The Best of Big Tech
Alphabet's blowout earnings report... The best of Big Tech... 'Just Google it'... More than online advertising... A framework for sustained growth... Hear more on our Portfolio Solutions Kick-Off Call...
'Googling why Google had such great earnings is why Google had such great earnings'...
There is a lot of truth in this pithy line about Google, the ubiquitous Internet search engine, and how it makes gobs of cash for its parent company Alphabet (GOOGL)...
We'll give credit for the comment to author and wealth adviser Douglas Boneparth, who posted it online yesterday following Alphabet's blowout quarterly earnings report on Tuesday.
If you didn't see it... Alphabet announced fourth-quarter 2021 revenue of $75.33 billion, beating Wall Street expectations... That was a 32% increase from the previous quarter. Similarly, Alphabet's net income rose by 36%...
The growth was credited to strong demand for the online advertising that Alphabet sells, which stems from its dominant position in search.
In other words, small and large companies of many stripes are good with paying Alphabet a premium to land in the top results of a Google search... because the revenue they generate from the customers they attract through advertising brings them significant value.
But here's what I (Corey McLaughlin) really like to hear...
Alphabet, the third-largest publicly traded company in the U.S., said it bought back $13.5 billion of its own shares in just one quarter... and $50.3 billion in 2021. That means each share got roughly 1.5% more valuable, given the company's nearly $2-trillion market cap.
Lastly, Alphabet also announced plans for a 20-for-1 stock split to occur July 15 for folks who own Class A, B, or C shares as of July 1... The idea is that a single share would cost less than $200, making it more accessible than a $3,000 price tag.
We don't hand out glowing company-specific comments frequently in the Digest, but we will today...
This is one of the most blatantly impressive earnings announcements I have seen in a while... and Alphabet shares popped roughly 10% higher after hours on Tuesday following the report being made public... a move you don't see too often.
Even after the tech sell-off the last two months, shares of Alphabet are already back near all-time highs... and even set a new intraday high yesterday, topping $3,000 before selling off slightly to its $2,900-ish price as of today's close.
For the calendar year 2021, Alphabet's revenue totaled a record $258 billion, double the number from just four years ago. Those are pretty astounding results...
These numbers signal real strength for Alphabet... a nice story in a jittery market concerned about higher interest rates and slowing economic growth.
There seem to be fewer concerns with Microsoft (MSFT) and Apple (AAPL), though feelings are mixed depending on who you ask.
Facebook-parent Meta Platforms (FB) saw its shares drop 26% over the last 24 hours... and streaming company Netflix (NFLX) shed 20% last week, after each company forecast slowing revenue growth expectations.
As our Stansberry NewsWire editor C. Scott Garliss wrote today, questions abound about if Amazon (AMZN) can keep growing as it has been... The company said late today that its revenue grew 9% in the fourth quarter of 2021.
Meanwhile, Alphabet's results have no doubt fueled positive sentiment around the idea that its shareholders will be rewarded for months and years to come... And our research team agrees.
In fact, our Director of Research Matt Weinschenk told us this yesterday... "Alphabet is one of the strongest positioned of the big tech companies"... more than the other FAANG stocks you've come to know over the years.
Today, I'll share a little bit about why that is... and how you can hear more from Matt and our team about where and how a company like Alphabet may fit in your portfolio.
First, though, a little background...
Of course, the search engine part of Google is so dominant that it is a verb...
"Just Google it."
It has been this way for more than a decade...
Like "Xerox it" once was widely used to mean "make a copy"...
Many people in many corners of the world don't give a second thought going to Google.com to find information about anything – "earnings" or "Is quinoa gluten-free?" or "When does hurricane season end?"
If you use Google, you know this already...
But what most people don't think about is what puts these "verb companies" front and center in millions of people's lives?... And more important for anyone interested in long-term investing like us... what keeps them there year after year, rewarding shareholders?
That answer is quite often a mixture of the right idea, executed by the right people, in the right place at the right time...
It also boils down to sustained growth...
This is the difference between companies that grab headlines for a few months and then fade into obscurity (or to the 10th page of a Google search)... like Peloton Interactive (PTON)... compared with greats like Alphabet or Hershey (HSY).
Forward-thinking leadership that pushes revenue growth in the right places allows a company the flexibility to invest excess free cash flow to keep growing...
As Matt told us in a private note yesterday...
First, the question overhanging Alphabet had been how long it could continue to grow revenue at 20% a year. Companies of this size tend to find it hard to grow at that rate. And then Alphabet comes in with 32% growth.
The key is that not only is Alphabet growing, but the online-advertising market continues to grow at a rapid clip. And when you study the customer experience, Google's customers earn strong returns on their advertising investment.
Matt said that "long-term projections come with a lot of uncertainty," but that our team thinks Alphabet can continue to grow at 20% a year for at least five years... and then continue at double-digit growth for five years after that.
Remember, Alphabet is not just an online-advertising business...
It is also one of the largest players in cloud services, an essential tool for many good businesses today, and it is continuing to invest in the space. As Matt said...
Alphabet's cloud business grew 44% over last year. And while advertising has been a great business, we think cloud is only in the early stages of being a huge growth story.
We're also reminded of something our colleague Matt McCall told us upon his arrival at Stansberry Research last fall... He said Alphabet is also an artificial intelligence ("AI") company, based on how it gathers and processes data and shares it with the right audiences... Think of this next time Google shows your desired search before you finish typing it.
Regulatory concerns also haven't seemed to dampen the company's bottom line.
