Alphabet Inc. (GOOGL) has been a dominant player in the tech industry. However, it faces increased scrutiny from regulators worldwide. Google is set to face trial next week in a second antitrust case, where the U.S. Department of Justice (DOJ) will challenge the company’s methods of monetizing advertising, which prosecutors claim harms news publishers.

This case is part of the Biden administration’s broader push to curb the power of Big Tech through antitrust laws. It follows a significant victory for the Justice Department in a separate lawsuit on August 5, when a judge ruled that Google illegally monopolized online search.

Despite these looming challenges, GOOGL’s financial strength remains undeniable. The company reported better-than-expected revenue and earnings for the second quarter of 2024. Alphabet reported revenues of $84.74 billion, surpassing analysts’ estimate of $84.30 billion. The company’s EPS came in at $1.89, compared to the consensus estimate of $1.84.

Its main revenue drivers—Google Search, YouTube, and Google Cloud—remain robust. The company’s advertising arm, which is at the center of antitrust scrutiny, still accounts for a significant portion of its revenue, and its dominance in digital ads has positioned Alphabet as a key player in the tech ecosystem.

Additionally, Alphabet is well-diversified with its growing cloud business, artificial intelligence (AI) advancements, and other ventures such as Waymo (autonomous driving) and Verily (health technology).

Shares of GOOGL have gained 17.4% over the past month and 15.3% over the past six months to close the last trading session at $156.45.

Let’s look at factors that could influence GOOGL’s performance in the upcoming months.

Outstanding Financials

For the second quarter that ended June 30, 2024, GOOGL’s revenues increased 13.6% year-over-year to $84.74 billion. Its operating income rose 25.6% from the year-ago value to $27.43 billion. Its net income was $23.62 billion, up 28.6% year-over-year. Its earnings per share grew 31.3% from the prior year’s quarter to $1.89 billion.

In addition, the company’s cash and cash equivalents totaled $27.23 billion as of June 30, 2024, compared to $24.05 billion as of December 31, 2023. Its total assets were $414.77 billion versus $402.39 billion as of December 31, 2023.

Favorable Analyst Estimates

Analysts expect GOOGL’s revenue for the third quarter (ending September 2024) to grow 12.5% year-over-year to $86.26 billion. The consensus EPS estimate of $1.84 for the ongoing quarter indicates an improvement of 18.5% year-over-year. Further, the company has surpassed consensus revenue and EPS estimates in each of the trailing four quarters, which is impressive.

For the fiscal year ending December 2024, Wall Street expects Alphabet’s revenue and EPS to increase 13% and 31.5% from the previous year to $347.35 billion and $7.63, respectively. The company’s revenue and EPS for the fiscal year 2025 are expected to grow 11.3% and 14% year-over-year to $386.67 billion and $8.69, respectively.

Solid Historical Growth

GOOGL’s revenue has grown at a CAGR of 17.2% over the past five years. Its EBITDA has increased at a CAGR of 20.9% over the same period, and its levered free cash flow has grown at a CAGR of 16%. Furthermore, the company’s net income and EPS have improved at CAGRs of 20.3% and 23% over the same timeframe, respectively.

Additionally, the company’s total assets have increased at a CAGR of 10% over the past five years.

Robust Profitability

GOOGL’s trailing-12-month gross profit margin of 57.64% is 13.3% higher than the 50.88% industry average. Its trailing-12-month EBITDA margin of 35.18% is 90.5% higher than the 18.47% industry average. Likewise, the stock’s trailing-12-month net income margin of 26.70% is significantly higher than the industry average of 3.24%.

Furthermore, GOOGL’s trailing-12-month ROCE, ROTC, and ROTA of 30.87%, 20.34%, and 21.13% are considerably higher than the industry averages of 3.49%, 3.81%, and 1.37%, respectively. The stock’s trailing-12-month levered FCF margin of 13.40% is 65.3% higher than the industry average of 8.10%.

POWR Ratings Reflect Promise

GOOGL’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. GOOGL has an A grade for Sentiment, in sync with its favorable analyst expectations. In addition, the stock has a B grade for Quality, consistent with higher-than-industry profitability.

Within the B-rated Internet industry, GOOGL is ranked #8 out of 52 stocks.

Beyond what I have stated above, we have also given GOOGL grades for Value, Growth, Momentum, and Stability. Get all GOOGL ratings here.

Bottom Line

While Alphabet’s dominance in search and digital ads has put it in the crosshairs of antitrust regulators, its outstanding financial performance, innovation in AI and cloud, and expansion into new markets make it a compelling long-term investment. Given robust financials and a bright growth outlook, GOOGL could be an ideal investment for potential gains.

How Does Alphabet Inc. (GOOGL) Stack Up Against Its Peers?

While GOOGL has an overall POWR Rating of B, investors could also check out these other stocks within the Internet industry with an A (Strong Buy) rating: Meituan ADR (MPNGY), Dingdong (Cayman) Ltd (DDL), and Travelzoo (TZOO).

To explore more A or B-rated internet stocks, click here.

What To Do Next?

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GOOGL shares were trading at $156.58 per share on Thursday afternoon, up $0.13 (+0.08%). Year-to-date, GOOGL has gained 12.22%, versus a 16.01% rise in the benchmark S&P 500 index during the same period.

About the Author: Mangeet Kaur Bouns

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions. More...

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