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Alphabet Delivers Yet Again

By Motley Fool Staff – May 3, 2018 at 8:07PM

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When a company's first-quarter profits are almost $9.5 billion, it’s tough to find anything to be negative about.

In this segment of the Motley Fool Money podcast, host Chris Hill is joined by senior Fool analysts Jason Moser, David Kretzmann, and Jeff Fischer to talk about Alphabet's (GOOG -1.98%) (GOOGL -1.82%) first-quarter report, which showed that it continued to grow at a positively torrid pace for a company of its mammoth size: Revenue was up 26%, and earnings per share were up 28%, for example. The Fools discuss the future of online and video ads, search, the diverse opportunities of the "other bets" segment, and where it's spending on research and development.

A full transcript follows the video.

This video was recorded on April 27, 2018.

Chris Hill: Alphabet is spending more money, but that's OK because they're also making more money. Alphabet's first quarter profits came in just shy of $9.5 billion. David, that is really some serious cake.

David Kretzmann: Yeah, that sounds pretty good. Revenue this quarter, up 26%. As Jeff mentioned, this is a company worth around $730 billion. To be growing revenue at that pace is incredible. Earnings per share, also up 28%. Company is sitting on close to $98 billion in net cash. That's after spending $5 billion on R&D this quarter alone, $7 billion on capital expenditures. So, the company still has to find something to spend that money on.

But, they continue to heavily reinvest back into the business. I think YouTube also represents a really interesting opportunity. One initiative that they are rolling out starting this quarter is something called YouTube Director. That'll be expanded over 170 cities in the U.S. That really gives small and mid-size businesses access to professional filmmakers who, for no charge, will create and edit video ads for YouTube. So, really investing heavily into that video advertising space.

Jason Moser: We talk a lot about this space and the leaders in it. Facebook, obviously one, Alphabet one. We get the question a lot, which one would you rather own for the next five years, ten years, whatever. I can't help but lean toward Alphabet in this case, though, because I feel like in five years, search is only going to become more valuable, it's going to become more useful. And obviously, that's what Google's forte is, not to mention the fact that YouTube is such a phenomenal property like David was saying. I feel like Facebook right now is really trying to figure out how to take that next leap beyond just social networking, because that may not necessarily be as useful for people in the coming five years and beyond.

Jeff Fischer: In that vein, my main concern with Alphabet would be voice search taking on more and more search share, and, how do they monetize that? But, I like both companies, Google and Facebook, which we'll talk about today as well.

Hill: I think that one of the interesting things with Alphabet is how they have their section of the business which is the "Other Bets," and they took Nest, their attempt at the smart home, and they basically moved that out of the Other Bets division over to the Google division, which certainly made the economics of the Other Bets division look better, in terms of, maybe not being profitable, but losing less money. And I think, to your point, Jeff, in terms of voice search, you look at what they're doing, it's really more about the Google Home device. That really seems like it's the big focus for Alphabet this year.

Kretzmann: Yeah. I think with Google Assistant, you have a lot of optionality there, on phones, home devices, refrigerators, whatever it might be. And with Alphabet, I agree with JaMo. As far as optionality goes, I think Alphabet has so many different levers they can pull. They have, I think, seven products with over one billion monthly active users. So many different levers they can pull with that business in the coming years.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Chris Hill has no position in any of the stocks mentioned. David Kretzmann owns shares of Alphabet (C shares). Jason Moser has no position in any of the stocks mentioned. Jeff Fischer owns shares of Alphabet (C shares). The Motley Fool owns shares of and recommends Alphabet (A shares) and Alphabet (C shares). The Motley Fool has a disclosure policy.

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