Amazon's and Alphabet's Earnings Were So Good, It Was Hard to Single Out the Highlights

In this segment from Motley Fool Money, host Chris Hill is joined by analysts Matt Argersinger, David Kretzmann, and Aaron Bush to talk about internet behemoths Amazon (AMZN -1.64%) and Alphabet (GOOG 0.74%) (GOOGL 0.55%). They begin with the e-commerce leader, which produced impressive growth across the board. AWS, retail sales, advertising growth, overall top- and bottom-line results -- all were causes for investors to smile. But the guys do think there are a few noteworthy points to make about the long view.

Then they segue to the company many of us still think of as Google. Its revenue rose 24%, and its speculative Other Bets division's revenue popped 40%. The Fools talk about what it's doing right, the strength of its balance sheet, and more.

A full transcript follows the video.

This video was recorded on July 27, 2018.

Chris Hill: Amazon shares hitting a new high after its second quarter report. Web Services keeps chugging along, Aaron. Speaking of advertisers, Amazon's advertising business is starting to rack up some serious numbers.

Aaron Bush: I think my biggest takeaway from this quarter is that it's so hard to have any takeaway, because they're doing so many different things. Their growth is so impressive. They grew revenue 39%. Some of that is acquisitive, from last year's Whole Foods acquisition, but a lot of that is organic. It's because they're doing a great job scaling U.S. retail, up 44%, international a little less than that. AWS is still on fire, more so than any other cloud platform out there.

They're trying all these new things. Advertising is ramping up. They have Twitch in the back, which might be a part of that. They're ramping up subscriptions in its own right. Prime Day, even though it had bugs this past quarter, was still their largest event ever. They had all these tailwinds. They continue to acquire. They made the PillPack acquisition this past quarter. It's so hard to summarize because there are so many things going on.

I do think, one thing that's important to keep in mind is, Jeff Bezos is known for saying, "This quarter was great because of things we did two years ago." Because we're seeing all of these things that they're doing now, it gives me confidence that, two years from now, we'll be seeing pretty good results then, too.

David Kretzmann: What stuck out to me is the fact that Alexa probably got 15X the mentions of Whole Foods. Go back a year ago, we were losing our minds over Amazon acquiring Whole Foods. Now, Whole Foods is just an afterthought. It gets one or two mentions in a really long press release. It's not even mentioned in the prepared remarks of the conference call. I think, at this point, Whole Foods is becoming a loyalty extension of Prime. And, as a Prime member, I'm happy with that. It's interesting to see how much can change in a year.

Hill: Alphabet's second quarter revenue rose 24%. Their Other Bets division was up 40%. Shares of Alphabet hitting a new high this week, market cap now closing in on $900 billion, Matty.

Matt Argersinger: Speaking of a large company that's still growing at an incredible rate, if look at the core advertising business, up 25% to $28 billion. That's 86% of their total revenue. Their Other segment within Google, which includes their cloud business, that was up 37%. I can't believe the amount of growth, the rate of growth, that we're talking about on this radio show, given the size, given the market caps, of these companies. It's so impressive.

I had to double-check this, but DK before we taped said, "I think Google has over $100 billion in cash." Sure enough, they do. If you back out the amount of debt they have, they have $98 billion in net cash. Another way to look at it is, that's 20 more years of E.U. fines that they can pay. It's a staggering number, and that gives that business so much optionality.

Hill: Optionality is they key word. When you think about Alphabet and you think about Amazon, great quarters they put up, and also, very visible issues that they each were dealing with in recent months. Alphabet with the fine. As you mentioned, Aaron, Prime Day, they had a couple of good years in a row where Prime Day didn't have any bugs. They kind of broke that streak this time around. It's almost like, when you have that kind of optionality, you can survive these types of blips.

Argersinger: Oh my gosh, and then you can make big, forward-looking investments, like Waymo, which is probably going to have some serious milestones this year. The Other Bets, which includes their medical science business. There are so many things going for it. And yet, you have a business that, if you back out that cash -- now, it's not always smart to do that -- you're talking about a company that's trading for about 25X this year's forward earnings, growing the core business over 20% for at least the next several years.

Kretzmann: What's really impressive to me is the fact that 90% of the company's revenue still comes from that core advertising business. And that business will probably continue growing at above-average rates for at least another decade, if not much longer. In the meantime, if Waymo hits, if their unicorn or venture investments really grab hold, any of those other projects, those are really just the cherry on top, because the core business is still incredibly attractive.