As Scott pointed out in a private e-mail to us, one additional advantage Alphabet has in the market is that it runs its own Android operating system.
This is notable because of changes last year to Apple's iOS platform, which have allowed app users to "opt in" to having their data collected, instead of needing to "opt out" by default.
Because Alphabet controls its own digital ecosystem – with Google search, Gmail, and Android phones, for example – Apple's changes have not hindered Alphabet's efforts to collect and monetize user data as much as other companies have been impacted.
Facebook has been hurt by this move, as its apps are very popular on Apple's systems like iPhones... Since the change by Apple, only 24% of iPhone users around the world have consented to being tracked by advertisers, analytics company Flurry said last month.
Executives for Facebook parent-company Meta said last night during the company's earnings call that it expects to lose $10 billion in revenue because of Apple's changes. As NewsWire analyst Daniel Smoot wrote yesterday...
Several months ago, AAPL introduced an update that made it more difficult for apps on its devices to monitor users' data.
This has put significant pressure on FB, as it relies on this information to curate advertisements and generate cash. So, while FB has taken steps to adapt to the changes and diversify its revenue streams, we'll likely see the social media company further struggle over the near term.
There's a difference between short and long term, though...
To be clear for longtime readers and subscribers to our flagship Stansberry's Investment Advisory newsletter, our team remains bullish on Meta Platforms in the long run as it starts to pivot toward the metaverse.
Read why – and how, like Alphabet, it can afford to make a big shift like this – in a special report we published just yesterday.
There is something to be said about 'culture,' too...
One of our favorite things to point out about Alphabet is that it has long had an "Other Bets" portion of its company... Currently this includes self-driving-car business Waymo and the life-sciences unit Verily...
Alphabet also famously allocates a percentage of time each week for employees to work on new projects that don't necessarily fall into their job description.
Because of its growth, it can afford to place big, forward-thinking bets. This is the same spirit of innovation that led Google to buy YouTube in 2006 when the video-sharing site had fewer than 70 employees.
Today, YouTube.com is the second-most-viewed website in the world... behind only Google.com.
And YouTube is a business arm that itself is larger than most publicly traded U.S. companies. Alphabet bought YouTube for $1.65 billion now 16 years ago, which today looks like a great deal as ever.
YouTube ad sales hit $8.6 billion in the fourth quarter of 2021, which was up 25% year over year and topped all of Netflix's revenue for the same quarter.
We'll keep tabs on Alphabet, but if you want to hear more, I have some great news...
Hopefully by now you've read at least some of our messages about our Portfolio Solutions products. If not, you can hear the details here in a new presentation from Matt, True Wealth editor Steve Sjuggerud, and Retirement Millionaire editor Dr. David "Doc" Eifrig.
I can tell you that on Monday, new and existing Portfolio Solutions subscribers and Stansberry Alliance members will have the chance to hear more about Alphabet in a special Portfolio Solutions Kick-Off Call...
Even before the latest, glowing earnings report, Matt, Scott, and senior analyst Brett Eversole planned to talk about the company while walking everyone through our Portfolio Solutions products... and how to use them.
If you're a newbie to Portfolio Solutions, don't miss this introductory call... And if you simply want to hear more from our expert research team, be sure to keep an eye on your inbox for more details on how to join this Kick-Off Call on Monday.
To do so, you need to be a Portfolio Solutions subscriber. If you are not, there is still time... You can learn more about our portfolio-management product, why we started it five years ago, and how to take advantage of a special offer here.
History Can Tell Us a Lot About Our Future
In the latest episode of Making Money With Matt McCall, Matt put together a special presentation that explains why now is a great buying opportunity in the market. In short, history tells him so...
Matt highlights statistics you've likely never heard of – including a series of data points and charts that compared market action over the last several decades with what just happened in January.
This is just the sort of idea that all long-term investors (and short-term traders) should hear right now...
Click here to watch or listen to this episode right now. And to catch all of Matt's shows and more videos and podcasts from the Stansberry Research team, be sure to visit our Stansberry Investor platform anytime.
New 52-week highs (as of 2/2/22): AbbVie (ABBV), Bunge (BG), Continental Resources (CLR), Enstar (ESGR), Freehold Royalties (FRU.TO), Cheniere Energy (LNG), McCormick (MKC), Mosaic (MOS), Osisko Mining (OBNNF), Raytheon Technologies (RTX), Shell (SHEL), Suncor Energy (SU), Travelers (TRV), United States Commodity Index Fund (USCI), W.R. Berkley (WRB), and SPDR S&P Oil & Gas Exploration & Production Fund (XOP).
In today's mailbag, a few questions are trickling in about our annual Report Card. In short, it's about that time... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.
"Please send me the 2021 Report Card (if available)." – Paid-up subscriber Jim G.
Corey McLaughlin comment: It is not yet available, but we expect to publish the first part of our annual Report Card tomorrow, here in the Digest. Our publisher Brett Aitken is putting the finishing touches on it as we speak. So keep an eye out for that.
Until then, I can tell you this year, like last year, the Report Card will arrive in several parts, given the number of publications we have these days.
If you don't see the grade for a specific publication that you are looking for one day, please be patient... By the time all is said and done, Brett will cover everything... and we will share links to all the pieces here.
For those who don't know, our annual Report Card is an in-depth review of the performance of our editors' various newsletters and portfolios, a yearly self-grading exercise started by our founder Porter Stansberry that you won't find anywhere else in our business.
It quickly became one of the more anticipated things we do each year.
All the best,
Corey McLaughlin
Baltimore, Maryland
February 3, 2022