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Alphabet Earnings: Google’s Parent Firing on Almost All Cylinders

October 27, 2016, 10:26 PM UTC
Photograph by Getty Images

It’s not easy being Alphabet. Sure, the holding company that owns Google—among many other things—has a market value of about $550 billion, and its stock is close to its all-time high. But Apple, its nemesis, is still worth significantly more.

That said, the playing field between the two does seem to be leveling off a bit, as Apple (AAPL) loses some of its luster due to slumping iPhone sales.

While its Cupertino-based competitor seems to have hit a ceiling (at least in the short term), Google’s new Pixel flagship has been getting fairly good reviews for its technical specs, especially the camera, which has been an Achilles heel for Android.

Optimism about Pixel has been helping buoy Alphabet’s stock (GOOG), and the shares got another boost on Thursday when the company turned in better-than-expected earnings, including a profit of $5.7 billion, up 20% compared with the same period last year.

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Advertising rates on mobile are much lower than desktop, which has affected Google’s revenue from search-based ads. But the company has managed to generate more views and clicks, so it has made up the difference on volume (whether it can continue to do so remains to be seen).

In addition, Alphabet also seems to be trying to rein in some of its more ambitious—and expensive—bets out of what appears to be a new-found commitment to frugality.

Although the company is often seen as the home of moonshots like Project Loon (the plan to provide Internet access to remote regions using dirigibles), there are signs that controlling shareholders Larry Page and Sergey Brin are trying to downsize somewhat.

The company recently announced that Google Fiber, its ambitious attempt to bring high-speed Internet access to towns and cities across the U.S., is being scaled back dramatically.

Google Is Holding Off on Expanding Google Fiber

The service is available in a handful of cities, and that will continue. But Alphabet announced that there will be no new rollouts, despite plans to broaden the reach of the project, and there will be layoffs among the Google Fiber staff. CEO Craig Barratt has also left the company.

At one point, projects like Google Fiber and the Loon were seen as evidence of the company’s boundless ambitions, and its willingness to spend the river of cash produced by its virtual monopoly on search advertising. But CFO Ruth Porat seems to be trying to get the giant to focus.

The goals for the future are to push Pixel as a competitor to iPhone, push Google Home as a competitor to Amazon’s Echo, and promote its Google Assistant as a competitor for Siri.

The only thing Google doesn’t have is something that will allow it to compete with Facebook, whose market cap is smaller than Google’s, but not by much. The search giant was seen by many as a potential buyer for Twitter (TWTR), but recent reports said it was not interested—or perhaps it is just waiting for the price to get cheaper.