uploads///REV EPS GOOGL

How Does GOOGL Compare to Broad Indexes?


Dec. 13 2017, Updated 2:11 a.m. ET

What led to the net revenue growth in 2016 and 9M17?

Alphabet’s (GOOGL) revenue rose 20% and 22% in 2016 and 9M17 (the first nine months of 2017), respectively. The US, UK, and the rest of the world drove the growth in both the years. The Google segment drove the growth, and revenue from the Other Bets segment also grew in both the years. The US, EMEA, Asia-Pacific, and Canada and Latin America (or Other Americas) posted revenue growth in 9M17.

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What affected the diluted EPS performance in 9M17?

Gross margin rose 18% and 19% in 2016 and 9M17, respectively. Operating expenses rose 14% in 2016 and 27% in 9M17. The increase in 9M17 was due to a rise in every operating expense head followed by a fine imposed by the European Commission. All of these factors led to a 23% and 8% increase in income from operations for 2016 and 9M17, respectively. Higher interest income translated into higher other income offset by a rise in interest expense. However, interest expense fell in 9M17. These factors translated into growth of 19% and 11% in net income for 2016 and 9M17, respectively. Diluted EPS rose 22% and 10% in 2016 and 9M17, respectively. Share buybacks have further enhanced the EPS numbers. The company has maintained a strong free cash flow position.

How did the dividend yield and price perform?

The company has not offered any dividend yet and trades under two ticker symbols: GOOGL and GOOG. GOOGL’s class A shares come with normal voting rights. GOOG’s class C shares are devoid of voting rights. Class B shares of the company come with ten times the voting power of class A shares and are held by founders. The company prices have risen 32.4% on a YTD basis. Alphabet has a PE of 37.6x.

How does the company compare to the broad indexes?

The S&P 500 (SPX-INDEX) (SPY) offers a dividend yield of 2.3%, a PE ratio of 23.3x, and a YTD return of 18.4%. The Dow Jones Industrial Average (DJIA-INDEX) (DIA) has a dividend yield of 2.2%, a PE ratio of 21.9x, and a YTD return of 23.1%. The NASDAQ Composite (COMP-INDEX) (ONEQ) has a PE ratio of 25x and a YTD return of 27.1%.

The Vanguard Dividend Appreciation ETF (VIG) is a dividend ETF with 14% exposure to technology. It has a PE of 23.5x and a dividend yield of 1.9%. The Vanguard High Dividend Yield ETF (VYM) is a dividend ETF with 16% exposure to technology. It has a PE of 21.6x and a dividend yield of 2.9%.


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