now generated from ads on mobile devices.
The company’s Android mobile operating system appears in 87% of the world’s smartphones. Google controls 95% of the mobile-search market, compared with 78% on personal computers. Google’s dominance in search and advertising in the smartphone business portends exceptional growth in future quarters and years.
Sales will likely climb 15% and EPS will jump 23% to $35.50 in 2017. At 27.9 times current EPS, Alphabet’s shares are reasonably priced. Alphabet does not pay a dividend, but the balance sheet is extremely strong with $100 billion in cash and minimal debt. I expect GOOG to climb 21% to reach my Min Sell Price of 993.50 before the end of 2017. Buy at 834.52 or below.
J. Royden Ward, Cabot Benjamin Graham Value Investor, www.cabotwealth.com, 978-745-5532, March 2, 2017