E Alphabet: Cash Generation & Moonshots

In this article, we will analyze Alphabet (GOOG). The company operates the world's leading online searching engine and has also diversified its activities in AI, autonomous vehicles, smartphones, and more, boasting a $1 trillion market cap.

Shares of Alphabet had been lagging the market's massive rally over the past few months. Investors were expecting a significant decline in ad revenues, as businesses around the world have been cutting expenses in response to COVID-19. In its recent earnings report, however, the tech behemoth managed to deliver the same quarterly year-over-year revenues in constant currency, generating ~$38 billion.

While the company's search ad revenue slightly declined, its YouTube and Cloud segments saw significant growth. The latter was particularly surprising as Cloud revenues grew by more than 50% compared to Q2-2019, suggesting that the division could be a considerable growth driver in the company's future results.

The company, as a whole, has been actively changing many parts of its culture lately. Since its initial founders Larry Page and Sergey Brin, announced they are stepping down from their top executive roles, the current CEO Sundar Pichai has been repositioning the company to be more shareholder-friendly. Previously the company's revenues per segment would not be disclosed, and management would rarely if ever, communicate with shareholders. And, returning no capital to shareholders, contributed to the company pilling a humongous cash position of around $120 billion.

However, under Mr. Pichai, Alphabet has been communicating its plans more openly and has also been launching considerable share buyback programs. The company repurchased around $15.3 billion of its capital stock in the first half of 2020, compared to "only" $6.6 billion during the same period last year. Further, the board authorized an additional buyback program of $28 billion. We believe that the company is heading in the right direction in terms of governance, as shareholders get to enjoy both transparency in its operations as well as tangible capital returns.

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Adam Reynolds 1 month ago Member's comment

I thought buybacks only helped the company.

Moon Kil Woong 1 month ago Contributor's comment

Generally buybacks help the investor more than the company. It is draining the company of assets (cash) in order to decrease share count for the stockholder.

Moon Kil Woong 1 month ago Contributor's comment

It certainly is a great value given its more financially stable than all the FANGS and trades at a more respectable price. The only thing it lacks is a dividend, however, it is still in growth mode. $GOOD $GOOGL