Skip to Content
Stock Analyst Update

Alphabet Shows Better Than Expected Revenue in Quarter

Shares of the wide-moat firm are fairly valued today, and we believe it becomes attractive on any pullback.

Mentioned: ,

Alphabet’s (GOOGL)/(GOOG) third-quarter revenue exceeded the S&P Capital IQ consensus estimates, while it missed on the bottom line. In our view, the better-than-expected revenue displays Alphabet’s network effect economic moat source as the firm’s growing ecosystem keeps increasing the usage of its products and services, attracting advertisers and creating further monetization opportunities. Search remained one of the main top line growth drivers as the firm has again enhanced its search offering. The firm’s quarterly results also supported our view that its cloud business may grow impressively while it diversifies Google’s overall revenue. We have not made material changes to our model and are maintaining our $1,300 per share fair value estimate for Alphabet. While this wide-moat name remains a 3-star stock, we believe it becomes attractive on any pullback.

Total third-quarter revenue came in at $40.5 billion, up 20% from last year. Since the firm’s first-quarter revenue miss (with respect to the S&P Capital IQ consensus at the time), it appears that Google is back on track attracting advertisers and users, and comfortably selling its ad inventory, as we anticipated at the time. Advertising revenue increased 17% year over year, as ads sold on the firm’s owned and operated properties, such as YouTube, continued to grow. In addition, further usage of Google’s search, whether on mobile devices or desktops, kept attracting advertisers. The company has improved its search capabilities with further investment in machine learning focusing on natural language processing which helps better interpret a user’s questions or phrases. Google is also trying to further monetize users by providing additional relevant content on the search site to keep users engaged. The firm refers to this as Google Discover (formerly Google Feed).

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.

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

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.