GOOG

Alphabet’s Cash Flow Soars in Fourth Quarter

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Image Source: TradingView By Brian Nelson, CFA On February 4, Alphabet (GOOG) (GOOGL) reported mixed fourth quarter results with revenue missing the consensus forecast, but GAAP earnings per share outpacing what Wall Street was looking for. Total revenue in the fourth quarter advanced 12%, while operating income leapt 30.7% (thanks to a five percentage point improvement in its operating margin) and net income jumped 28.3%. Diluted earnings per share rose 31.1%, to $2.15 per share, in the quarter. We continue to like Alphabet as a top weighting in the Best Ideas Newsletter portfolio. Management had the following to say about the quarter: Q4 was a strong quarter driven by our leadership in AI and momentum across the business. We are … Read more

Keeping the Horse Before the Cart: Valuentum’s Economic Castle Rating

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Image Source: Ian By Brian Nelson, CFA “In business, I look for economic castles protected by unbreachable moats.” – Warren Buffett In the world of investing, no other saying may be more widespread. The teachings of Berkshire Hathaway’s (BRK.A, BRK.B) Warren Buffett have become a favorite among individual investors, having been adopted by money-management firms and sell-side firms alike in order to better connect with their clients and readers who have been ‘under siege’ by the topic in recent years. The phrase ‘economic moat’ – or sustainable competitive advantage – has simply become ubiquitous in the investment world and perhaps has lost much of its significance and meaning along the way. Most management teams across the globe are now eager … Read more

How Does 37% Sound?

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Image: The Schwab U.S. Large Cap Growth ETF (SCHG) is up more than 37% so far in 2024. By Brian Nelson, CFA How does 37% sound? That was the price-only performance of the Schwab U.S. Large Cap Growth ETF (SCHG) thus far in 2024. Over the preceding 5-year period, the SCHG is up over 140%. For years, I have pounded the table on the theory that there are not value or growth stocks, but rather undervalued, fairly valued, or overvalued stocks. It’s why many growth stocks can be undervalued. It’s the Theory of Universal Valuation found in Value Trap that ties myriad areas of finance to the well-known discounted cash-flow [DCF] model. Growth is a component of value. Hook, line, … Read more

Momentum Across Alphabet’s Business Is “Extraordinary”

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Image: Shares of Alphabet look poised to break out to all-time highs. By Brian Nelson, CFA Alphabet (GOOG) (GOOGL) reported fantastic third quarter results October 29 that showed a beat on both the top- and bottom lines. Consolidated revenue increased 15% in the quarter (16% on a constant-currency basis), to $88.3 billion, versus consensus of $86.2 billion, with Google Services, total, revenue increasing 13% and Google Cloud revenue increasing 35%. ‘Google Search & other’ revenue and ‘YouTube ads’ revenue both increased 12.2% in the quarter, very healthy growth rates. Revenue for Google Network dipped modestly on a year-over-year basis, while Google subscriptions, platforms and devices revenue advanced 28%. Total operating income increased 34% in the quarter, with its operating margin … Read more

DOJ Antitrust Lawsuits Targeting Our Top Two Ideas: V and GOOG

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   Image: Alphabet’s and Visa’s shares have performed remarkably well since the beginning of 2023. By Brian Nelson, CFA We received a number of questions regarding the DOJ’s investigation into anticompetitive practices for two of the top ideas in the Best Ideas Newsletter portfolio. Antitrust news with respect to Alphabet’s (GOOG) ad search business and Visa’s (V) debit card business is nothing surprising, but it speaks to the positives and dominance behind their business models, something we like quite a bit. Any outcome of an antitrust lawsuit is uncertain and could result in a settlement and potential other action, including divestitures. That said, as it relates to Alphabet, the potential for divestitures in its business reinforces a sum-of-the-parts value analysis … Read more

Brain Teaser – Reflexive versus Reflective

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Dear members: — Jason Zweig of the Wall Street Journal, wrote in his pioneering text, Your Money and Your Brain, a few fun examples of how sometimes the psychological process of anchoring and adjustment can trip us up. — In one notable example, Zweig wrote about how two psychologists Amos Tversky and Daniel Kahneman had asked volunteers to spin a wheel of fortune numbered from 0 to 100. The contestants didn’t know that the wheel was rigged to produce either a 10 or a 65 for the experiment. — After spinning the wheel, the contestants were then asked whether the percentage of total United Nations membership made up of countries in Africa was higher or lower than the number that came up. … Read more

Oracle Expects Increased Revenue Growth Throughout Fiscal 2025

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Image: Oracle’s shares have performed quite well during the past couple years. By Brian Nelson, CFA Oracle (ORCL) reported better than expected fiscal first quarter results on September 9, with revenue and non-GAAP earnings per share exceeding the consensus forecast. Total revenue expanded 7% in the quarter (up 8% in constant currency), while non-GAAP earnings per share advanced 17%, to $1.39 (up 18% in constant currency). Cloud services revenue advanced 21% (up 22% in constant currency), while cloud license and on-premise license revenues increased 7% (up 8% in constant currency). Non-GAAP operating income increased 13%, to $5.7 billion, up 14% in constant currency, while its non-GAAP operating margin came in at 43%. Non-GAAP net income increased 18%, to $4 billion, … Read more

Paper: Value and Momentum Within Stocks, Too

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Please select the image below to download, “Value and Momentum Within Stocks, Too:” Abstract: This paper strives to advance the field of finance in four ways: 1) it extends the theory of the “The Arithmetic of Active Management” to the investor level; 2) it addresses certain data problems of factor-based methods, namely with respect to value and book-to-market ratios, while introducing price-to-fair-value ratios in a factor-based approach; 3) it may lay the foundation for academic literature regarding the Valuentum, the value-timing, and ultra-momentum factors; and 4) it walks through the potential relative outperformance that may be harvested at the intersection of relevant, unique and compensated factors within individual stocks. To download the full report, please click here (pdf). ———- Actual results … Read more

What to Do During This Market Selloff

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By Brian Nelson, CFA In short, nothing. The U.S. stock market (SPY) was chugging along nicely until what was interpreted as a very favorable Consumer Price Index (CPI) print on July 11 that sent a rotation out of large cap growth and big cap tech into the beaten down areas of smaller cap stocks, prompting a broader market sell-off. The reasoning goes that, with inflation largely under control, smaller companies will benefit more from future rate cuts via reduced interest expense relative to larger companies. Though this is true, to varying degrees, the magnitude of the rotation was somewhat surprising, as rate cuts should benefit large cap growth (SCHG) and big cap tech (XLK), too, but we’ve seen this rotation … Read more

Alphabet’s Free Cash Flow Faces Pressure in Second Quarter

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Image: Alphabet’s shares have performed well so far in 2024. By Brian Nelson, CFA Alphabet (GOOG) (GOOGL) reported solid second quarter results July 23 that showed a beat on both the top and bottom lines. Revenue increased 15% in constant currency on a year-over-year basis, while the company’s operating margin advanced approximately 3 percentage points. Operating income surged to $27.4 billion, up 25.5% on a year-over-year basis. Diluted earnings per share increased 31.3%, to $1.89. Management commentary in the press release was upbeat: Our strong performance this quarter highlights ongoing strength in Search and momentum in Cloud. We are innovating at every layer of the AI stack. Our longstanding infrastructure leadership and in-house research teams position us well as technology … Read more