Alphabet Stock Investors Need to See These Numbers | GOOG Stock Deep Dive Part 6

Añadido: 2026-05-11

[00:00:00]In part six of my deep dive into Alphabet stock, we're going to get deeper into the numbers. So far in this series, we've dived deeply into the qualitative factors and some of the insights into artificial intelligence.

[00:00:14]And it's now time to look at the actual numbers.

[00:00:17]I want to thank The Motley Fool for sponsoring this video. Visit fool.com/par Kev for the 10 best stocks to buy now. Overall revenue for the company reached a hundred and ten billion dollars, which was up 22% year over year.

[00:00:33]The figure in and of itself, the revenue growth rate was several percentage points higher than what I was expecting.

[00:00:41]I was expecting something closer to 16% or or 15% even revenue growth for the quarter. So the hundred and ten billion-dollar figure was higher than what I was expecting.

[00:00:53]Also, I was encouraged by the fact that the search business is now approaching less than 50% of the overall business.

[00:01:04]That will be an important milestone if Alphabet is able to do that. That will spread the company's revenue and business across wider base and less risky because AI is threatening the search business as we talked about in I believe it was the previous video.

[00:01:23]And I was also impressed that Alphabet was able to increase its revenue without increasing spending by as much. And that's something that Meta Platforms disappointed investors with. They generated more revenue growth at 33% versus 22% for Alphabet, but Meta also spent a lot more money to generate that revenue growth.

[00:01:47]For Alphabet, its total cost of revenue was up by less than what revenue increased. It was up by 14% to 41.3 billion.

[00:01:58]Its total operating expenses were up 24% to 28.9 billion.

[00:02:04]So you could think of cost of revenue as as gross profit for Alphabet and then its operating expenses are like any other company's operating expenses. But since Alphabet is a digital business, the discerning its gross profit margin is a little bit more complicated and I like to look at the business holistically.

[00:02:28]Interestingly, research and development spending increased by 26%.

[00:02:33]And I'm seeing this across the board with tech companies really expanding their research and development expense.

[00:02:40]And it's because they see opportunity here with AI and other tech categories.

[00:02:45]I don't think I've seen tech companies increase their spending by this large a magnitude in a really long time. Even Apple in the most recently completed quarter really boosted their R&D expense. For the first time since I've been covering Apple, which is almost a decade now, maybe maybe it is a decade now that I've been covering Apple. I don't think I've ever seen Apple's R&D expense exceed 10%, which it did in the most recently completed quarter. So a really enthusiastic environment from tech leaders in the spending on R&D.

[00:03:23]And given that all of these, you know, including Apple and the other big cap tech companies, they've been effective allocators of capital. They don't waste money.

[00:03:35]Or at least overall, it doesn't look wasteful. There is some waste in their system undoubtedly for every company.

[00:03:42]But what I mean by that they don't waste money is in aggregate, if you look at their returns on invested capital, they all generate very strong returns on invested capital.

[00:03:53]Which means from an investor standpoint, when you see companies that are good at allocating capital, increasing their amount spending, you can reasonably assume that they see a good opportunity and they're not just blowing away money. Overall operating income increased by 30% to 39.7 billion.

[00:04:14]And if you divide their operating income of 40 billion by their revenue of 110 billion, you could see a very healthy operating profit margin of 36.1%.

[00:04:26]Additionally, other income jumped to 37.7 billion dollars, representing a meaningful increase primarily due to unrealized gains in their non-marketable equity securities. So you've been hearing a lot about the circular financing among these big cap tech companies, one investing in another, you know, Alphabet investing in Anthropic, Anthropic purchasing Alphabet chips, Alphabet investing in OpenAI, OpenAI purchasing Alphabet computing and etc. etc. Well, part of those investments have soared in valuation and so Alphabet is reaping the benefits of some of their investments in some of these other companies and that's resulting in an increase in other income for Alphabet in the most recently completed quarter.

[00:05:21]Their cash flow in the most recently completed quarter, 45.8 billion dollars.

[00:05:27]And for the trailing 12-month period, a whopping 174 billion dollars.

[00:05:34]This is why I've been so bullish on some of these big cap tech companies is for the longest time these companies were generating these massive amounts of cash flow and they didn't really have anywhere to invest this capital. They were just putting it in the bank account or in a money market account or short-term government bonds, which generate, you know, three, four, maybe 5% if they're lucky, interest income.

[00:06:01]But now with artificial intelligence, these companies see an opportunity to pour these billions of dollars in and receive a very strong return on invested capital. So in that regard, capital expenditure in the most recently completed quarter was 35.7 billion dollars, still below the cash flow from operations they generated. So overall free cash flow came in at 10 billion dollars in the first quarter and 64 billion dollars for the trailing 12 months. So even after all of this money they're putting into AI, even after spending 36 billion dollars in the quarter on their data centers, on artificial intelligence, they still had 10 billion dollars left over.

[00:06:48]That's extremely positive. And the balance sheet is still healthy even though they're borrowing a lot more money. I know a lot of investors are concerned that the big cap tech companies are borrowing a lot of money, but their balance sheets are still healthy, which means they can still borrow money at very, very low interest rates. And so this is a benefit for the company to be able to borrow money at these low interest rates and it's a benefit to investors because it lowers their overall weighted average cost of capital.

[00:07:19]You can see I used the capital asset pricing model to calculate Alphabet's cost of equity and that calculation led to a cost of equity about 10 and a half percent.

[00:07:32]But I estimate that Alphabet's after-tax cost of debt is 5 and a half percent, so almost half of their cost of equity.

[00:07:42]Which means the more money they borrow, the more it decreases the company's weighted average cost of capital, which is the denominator in what I use as the discount rate to discount all of their cash flow I expect them to generate between today and the very, very long run, which the present value of is approaching almost four trillion dollars.

[00:08:06]So this is an important step in the company's ability to lower their weighted average cost of capital, which increases the valuation of the company.

[00:08:17]And even after borrowing 77 and a half billion dollars in long-term debt, they have 127 billion dollars in cash and marketable securities. So they still have more cash equivalents than they do in long-term debt, which anytime you have this kind of balance sheet, you're able to borrow a lot of money at very low interest expense. So not only do they have a balance sheet that has more cash equivalents than long-term debt, they also have a business that generated 174 billion dollars in cash flow from operations. And these are characteristics that allow Alphabet to borrow money very, very cheaply when compared to all other businesses worldwide. So we're almost near the end here. One more video to go. The link is popping up on your screen below. Click on that link and I'll see you there for the next part and the final part of our deep dive into Alphabet stock.