The profit machine turns up: Alphabet shares: How Alphabet boss Pichai creates a huge jump in profits | news
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by Sven Parplies, Euro on Sunday
Those were uncomfortable times, even for Alphabet. When the pandemic rocked the world in spring 2020, the internet giant’s profits collapsed by almost a third. Now the impressive comeback: Alphabet’s net profit shot up from just under $ 7 billion to $ 18.5 billion in the second quarter. At $ 27.26 per share, the company was around 40 percent above the consensus estimate. Alphabet boss Sundar Pichai did without spectacular slogans, instead referring to the increased online activities of consumers in large parts of the world and also highlighted the group’s investments in artificial intelligence. Alphabet lives mainly from the advertising income from the Internet search engine Google. This has a market share of more than 90 percent. That is why companies from trade, tourism, the financial industry or even the entertainment world place advertisements there. Search engine sales climbed nearly 70 percent to nearly $ 36 billion in the quarter. Analysts had only expected a little more than 32 billion.
The secret hero
The second important course driver is the video portal Youtube. Unlike a TV broadcaster, YouTube does not have to produce or buy its own content. Every user can post videos, advertising revenue is shared. The division’s sales grew 84 percent to $ 7 billion in the quarter. Analysts had expected 6.3 billion. The cloud business is also making progress, but is not as important in the alphabet conglomerate as it is with the market leaders Amazon and Microsoft.
Alphabet is still in the investment phase in this area, but the loss was significantly reduced in the quarter. Above a critical size, Alphabet will also be in the black there. The “other bets” remain nebulous. Ideally, there is a big business slumbering there. Analysts see potential primarily in the development of technologies for autonomous driving. So far, money has been burned with “bets”.
Given the strength of the core business, that’s no drama. The most important question for investors is how long can Alphabet keep growing? Two factors are decisive: Due to the cyclical nature of the advertising business, Alphabet will repeatedly have to cope with setbacks in economic downturns. This is overshadowed by the growing advertising market on the Internet. This trend, which is positive for Google and Youtube, is likely to have accelerated due to the pandemic. According to Bloomberg, analysts assume that earnings per share will grow more slowly this year after the sharp jump. For 2020 an increase of almost ten percent is expected, for the two following years of 15 percent. This contrasts with a price / earnings ratio of around 25. This means that the share is not excessively expensive despite price gains.
Found: The share of the search engine company has already The momentum has increased significantly but is still high.
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