Alphabet Inc. GOOGL, -1.23% is doing a victory lap for the stock market, generating big returns for investors who bet on some expensive new financial practices alongside record amounts of money made selling advertisements. Following a short lull in its stock price this year, the tech titan is showing once again why it’s a long-term growth story to keep an eye on.
Alphabet Returns to the Bond Market With $4 Billion Offerings
Alphabet is tapping the U.S. corporate bond market for the first time since 2020, with the $4 billion offering planned for Wednesday, April 28. The debt sale will be divided among as many as four tranches, including a 40-year bond that is likely to offer a yield of roughly 1.00% to 1.05% more than U.S. Treasury rates.
The company is also gearing up to sell its first-ever Euro-denominated bonds, which would range in maturity up to 29 years. That would be one of the longest corporate bonds sold in Europe this year, behind only Johnson & Johnson’s €1 billion 30-year issue.
With wider market volatility putting many corporate issuers on the sidelines recently, Alphabet’s aggressive bond moves are striking. Other giants, such as Procter & Gamble and D.R. Horton, are also set to tap the market, but Alphabet’s re-entry speaks to confidence in the balance sheet and growth prospects going forward.
Search and Cloud Drive Q1 SPIKE
Alphabet’s bond approach is supported by robust financials. Google’s search engine business, however, turned in a 10% gain in revenue to $50.7 billion in the quarter, confounding doubters. It included growth in areas such as insurance, retail, health care and travel, underscoring the resilience of search advertising even during uncertain economic times.
New features such as “circle to search,” an option now available for Android users that makes it possible to conduct visual searches by highlighting the desired object, also have driven user engagement. Use of this tool grew by 40% quarter-over-quarter at Alphabet, which also announced that the tool now has 1.5 billion monthly users of its AI Overviews — a feature that’s moving ever more to the center of its monetization strategy.
Google Cloud: The Secret Empire
Even as search remains a steady money-spinner, Google Cloud has become Alphabet’s fastest-growing division. Revenue was up 28% compared to a year ago, at $12.3 billion in Q1, while operating income jumped 142% to $2.2 billion. Its Google Cloud Platform (GCP) business, of which AI infrastructure and generative AI services are a part, grew faster than its overall cloud business.
Alphabet has noted that cloud growth may be lumpy in the course of the year because of capex constraints. Yet it is pursuing this aggressively with an astronomical $75 billion in capital expenditures to increase data centers and AI capabilities around the world.
YouTube, Waymo Also on the Move
YouTube had another strong quarter: Ad revenue rose 10 percent to $8.9 billion. Subscriptions and device-related revenue — which includes Google One cloud storage — surged 19% to $10.4 billion, fueled in part by YouTube’s title as the leading U.S. the streaming destination for the second year in a row.
It comes as Alphabet’s autonomous driving arm, Waymo, is growing quickly. The company now provides 250,000 paid robotaxi rides per week, a five-fold increase on the year, and is planning to expand to Atlanta later this year, and to Miami and Washington D.C. by 2026.
Is Alphabet Stock a Buy?
Despite a 15% pullback in GOOGL stock this year, Wall Street likes what it sees. Based on 39 analysts polled in the last 3 months, 29 rate NIO stock a Buy, 10 say Hold and none issue Sell. The average 12-month price target of $198.59 implies a 24% upside potential from current levels.