Alphabet 4Q and full year numbers

Alphabet, the company formally known as Google reported numbers after the market close last evening. I am pretty sure that you have read the headlines already, Google overtakes Apple as the most valuable company in the world is what they read. And of course that is true, as of the close last evening Apple had a market capitalisation of 539 billion Dollars (the trillion Dollar curse), whilst Alphabet, and this is knowing your ABC's, was at 517 billion Dollars. In the aftermarket however, Google is up just over four percent, which means that it is touch and go as far as to which company is bigger. Of course this is always on paper, the stock, Google that is (we will continue to use it interchangeably, Google and Alphabet), is in unchartered territory. And I remember not so long ago that the chattering classes were referring to Google as a one trick pony, they were losing their mojo, and, and, and .....

Well, the company has certainly proven their critics wrong. This time (this very day) last year in an analysis titled Google 4th Quarter and full year results, we were bemoaning the fact that the company had significantly underperformed the index, notwithstanding being trounced by their peer grouping. The company was really about as cheap as it ever was on a fundamental basis, trading at around 22 times forward, the current multiple (historical) is comfortably over 30. Some may argue that is pretty expensive, and it is on a relative basis. On a price to sales basis, the stock trades at half the same multiple, when applied to Facebook, certainly Mr. Market is applying a significant premium to Facebook over even Google.

Here we are, the Fourth Quarter and Fiscal Year 2015 Results from Alphabet. There is a certain quirkiness to this business and their reporting, they certainly do not conform to most standards, perhaps the business is trying in their own way to break the mould. They present the core business and then the "other bets" revenues which is a mere 0.6 percent of total revenues, yet incurs a sizeable loss.

Other bets means businesses not named Google and therefore refers (and this is the way that it is interpreted) as Fiber, Nest (home automation) and Verily (the health business). Total revenue from those three is less than half a billion Dollars, yet collectively the cash burn there is astonishing, these businesses as a collective recorded a 3.6 billion Dollar loss. The Google core business can certainly carry the "other bets" for a long time, the core Google business generated 74.5 billion Dollars in revenues, operating income was an equally impressive 23.4 billion Dollars.

The results at face value seem to have pleased the market a lot, they are now, as we said, the biggest company in the world. We will revisit and continue to do some analysts on the business over the coming days, we continue to accumulate was is an amazing opportunity, the stock may look a little pricey, I suspect that the opportunities for them to morph into a multiple trick pony still exists. Deeper analysis will confirm that we are still conviction buyers at these elevated levels.