Google just reported earnings, and wow, they blew away the estimates.
In this article, I’ll go through Alphabet’s latest earnings release since Alphabet(GOOG) is part of the public portfolio. As always this is not financial advice and should be treated as educational information only.
Financials
Constant currency revenues increased 14% year over year (YoY). Looking at the last few quarters, we can see that Google network service revenue has gone down, and YoY is down -2.1%. All other segments have had a YoY gain and is showing growth. The Google Network segment are ads shown on partner websites via AdSense and AdMob. This segment excludes revenue the YouTube and Google search engine ads. As for those segments, they grew by approximately 10.0% YoY.
Margins continue to defy the ChatGPT lunch-eating narrative with Google Services and Google Cloud posting their highest operating margins to date. It is impressive to see that they have been able to increase their operating margins likely due to faster depreciation schedule as well as lowered sales & marketing expenses.
Interesting Segments
Search
Even faced with headwinds from competition and legal troubles, AI Overviews has over 1.5 Billion users per month which is not a trivial number. They launched Gemini 2.5 Pro last month which definitely makes it seem like model generation at Google is getting better and better after early hiccups. I would like to see what they do in the Agentic AI space in the future.
YouTube
Based on the earnings call, “YouTube now has over 1 Billion monthly active podcast users. YouTube Music and Premium reached over 125,000,000 subscribers, including trials globally.” Even though this includes trials that is a large number that only seems to grow over time.
Cloud
Google Cloud is definitely making up for lost ground with AWS and Azure and more than doubled its revenue in three years from $5.8 billion to $12.3 billion. I would love to see this keep getting marketshare from Amazon and Microsoft, but I own Amazon as well.
Capital Allocation
Capital return on investment continues to stay high with Google as they issued a $70 billion stock buyback and a 5.0% dividend increase. All-in-all, Google returned approximately 92% of their free cash flow (FCF) back to investors through buybacks and dividends.
Guidance
Google does not provide guidance so nothing to look at here.
Conclusion
Valuation seems cheap at current prices but a Discounted Cash Flow (DCF) model should be run to gage how discounted stock price could be. Nevertheless, buying and holding for the long-term meaning a few years, could be a lucrative strategy. This is not financial advice.
