Alphabet Beats Apple To Become Worlds Most Valuable Company
Google has reported stronger than expected fourth-quarter results, beating analyst estimates as a result of improved performance of its core business and better cost controls. The subsequent surge in its share price has put its parent company Alphabet Inc ahead of Apple and in doing so has become the most valuable company in the world.
The company is reporting results for the first time under the new structure which was revealed in 2015. The new structure has allowed investors to separate the main search and advertising business from the company’s newer and more riskier businesses such as self-driving cars and artificial intelligence.
Google reported revenues of $17.3 billion for the fourth-quarter as against analysts’ prediction of $16.9 billion, an increase of 19 per cent. Profit declared was $8.67 or profit per share as against estimates of $8.08. The total net income for the fourth quarter was $4.92 billion, up from $4.68 billion reported in the previous year.
In a statement, Josh Olson, an analyst with Edward Jones & Co. said,
It’s a very healthy bottom-line beat. This new transparency is going to help. The core business looks very healthy. That’s going to build investors’ confidence about the other bets they’ve been making.
The stock market reacted positively, with the company’s shares rising by 1.2 per cent to $770.77 at close of trading in New York. This enabled Alphabet with a market capitalization of $568 billion to overtake Apple which is estimated to be around $534.7 billion, officially making Alphabet the world’s most valuable company.
The new structure has enabled more transparency and also provided more autonomy to its main business. Sundar Pichai, who heads the core business of search and advertising has undertaken a number of measures to improve its products while countering declining mobile advertising prices. His leadership has already caused a significant surge in profit margins as clicks on ads increased by 31 per cent although the average price to place an ad on Google’s websites dropped by 16 per cent.
According to Ruth Porat, Alphabet’s chief financial officer, the prime driver of growth has been due to the increased search usage by mobile consumers. Although operating expenses increased to $7.76 billion in the fourth quarter, which was a rise of 14 per cent, they reduced as a percentage of revenue to 36 per cent, dropping from 37 per cent in the previous year.
Capital expenditure also dropped to $2.1 billion in the quarter, from the previous $3.55 billion. The new management will continue to focus on cost discipline and capital spending.
Alphabet has launched multiple ventures exploring new technologies such as Internet-beaming balloons, robotics and self-driven cars. While the costs of these are currently supported by revenues from the search operations, analysts believe that they have potential for long-term growth.
