Alphabet is now the world’s most valuable company

Posted on February 1, 2016 05:42 am

Google reported profit and sales that topped estimates, lifted by robust sales of online ads and tighter cost controls, putting parent Alphabet Inc on track to overtake Apple Inc as the world’s most valuable company. Alphabet, Google’s parent company, is now worth around US$570 billion, compared to Apple’s $538 billion value.The last time Google was more valuable than Apple was in February 2010, though both companies were worth less than $200 million then. This was before Apple launched the iPad and had only come out with the iPhone 3GS at the time.Apple has held the top spot since 2013 after overtaking Exxon Mobile. But thanks to strong earnings report, Alphabet takes the top spot. Google has brought in a total of $74.5 billion in revenue and a total income of $23 billion for 2015.Google, which has been investing in artificial intelligence, self-driving cars and health technology, changed its name and structure last year to give investors a clearer view into the performance of its web business and the money Alphabet chief executive Larry Page is devoting to new projects.The report provided the most detailed breakdown yet on the profits pouring in from Google’s dominant search engine and ad network.Investors pushed up Alphabet stock $35.73, or 4.6 per cent, to $806.50 in extended trading.

Based on that after-hours bump, Alphabet’s market value stood at $555 billion while Apple’s was at $533 billion, based on the most recent regulatory filings showing the company’s outstanding shares. The rankings could quickly change again in regular trading Tuesday.Apple’s stock has been sliding amid concerns over slowing iPhone sales. Meanwhile, Alphabet’s stock has surged by 45 percent since the end of 2014 when it was still trading under Google’s name.The fourth-quarter report marks the first time Alphabet has spelled out the costs of running still-experimental businesses that are trying to do everything from eliminating human drivers to curing cancer.Until now, Google chose to hide the expense of running those peripheral operations in its financial statement. The company’s opaque accounting made it difficult to know just how much profit Google reaped from its primary business of selling digital ads next to everything from search results to YouTube videos.In the fourth quarter, Google produced an operating profit of $6.8 billion on revenue of $17.1 billion, after subtracting ad commissions. That translates into a whopping profit margin of 40 per cent. Apple registered an operating profit margin of 32 per cent in its most recent quarter.Alphabet’s other companies together produced an operating loss of $1.2 billion on revenue of just $151 million. Alphabet labels that category “other bets.”

For the full year, Alphabet’s other companies lost $3.6 billion on revenue of $448 million.The optimism surrounding Alphabet stems in part from hopes that the company is developing more financial discipline as it discloses more earnings details. Google had become known for its free-spending habits and reluctance to share information with analysts.The change in sentiment coincided with Google’s hiring of a new chief financial officer, Ruth Porat, last year. Porat has consistently signalled her intent to rein in spending.Porat signalled her resolve again today in a conference call with analysts. “Our priority remains revenue growth but that doesn’t give us a pass on a rigorous approach to expense management,” she said.Google is also counting on advertisers to gradually pay more for marketing messages on smartphones. They still aren’t paying as much for mobile ads as on personal computers because ads on smaller smartphone screens strike many as less valuable. That’s one reason Google’s average ad rates, measured as “cost per click,” have been declining for more than four years.In the latest quarter, Google’s cost per click fell by 13 per cent from the same time in 2014. But Porat cited in increase in mobile search requests as one of biggest reasons that Google’s revenue rose by 18 percent from the previous year. As people increasingly search for information and shop on their phones, the company expects advertisers to ramp up their spending on smartphones, too.On the other hand. Apple had its biggest quarter this Q1 of 2016 as the company has made $18.48 billion in profit, which is the most a company has made in a single quarter. But that isn’t enough to satisfy its investors apparently as iPhone sales are expected to drop for the first time in the second quarter of the year.

Contador Harrison