Alphabet (GOOGL) is the umbrella company that owns Google (which includes Android, Chrome, and YouTube), Nest (home automation), Calico (anti-aging research), and Fiber (high-speed Internet), observes Gordon Pape, editor of Internet Wealth Builder.
The company's operations also include Google Ventures (new company investments), Sidewalk Labs (city infrastructure), and Waymo (driverless cars). Other services include Google Maps, Google Play, and cloud computing.
The shares have been in a steady upward trend all year and recently hit an all-time high of $3,012.30. Despite its gigantic size, Alphabet continues to grow at an astounding rate. Third-quarter revenue was $65.1 billion, a 41% increase from $46.2 billion in the same quarter of 2020.
Operating income was just over $21 billion, up from $11.2 billion a year ago. Operating margin improved from 24% to 32%. More income and higher margins translated into a big jump in net income to $18.9 billion ($27.99 per share, fully diluted) from $11.2 billion ($16.40 a share) in the same quarter of 2020.
The results beat the consensus estimates of $23.48 per share. Google advertising was the driving force in revenue growth, with sales of $53.1 billion in the quarter, up from $37.1 billion in 2020.
The stock does not pay a dividend. However, the company is actively buying back shares. During the quarter it repurchased and subsequently retired 4.6 million shares for $12.6 billion. These consisted of 500,000 shares of Class A stock for $1.5 billion and 4.1 million shares ($11.1 billion) of Class C stock.
The biggest problem the company faces right now are governmental and legal. Earlier this year, the company was fined €4.34 billion by the European Union in an anti-trust case.
The EU claimed Alphabet was using its Android mobile operating system to shut out rivals and maintain its search engine dominance. It was the largest penalty ever assessed to a company found guilty of breaching EU antitrust rules. Alphabet is appealing.
Action now: Buy. The stock is trading at p/e ratio of 28.65, not unreasonable giving its continued strong growth. (For disclosure, Gordon Pape own shares in Alphabet.)
