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Advertising Revenue, Cloud Growth Boost Google

We recommend a wider margin of safety before allocating capital toward this wide-moat name.

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Alphabet handily beat our third-quarter 2017 top- and bottom-line expectations as YouTube and cloud drove strong double-digit growth in advertising and other revenue. While cost-per-click continued its decline, it was more than offset by growth in ad engagements, or paid clicks, which demonstrates the firm's strong network effect benefiting both users and advertisers.

We believe healthy growth in Google's advertising revenue is no longer just driven by the ongoing digital ad transition onto mobile devices, but also by an increase in video content, which pushes demand for video advertising higher. In our view, YouTube is the main beneficiary of this trend. We believe growth in YouTube advertising and subscription revenue will contribute more to maintain Google's strong double-digit ad revenue growth throughout the next five years.

Ali Mogharabi does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.