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Google is a great investor and Alphabet's earnings show the results



Alphabet Inc.'s big win was partly due to big investment profits, not to the money it spends on its own company.

alphabet

GOOG, + 1.74%

GOOGL, + 1.10%

GOOGL, + 1.10%

reported having taken into account the huge fine that Google has paid to the European Union, and sent shares in record height. Excluding the penalty, Alphabets earnings would have been $ 1

1.75 per share, well above analysts' consensus estimate of $ 9.64 per share, FactSet said.

This large gap between expectations and results was mainly due to a $ 1.06 billion gain in securities, as Google's parent company continues to take into account increases in its third-party assets under new accounting rules. Alphabet's executives were not asked on Monday afternoon what profits were made in a conference call with analysts who were not interested in the additional billion dollar net income.

Earnings Watch: 35% of S & P 500 Companies Will Report in One Mad Week

"It's a way to balance existing book investments," said Ron Josey, analyst at JMP Securities in a telephone interview.

"Honestly, I think most of us are just withdrawing those under-managed articles and / or focusing on operating profit," said Colin Sebastian, an analyst with Robert W. Baird & Co., in an E -Mail.

Sebastian, who rates the alphabet as outperform, noted that the accounting change added a gain of $ 1.17 to its revenue, the bulk of its revenue, and used that figure to boost Google's earnings to $ 10.58 per share Customize customers.

However, Google's investment profits should not be removed or ignored. According to Crunchbase News, Alphabet was the most active and largest corporate investor in the technology sector in 2017, outperforming both SoftBank Group Corp.

9984, + 1.18%

by Japan and Intel Corp.

INTC, + 0.77%

Intel Capital.

Early investment from Google's mutual funds GV and CapitalG are starting to pay off, both in IPOs and acquisitions. Since January, 20 Google-backed companies have liquidity bottlenecks after Crunchbase data; Since 2016, there were more than 50. Alphabet declined to comment on the profit or its investments, including the disclosure of the main components of profits.

During the quarter, Alphabet reported that one investment, Glassdoor Inc., was sold for $ 1.2 billion to a Japanese human resources company called Recruit Holdings, while another, the electronic signature company DocuSign

DOCU, + 6.36%

had a strong IPO in which the GA sold about 412,000 shares and held about 1.46 million more. Two security investments have also recently paid off as the Central Intelligence Agency-backed cloud security company Evident.io has been acquired by Palo Alto Networks Inc.

PANW, -1.13%

and Zscaler Inc.

ZS, + 4.00%

went public in the first quarter. Aside from pure tech companies, Google's venture capitalists have also invested in a handful of biotech and healthcare companies, of which at least three have been acquired or gone public in the past three months.

Alphabet's investments have gained more than $ 3 billion in the first quarter as the company began to comply with new accounting rules, thanks to a new stake in Uber Technologies Inc., which it garnered in the Waymo lawsuit, among others. With $ 1 billion on Monday, total profits for Alphabet's investments in the first half of the year amount to nearly one-third of Google's GAAP net income for that period.

This is too big a chunk of Alphabet's profit and too much money for investors to ignore. For bulls, the cash alphabet that can be realized by selling investments in the future could be another benefit for them, while bears can say that returns are supported by large paper gains that may never materialize. In any case, the investments of Alphabet should get more attention because they strengthen Google's bottom line.

Alphabet shares rose from Monday to the hours that would be record highs if they passed in regular trading. Class A shares have already risen by 15% this year compared to the S & P 500 Index

SPX, + 0.18%

by almost 5% in 2018.


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