Alphabet Inc. (NASDAQ: GOOGL), parent of Google, YouTube and a small army of other business, sports a stock price of $996, and it is poised to hit the $1,000 a share mark, as Amazon.com Inc. (NASDAQ: AMZN) has just done. The question about whether Alphabet can get there, and stay there, relates to its non-Google, non-search businesses.
Alphabet’s revenue in the March quarter rose 22% to $24.8 billion. Google ad revenue was $24.1 billion of this. The balance was “other revenue” and “other bets.” Buried among these are Alphabet’s cloud business, its artificial intelligence operations, it Waymo driverless car business, Android, Google Play and other operations that are rarely talked about in public.
Alphabet’s core search business dominates the online ad industry, along with Facebook Inc. (NASDAQ: FB). The primary challenge to each of these is whether internet-based advertising will continue to grow well into the double digits. As some point, like broadcast and print, it has to slow. As that day comes, Alphabet’s valuation becomes more difficult to defend. The $1,000 stock price gets harder to hold.
When Alphabet announced its latest earnings, Chief Financial Officer Ruth Porat said:
Our excellent results represent a terrific start to 2017, with revenues up 22% versus the first quarter of 2016 and 24% on a constant currency basis. We clearly continue to benefit from our ongoing investments in product innovation and have great momentum in our new businesses across Alphabet.
She neglected to mention that, in her own numbers, search represented the lion’s share and other businesses nearly nothing.