Alphabet (GOOGL NASD)
GOOGL operates through Google Services, Google Cloud, and Other Bets segments. The Google Services segment provides products and services, such as ads, Android, Chrome, hardware, Google Maps, Google Play, Search, and YouTube, as well as technical infrastructure; and digital content. The Google Cloud segment offers infrastructure and data analytics platforms, collaboration tools, and other services for enterprise customers. The Other Bets segment sells internet and TV services, as well as licensing and research and development services.
We see GOOGL as one of the best-positioned companies to benefit from secular trends in digital advertising, as advertisers continue to see solid returns on spend and the company continues to innovate on its search, display, and YouTube platforms. Alphabet’s revenue comes from Google Advertising, which remains the primary source of income.
In addition, we think non-advertising revenue streams – including sales from Google Cloud, Hardware (the Project Soli, a miniature radar, will be a game changer for Pixel and Pixel Watch), Google Play and Waymo – will become a more central part of the investment thesis over time.
We also believe that the margin impact of growth in those lower gross-margin ventures will be offset by operating leverage as the overall business continues to grow, driving earnings growth above revenue growth over the next several years.