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Google Parent Navigates Shift Toward Mobile Computing With Aplomb

We plan to modestly increase our fair value estimate for wide-moat Alphabet.

Revenue growth and margins across Alphabet's primary advertising ("Google") businesses were solid, as revenue grew 13% (23% on a constant currency basis), while operating margins improved 300 basis points to 25.2% after adjusting for a nonrecurring impairment charge in 2014. We believe that Google's control of foundational assets including Android and YouTube are allowing the company to enjoy similar economics and market share in digital advertising, even as consumers are spending an increasing amount of time on mobile devices. Google has 1.4 billion Android users, more than 1 billion Google Play users, and more than 1 billion YouTube users. Individually, each product has wide moat characteristics, but Google's ability to integrate customer data across these platforms and tie to search behavior is robust and defensible, in our view. We see no signs that the shift toward mobile computing is disrupting Google's business.

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About the Author

Rick Summer

Strategist

Rick Summer, CFA, CPA, is a technology strategist for Morningstar, responsible for Internet and technology research. Before assuming his current position in 2014, he was a senior equity analyst. He joined Morningstar in 2005 as an equity analyst, covering software and Internet companies. He has operating experience in the wireless and software infrastructure industries and has worked as a private equity investor for UBS Global Asset Management.

Summer holds a bachelor’s degree in business administration from Emory University and a master’s degree in business administration from the University of Chicago Booth School of Business. He also holds the Chartered Financial Analyst® designation and is a Certified Public Accountant (CPA).

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