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Global Opportunities Fund constituent Google, now called Alphabet (NASDAQ: GOOG, initial buy $219.65) reported a strong set of third quarter numbers that resonated well with investors, sending the (C class) shares surging 7% to over the $700 mark in Friday’s trading.
The third quarter marks the last time that the company will report numbers under the “old Google” structure. Members may recall that the company recently reorganised its business into a holding company structure called Alphabet and will begin reporting under its new structure from next quarter.
The relatively new CFO for the company, former Wall Street banker Ruth Porat, provided a little more colour on what that structure will be on the earnings call with analysts. Some additional detail will be provided for the core Google business and other Alphabet businesses are expected to include, among others, “access and energy, Nest, life sciences, our investment arms, and X, which is where driverless cars and certain other incubation efforts reside.”
Revenues, capital expenditure and profitability, or lack thereof in the case of most the businesses should be disclosed so as to improve investors understanding of how capital is being allocated.
Back to last week’s earnings call, Alphabet beat on both the top and bottom lines, but perhaps it was management’s decision to undertake a share buyback that really set a match under the shares more than anything else.
Google has stacks of cash (although a large chunk is offshore), with almost $73 billion of cash, cash equivalents and marketable securities as of the most recent quarter. Investors have pestered the company for a while about getting some of this back in the form of a dividend or share buyback and the latter is just what they are getting.
The company board has authorized a share buyback to the value of $5,099,019,513.59 starting this year. If you’re wondering about the odd number, you are not alone and it is the square root of 26, like the letters of the Alphabet.
Alphabet shares, which have retained the old tickers (GOOG, GOOGL) have had a strong run this year, propelled by the development of a better relationship with Wall Street. The C class shares (GOOG) are up 29% over the past twelve months.
Business traction in the third quarter was good, as revenues grew 13% year on year to $18.7 billion and that was into foreign exchange headwinds. On a constant currency basis, revenue growth came in 21%. On a reported basis, Google’s websites continue to lead the way, with revenues up 16% year on year and make up the lion’s share of revenue. In a world where many companies are struggling to grow the top line, double-digit growth is well received.
We are looking forward to seeing the new reporting structure to get even more visibility on the breakdown of numbers going forward.
Although no specific numbers were broken out in regards to mobile, the company referred to “Substantial growth of mobile search revenue, complemented by contributions from YouTube and Programmatic Advertising.” Management also said that six products now have more than 1 billion users globally.
Costs as a percentage of revenues came down in 3Q15 compared to the year earlier period. GAAP and non-GAAP diluted earnings per share came in at $5.73 and $7.35 respectively. That represented an increase of almost 18% year on year for non-GAAP EPS.
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